Valero Energy Corporation (VLO.US) Q3 Earnings Call: Management Optimistic About the Sustainability of Cracking Spreads, U.S. Gulf Coast Refineries' Raw Material Cost Advantage Stands Out

Valero Energy Corporation (VLO.US) Q3 Earnings Call: Management Optimistic About the Sustainability of Cracking Spreads, U.S. Gulf Coast Refineries' Raw Material Cost Advantage Stands Out U.S. refining giant Valero Energy Corporation (VLO.US) reported its earnings before the U.S. market open on Thursday. The energy giant's record third-quarter profit underscores how constrained global refined product supply amid the geopolitical conflict situation in GEO Group Inc is translating into profit and cash flow advantages for U.S. refiners. Valero Energy Corporation's revenue and adjusted earnings per share both significantly exceeded market consensus expectations. The financial report shows that in the third quarter of 2026, the company achieved revenue of $46.098 billion, up 43.3% year-over-year from $32.168 billion in the same period last year, and about 7.9% above the $42.710 billion market expectation compiled by MarketBeat. Group operating income increased from $1.509 billion in the same period last year to $9.073 billion, up 501.3% year-over-year; net income attributable to shareholders increased from $1.095 billion to $6.828 billion, up 523.6% year-over-year. Adjusted diluted earnings per share (EPS) reached $23.90, up 553.0% from $3.66 in the same period last year, and about 13.4% above the $21.07 expectation compiled by LSEG. The refining business was the core DRIVE behind this round of earnings leap. The segment's third-quarter operating income reached $8.782 billion, up 445.5% from $1.610 billion in the same period last year. Other businesses improved in tandem: the renewable diesel business turned from a loss of $28 million in the same period last year to a profit of $353 million; the ethanol business achieved operating income of $272 million, up 48.6% from $183 million in the same period last year. Profit growth also translated into cash inflowthe company's operating cash flow in the third quarter reached $6.932 billion, up 268.5% year-over-year from $1.881 billion in the same period last year, indicating that this round of refining prosperity has significantly strengthened the company's cash generation capability, providing funding support for capital investment, shareholder returns, and debt repayment. The following is the full transcript of the IBM earnings call (translated with the assistance of AI tools): I. Executive Remarks Lane Riggs, CEO and Chairman: In the third quarter, the business teams across all reported segments executed excellently. The market volatility and low refined product inventory conditions that appeared last quarter continued into the third quarter. The team focused on execution, with refinery utilization rates near historical highs, continuously ensuring market supply of critical transportation fuels. The ethanol segment achieved record quarterly production in the third quarter, both ensuring fuel supply and contributing to overall performance. Financially, the company remains solid. During the quarter, we continued to fulfill long-term shareholder commitments while strengthening cash reserves. Looking ahead, we maintain a constructive view of the business's long-term prospects. Refining fundamentals remain favorable, supported by low refined product inventories, limited refining surplus capacity, and sustained transportation fuel demand. Compared with other regions globally, the United States is favorably positioned in the current market environment, and the U.S. Gulf Coast remains one of the most advantaged regions in the world, benefiting from ample domestic crude oil production and competitively priced feedstock supply. Combined with our strategically located refining system and the flexibility of our commercial teams, these advantages support our ability to respond to market changes and customer demand resilience. Regarding strategic capital projects, in the third quarter we completed the FCC unit optimization project at the St. Charles refinery on time and within budget. This $230 million investment has already increased production of high-value products, including alkylate and gasoline. We will continue to evaluate additional strategic opportunities to further strengthen the competitiveness and long-term value of our refining system. But while evaluating these opportunities, we remain committed to the rigorous investment process that has worked well for more than a decade. Overall, third-quarter results demonstrate the quality of our assets and our consistent operational, commercial, and financial performance, which is the result of more than a decade of adherence to our long-term strategy. I will now turn it over to Homer. Homer Bhullar, Senior Vice President and CFO: In the third quarter of 2026, Valero's net income attributable to shareholders was $6.8 billion, or $23.89 per share; in the same period last year, it was $1.1 billion, or $3.53 per share. Excluding the adjustment items