Valero Energy Corporation (NYSE: VLO) Q4 2025 Earnings Call dated Jan. 29, 2026
Corporate Participants:
Brian Donovan — Vice President, Investor Relations
Lane Riggs — Chief Executive Officer and President, Chairman
Homer Bhullar — Senior Vice President and Chief Financial Officer
Gary K. Simmons — Executive Vice President and Chief Commercial Officer
Randy Hawkins — VP:Crude & Feestocks Supply
Eric Fisher — Senior Vice President Product Supply, Trading and Wholesale
Analysts:
Theresa Chen — Analyst
Neil Maida — Analyst
Anuf Gupta — Analyst
Doug Leggett — Analyst
Paul Chang — Analyst
Ryan Todd — Analyst
Paul Sanke — Analyst
Sam Margolin — Analyst
Joe Latch — Analyst
Philip Jungwirth — Analyst
Jean Ann Salisbury — Analyst
Matthew Blair — Analyst
Jason Gableman — Analyst
Presentation:
operator
Greetings and welcome to Valero Energy Corp. Fourth quarter 2025 earnings call. this time, all participants are on a listen only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press Star0 on your telephone keypad as a reminder that this conference is being recorded, it is now my pleasure to introduce your host, Brian Donovan, VP of Investor Relations. Thank you.
Brian Donovan — Vice President, Investor Relations
Please