listed in the financial statement schedules, third-quarter adjusted net income attributable to shareholders was $6.8 billion, or $23.90 per share; in the same period last year, it was $1.1 billion, or $3.66 per share. The refining segment's third-quarter operating income was $8.8 billion, compared with $1.6 billion in the same period last year; third-quarter refining throughput was 3 million barrels per day; refining cash operating cost was $5.03 per barrel. The renewable diesel segment's third-quarter operating income was $353 million, compared with an operating loss of $28 million in the same period last year; renewable diesel sales volume was 3.4 million gallons per day. The ethanol segment's third-quarter operating income was $272 million, compared with $183 million in the same period last year; ethanol production was 4.8 million gallons per day. Third-quarter general and administrative expenses were $308 million, depreciation and amortization expenses were $684 million, net interest expense was $144 million, income tax expense was $2.1 billion, and the effective tax rate was 23%. Third-quarter net cash provided by operating activities was $6.9 billion, including a $526 million unfavorable impact from working capital and a $205 million adjustment to adjusted net operating cash corresponding to the shares of other DGD joint venture partners. Excluding the above items, third-quarter adjusted net cash from operating activities was $7.3 billion. Regarding investing activities, third-quarter capital investment was $432 million, of which $371 million was for sustaining the business (including turnaround, catalyst, and compliance-related costs), and the remainder was for business growth. Excluding capital investment corresponding to the shares of other DGD joint venture partners and other variable interest entities, Valero's attributable capital investment was $429 million. Regarding financing activities, we adhered to a rigorous capital allocation framework, with cash returned to shareholders corresponding to a 52% payout ratio for the quarter. In the third quarter, we also repaid the outstanding principal of the $100 million bond maturing in July and the $426 million bond maturing in September; another $146 million will mature later this year and will be repaid with proceeds from bonds we proactively issued in the first quarter under a low interest rate environment. Regarding the balance sheet, total debt at quarter-end was $8.6 billion, finance lease liabilities were $2.4 billion, and cash and cash equivalents were $9.8 billion. As of September 30, 2026, the debt capitalization ratio excluding cash was 4%, reflecting cash accumulation this year. Although the long-term cash target of $4 billion to $5 billion remains unchanged, we continue to maintain cash above the upper end of that range to preserve flexibility in a volatile market environment, consistent with the message communicated throughout the year, while fulfilling our dividend commitment. Overall, the company was well capitalized at quarter-end, with an additional $5.3 billion of liquidity beyond cash. Regarding guidance, we still expect 2026 Valero-attributable capital investment of approximately $2 billion, including turnaround, catalyst, compliance, joint venture investments, and the estimated cost of repairs to the DHT unit at the Port Arthur refinery, of which approximately $1.7 billion is for sustaining the business and the remainder for growth projects. Repairs to the Port Arthur DHT unit remain on schedule to be completed before year-end, with total repair cost estimated at approximately $250 million, already included in sustaining capital guidance; as previously guided, most of the cost is expected to be covered by insurance, and the refinery continues to operate at normal throughput during the period. Growth projects continue to focus on shorter-cycle opportunities to enhance crude and product flexibility, optimize product slate value, and maximize utilization of existing conversion capacity. At the same time, we continue to advance efficiency and expansion projects at our ethanol plants, and these investments should enhance asset profitability. For fourth-quarter operational modeling, we expect refining throughput in the following ranges: U.S. Gulf Coast 1.855 million to 1.905 million barrels per day, Mid-Continent 440,000 to 460,000 barrels per day, West Coast 100,000 to 110,000 barrels per day, and North Atlantic China Welding Consumables, Inc. 480,000 to 500,000 barrels per day. Fourth-quarter refining cash operating cost is expected to be approximately $4.85 per barrel. The renewable diesel segment's fourth-quarter sales volume is expected to be approximately 325 million gallons, with operating cost of $0.53 per gallon, including non-cash costs such as depreciation and amortization of $0.23 per gallon. The ethanol segment is expected to produce 4.9 million gallons per day in the fourth quarter, with average operating cost of $0.38 per gallon, including non-cash costs of $0.04 per gallon. Fourth-quarter net interest expense is expected to be approximately $135 million, and total depreciation and amortization approximately $700 million. Finally, 2026 general and administrative expenses are expected to be approximately $1.1 billion. II. Q&A Session Sam Margolin, Securities Analyst, Wells Fargo & Company: Crude Spreads and Freight Is the recent extraordinary movement in crude spreads a cyclical phenomenon driven by freight, or a structural change brought about by increased heavy crude supply? Randy Hawkins, Vice President of Crude and Feedstock Supply and Trading: The market remains extremely volatile, with Middle East events and global trade flows being the focus of daily attention. Over the past few weeks, crude flows through the Strait have continued to rise, and media reports indicate that last week's volumes were already above pre-war levels, in addition to recent Strategic Petroleum Reserve (SPR) releases. Overall, whether in terms of spreads or trade flows, crude supply in the market is quite ample. The main theme in the current market is freight. As flows through the Strait increase, inefficient ship-to-ship transfer operations in the Gulf of Oman are tying up global capacity, requiring more tankers to transport the same crude; combined with insurance risk premiums, transfer delays, and higher bunker costs, this is pushing freight higher. Taking Very Large Crude Carriers (VLCCs) as an example, the cost of transport from the U.S. Gulf Coast to Asia now averages $30 to $35 per barrel, compared with an average of about $5 per barrel in 2025. Rising freight is evident across all global markets and vessel types, especially for heavy crude transport, causing severe dislocation in global crude pricing: refiners seek nearby procurement, and sellers are forced to cut prices to offset freight. For us, our main capacity is concentrated on the U.S. Gulf Coast, with access to a wide range of crude grades and qualities, and it has now become a major crude export hub. Because crude must be priced for export, the sharp rise in freight has forced discounts across grades to widen, making the U.S. Gulf Coast one of the cheapest crude cost locations in the world, especially for heavy sour crude. Relative to Asia, the U.S. Gulf Coast has a freight advantage in sourcing heavy crude from Latin America, and the discounts on these foreign crudes must also compensate for the sharp rise in freight. As Lane said, the U.S. Gulf Coast remains one of the most advantaged crude markets in the world, and this round of freight increases further reinforces that. Looking ahead, we maintain a constructive view of the long-term outlook for crude spreads, because incremental supply is expected to be predominantly heavier, more sour crude, especially from Canada, Venezuela, and the Middle East, which further supports the value of our complex U.S. Gulf Coast system. Sam Margolin, Securities Analyst, Wells Fargo & Company: Cash Position and Balance Sheet The company holds a large amount of cash, and even at Treasury rates that is a meaningful number. Is the current high cash position a short-term point-in-time condition, or does management intentionally maintain an unusually high cash position over the long term to preserve flexibility? Homer Bhullar, Senior Vice President and Chief Financial Officer: The original intent of accumulating cash starting early this year was to prudently manage commodity price volatility. When commodity prices fall rapidly, it is usually accompanied by outflows of working capital and cash, and we want to ensure that even with significant cash outflows, our ability to return cash to shareholders would not be constrainedand indeed we would want to return cash to shareholders even more forcefully in that scenario. With the environment still constructive, we are comfortable with the current dividend level, continuing to maintain a payout above 50% and continuing to accumulate cash. There is very little debt maturing over the next year or soabout $150 million later this year and just over $500 million next yearso flexibility is ample. At the same time, we will not change the way we invest capital just because we have ample cash. In short, there are limited other uses for the cash; although volatility has not fully subsided, if volatility returns and we gradually move toward the long-term cash target of $4 billion to $5 billion, we have the ability to return cash to shareholders more aggressively. In any case, the long-term cash target has not changed, and the accumulated excess cash will ultimately be returned to shareholders. Manav Gupta, Analyst, UBS Group AG: Regional Refining Margin Divergence U.S. refining margins are rising, while some Asian and European peers are underperforming after accounting for negative freight economics. Is a divergence emerging in the global refining market: some regions have high margins and can run at full capacity, while others struggle to obtain crude and face high costs? Gary Simmons, Executive Vice President and Chief Operating Officer: We see the same situation you do, which gives us high confidence in the sustainability of the current cracking spread environment. Some low-complexity refining capacity in the Far East has margins in the range of about $2 to $3 per barrel after combining the freight for bringing crude in and shipping products out; in addition, natural gas prices in these regions are starting to rise, further raising the floor that cracking spreads must reach to induce these refineries to maintain high utilization, and the world currently needs this capacity to keep running. Manav Gupta, Analyst, UBS Group AG: Signs of Demand Destruction Are you seeing any signs of demand destruction, and what is the overall picture for U.S. domestic demand and export demand? Gary Simmons, Executive Vice President and Chief Operating Officer: From the wholesale side, we are basically seeing no signs of demand destruction. On gasoline, the 7-day average sales volume across the U.S. wholesale network was up 4% year-over-year, while Canada and the UK were flat year-over-year. In the second quarter I mentioned demand destruction in the UK, but in the third quarter UK demand has recovered well, and gasoline demand has shown strong resilience to high prices; export demand is also very strong, with all export markets pulling well from the U.S. Gulf Coast. Gasoline cracking spreads have pulled back slightly, partly seasonal (exit from driving season) and partly due to increased butane blending under winter gasoline specifications, but gasoline fundamentals remain very strong: there is currently no transatlantic China Welding Consumables, Inc. arbitrage for shipping gasoline from Northwest Europe to PADD 1, nor is there storage economics for producing and storing summer gasoline early, which bodes well for spring. More importantly, October has already moved out of driving season and into the high-RVP gasoline season, and the gasoline market remains in backwardation, indicating that prompt gasoline supply is very tightall of which is favorable for the long-term gasoline outlook. Distillates show a similar trend, with 7-day average sales volume across the wholesale network up about 2% year-over-year, while the UK and Canada systems were flat year-over-year. The only volume decline was UK residential heating oil, down about 10% year-over-year, which our commercial team attributes to mild winter weather and customers deferring tank fills as much as possible, meaning UK demand could surge once cold weather arrives. Diesel export demand is also very strong, both from Latin America and Europe. So for us there are no signs of demand destruction; in fact, some leading indicators (flat GDP and recovering trucking surveys in most cases) suggest diesel demand is performing well. Neil Mehta, Analyst, Goldman Sachs Group, Inc.: Fourth-Quarter Production and Industry Turnarounds The fourth-quarter production guidance is slightly above expectationsis this full utilization, and does DHT unit recovery provide a help; given the high industry run rates in 2026, will 2027 be a heavy turnaround year for the industry? Gary Simmons, Executive Vice President and Chief Operating Officer: First on DHT, we expect mechanical completion only by the end of the fourth quarter, so it is not included in guidance. The fourth quarter is a light turnaround season for us, and at current profit levels we will run units at full capacity. At the industry level, we have publicly stated that we never defer turnarounds and will proceed as planned. Consultant data shows that about 1.5 million barrels per day of global refinery turnarounds have been deferred, meaning current turnaround activity is slightly lighter than normal, and next year is expected to bring a heavier turnaround season. Neil Mehta, Analyst, Goldman Sachs Group, Inc.: Fourth-Quarter Modeling Considerations At the start of the quarter, both U.S. Gulf Coast and Mid-Continent indicators moved higher; although seasonality usually brings a decline, the start has been strong. What are your suggestions for modeling the fourth quarter? Gary Simmons, Executive Vice President and Chief Operating Officer: The main fourth-quarter tailwinds include: a boost from gasoline butane blending; the usual good boost from the North Atlantic China Welding Consumables, Inc. system starting production of premium-priced Arctic diesel; many optimization opportunities from heavy sour crude discounts on the feedstock side; and jet fuel grade spreads turning positive again. Secondary products are mixed, with propylene and naphtha slightly weaker but aromatics stronger. Overall, fourth-quarter capture rate should be predominantly driven by tailwinds. Theresa Chen, Analyst, Barclays PLC Sponsored ADR: Downward Volatility in Cracking Spreads Given demand resilience and the higher floor for international refiners due to high freight and natural gas costs, how do you explain the recent downward volatility in cracking spreads, and how will these factors evolve in the near to medium term? Gary Simmons, Executive Vice President and Chief Operating Officer: The downward pressure on cracking spreads mainly comes from headlines, such as SPR releases and statements about lifting sanctions on Russia. If we digest the actual data, see the actual release volumes clearly, and recognize that lifting sanctions is mostly just a shift in trade flows, we expect cracking spreads to gradually recover. Theresa Chen, Analyst, Barclays PLC Sponsored ADR: Restarting Idle Refining Capacity The Trump administration may work with companies to restart U.S. refining capacity that has been idle over the past decadehow seriously should this be taken; and more broadly, how can the market's supply shortage be most effectively addressed? Richard Walsh, Executive Vice President and General Counsel: The focus here is on the Benicia refinery. I would remind everyone that the refinery has been safely idled since April, and we have no plans to restart it. Before and after announcing the shutdown, we had extensive communications with state government, federal government, and private parties, all without substantive results. The West Coast operating environment is difficult, and we are not optimistic about restart potential; moreover, restarting would require re-procuring feedstock, rehiring employees, and conducting large-scale turnaroundsit is not a simple process. Lane Riggs, Chief Executive Officer and Chairman: To add one point, restarting almost any shut-down refinery takes time and can hardly solve the immediate supply problem. We have not received substantial communication from the government about restarting other refineries, but we hear the same news you do. However, the idea that these refineries can be entered at any time and immediately put into production is not realistic. How it evolves over the long term remains to be seen. Phillip Jungwirth, Analyst, BMO Capital Markets: Venezuelan Crude Processing Venezuela has announced several upstream investment plans and production growth targets. What is the current relationship between Venezuelan crude processing volumes and capacity, and what conditions would be needed for you to be confident in investing to expand heavy crude processing capacity? Randy Hawkins, Vice President of Crude and Feedstock Supply and Trading: Venezuelan crude supply within the U.S. Gulf Coast system remains good, and we are also encouraged by new investments in Venezuelan domestic production growth. We have long been the largest consumer of Venezuelan crude, and by far the leader on the U.S. Gulf Coast; in the third quarter, Venezuelan crude was highly competitive relative to other heavy sour alternatives, and Valero's system set a new record for Venezuelan crude processing. Entering the fourth quarter, economics have changed somewhat, with high freight especially hitting the heavy crude market; at one point the discount on Canadian crude on the U.S. Gulf Coast widened to $27 to $30 below Brent, making Canadian crude more competitive than Latin American crude. Our system is flexible and can switch among different crude types, which is an important competitive advantage, and we will continue to look for opportunities to increase consumption of these crudes in the future. Lane Riggs, Chief Executive Officer and Chairman: To add one point, the heavy sour space is one of the focuses of our projects and even M&A reviews; we view it as a direction for feedstock optimization and are looking for opportunities to debottleneck and expand exposure to heavy sour crude processing. Phillip Jungwirth, Analyst, BMO Capital Markets: DGD Margin Outlook What is the outlook for DGD margins, what one-time noise was in the second- and third-quarter capture rates, and how will this metric trend in the fourth quarter? Eric Honeyman, Senior Vice President of Renewable Operations and Low-Carbon Fuels: The second quarter had a lot of one-time gains, such as IEEPA recoveries, model updates, and year-to-date true-ups, causing the second quarter to be unusually high. In addition, there is a lag in feedstock entering DGD pricing, and combined with market volatility, this created a lot of noise in margin capture. The second quarter used first-quarter feedstock purchases that were still significantly cheaper than the index, and at that time conflict-related sentiment was easing; although ULSD pulled back, as DGD's underlying commodity price, it also smoothed some position pricing volatility. The third quarter was the opposite: affected by the DG3 outage and storms, we were forced to use a higher proportion of waterborne foreign feedstock, and foreign feedstock cannot enjoy the PTC, causing PTC capture to be below the margin index; in addition, there was a lot of noise on the D4 side, with discussions about whether SREs would be redistributed causing D4 to fall sharply, and volatility in product pricing also clearly affected the lag. Overall it all comes down to lag and volatility in ULSD and D4. Looking at the fourth quarter, D4 RINs are structurally high, DGD margins remain very positive and cash flow positive; the real advantage of the refining segment lies in the strongest feedstock availability on the U.S. Gulf Coast, combined with Darling as the largest domestic feedstock producer (with the PTC benefiting domestic feedstock), and we are maximizing Darling feedstock and vegetable oil processing volumes as always to address the D4 shortage that will persist into 2027. John Royall, Analyst, Piper Sandler: Price Elasticity of Demand Gasoline and diesel prices have risen significantly but demand has been relatively stableare you surprised that there has not been more demand response, and is there a price level at which demand elasticity might appear? Gary Simmons, Executive Vice President and Chief Operating Officer: Especially considering the extensive price-related coverage, we are indeed surprised that we have not yet seen a demand response. As for the price level at which demand destruction would appear, we do not know, because most people originally expected it should have appeared by now. John Royall, Analyst, Piper Sandler: Ethanol Expansion The opening remarks mentioned possible ethanol capacity growthwhat are the timing, scale, and further details? Eric Honeyman, Senior Vice President of Renewable Operations and Low-Carbon Fuels: The new PTC and 45Z credit incentivize all ethanol producers to increase output, and our main focus is capacity ramp-up. Measured on a refinery scale, such capital investment is not large and takes effect quickly; at the same time, we are advancing carbon sequestration projects at multiple sites, expected to come online between late 2027 and mid-2028, which will increase ethanol production and reduce carbon intensity (CI), making it more attractive for export. Ethanol export demand remains strong, and all of our capacity is directed toward expanding exports. Matthew Blair, Analyst, Tudor Pickering Holt: Impact of Freight on the System and Exports Is high freight a headwind for the North Atlantic China Welding Consumables, Inc. and West Coast refineries, and can alternative crudes be used; what is the impact of freight on net proceeds from U.S. Gulf Coast refined product exportsis it passed through directly or does it U.S. refined product export economics? Gary Simmons, Executive Vice President and Chief Operating Officer: In most cases, high freight actually makes us more advantaged in typical Latin American export markets, because we mainly compete with European crude and enjoy a freight advantage. The only unfavorable aspect is diesel exports to Europe, which cause the arbitrage window to open and close frequently and increase volatility. Europe is short diesel and genuinely needs it, so when freight spikes, its price must adjust to keep the arbitrage window open and maintain supply. Randy Hawkins, Vice President of Crude and Feedstock Supply and Trading: On the crude side, the Pembroke refinery and the West Coast are indeed affected by high freight, while Quebec City is less affected (that refinery is mainly supplied by pipeline), but the benefits to the U.S. Gulf Coast far outweigh those impacts. In addition, we have a large time-chartered fleet that can buffer some of the impact of rising spot freight. Matthew Blair, Analyst, Tudor Pickering Holt: Russian Refining and Diesel Exports What is the estimate of offline Russian refining capacity and how long it will take to recover, and how do you view the recovery of Russian diesel exports? Gary Simmons, Executive Vice President and Chief Operating Officer: Data shows that, on a three-month average basis and compared with the same period in 2024, about 1.4 million barrels per day of Russian refining capacity is offlinestill a considerable scale. Most consultants estimate recovery will take a considerable amount of time, and we cannot give a specific duration. On diesel exports, the announced scale is roughly equivalent to July levels and is still about 600,000 to 700,000 barrels per day below the same period last yearnot a large magnitude. As we have consistently said, sanctions or the lifting of sanctions mainly change trade flows rather than truly bringing incremental supply into or out of the market. Joe Laetsch, Analyst, Morgan Stanley: St. Charles Project and Growth Capital After completion of the FCC project at the St. Charles refinery in the third quarter, is unit performance meeting expectations, and what improvement in product yields or capture rate should be expected in the fourth quarter and beyond; more broadly, where will future growth capital expenditures be deployed? Gary Simmons, Executive Vice President and Chief Operating Officer: First on the St. Charles project, the project has been commissioned; although it did not run fully in the third quarter, the EBITDA generated in that quarter actually exceeded the project's final investment decision (FID) expectationsvery good performance. As Lane said, the project mainly leverages local alkylation capacity, and the largest benefits are usually seen during peak gasoline season, so second- and third-quarter benefits will be higher than first- and fourth-quarter benefits. Lane Riggs, Chief Executive Officer and Chairman: To add one point, the project direction we favor is feedstock flexibility. Before the Russia-Ukraine conflict, the crude needed to fill U.S. refining capacity relied heavily on vacuum gas oil (VGO) and other intermediates from that region, so this summer, despite wide margins, we sometimes still had to buy VGO on the spot market, and FCC margins were low. One direction we favor is enhancing system resilience and reducing dependence on VGO, seeking ways to increase VGO production. As mentioned, we remain optimistic about production growth of Venezuelan and Canadian heavy sour crude and will look for opportunities to debottleneck and expand heavy sour processing capacity. Joe Laetsch, Analyst, Morgan Stanley: M&A Opportunities Given strong cash generation and accumulated excess cash on the balance sheet, what are the potential M&A opportunities in refining, renewable fuels, and ethanol? Lane Riggs, Chief Executive Officer and Chairman: We always look at all kinds of opportunities that arise in the market, and we are especially favorable toward the U.S. Gulf Coast systemour position has never been ambiguousbelieving it has the greatest flexibility and creates the most value when optimizing within the system, and we will continue to look for opportunities in that direction. We are also favorable toward the ethanol business and will continue to monitor it. But we will adhere to rigorous capital discipline; even with a large amount of cash on hand, we will not change our hurdle rates, return metrics, or the capital allocation framework we have used for more than a decade. Doug Leggate, Analyst, Wolfe Research: Reliability and Unplanned Outages What does high utilization mean for turnaround cycles and system reliability, and can the industry sustain high utilization; looking ahead to 2027, do you see risks of unplanned outages? Gary Simmons, Executive Vice President and Chief Operating Officer: Our turnaround philosophy is unchanged, and turnarounds proceed as planned, so system reliability is not expected to be different. If we accept the consultant data that 1.5 million barrels per day of turnarounds have been deferred, then next year may bring some reliability issues and a heavier turnaround season. Doug Leggate, Analyst, Wolfe Research: Dividend and Buyback Policy The market's mid-cycle expectations have undergone a major resetdoes this affect the way cash is returned to investors; if we are indeed in a higher mid-cycle environment, how would dividend policy adjust relative to buyback policy? Homer Bhullar, Senior Vice President and Chief Financial Officer: We view both dividends and buybacks as components of overall shareholder returns. For the reasons Gary, Randy, and Lane described, we have a higher view of mid-cycle, but this is still a cyclical industry. Theoretically, a higher mid-cycle also increases debt capacity, but we do not add leverage. Like the balance sheet, we want the dividend to be durable through good times and bad; the dividend is a permanent commitment we have made and have used the balance sheet to defend (as during the pandemic, when both the ability and willingness to pay the dividend were challenged). So the dividend is a one-way ratchet, and we want dividend growth to be measurable across cycles; at the same time, we reference the dividend yields of our closest peers, and we are roughly between the two. In summary, dividend growth will be more measurable, while ensuring a predictable and attractive total return remains key to our shareholder value proposition, and we will continue to use buybacks as a more efficient and flexible tool to complete the overall payout. Jason Gabelman, Analyst, TD Cowen: Diesel Price Ceiling and Margins New York Harbor diesel prices are struggling to sustainably hold above $5 per gallon (about $200 per barrel), while crude continues to rise, and there appears to be some destruction at that level; if crude continues higher, diesel margins could compressis this a risk relative to current cracking spreads? Gary Simmons, Executive Vice President and Chief Operating Officer: That is a reasonable assessment. We have always believed that one of the factors favoring refiners in this conflict is that crude did not rise to the high levels it could have reached. If crude rises sharply for some reason, it could indeed lead to compression in refining cracking spreads. Jason Gabelman, Analyst, TD Cowen: North Atlantic China Welding Consumables, Inc. Regional M&A There are several private assets in the North Atlantic China Welding Consumables, Inc. and Quebec markets, with strong refining margins or potential business synergiesis this also a region you would consider consolidating if the right asset appeared? Lane Riggs, Chief Executive Officer and Chairman: Yes, this is also a region we favor. If assets become available and meet our investment criteria (we will remain disciplined to ensure they make sense across the entire economic cycle, rather than being attracted only by current conditions), we would consider them. We already have a good position in the region, and if we can add flexibility, enhance trading capability, and create shareholder value on top of it, we would naturally be interested.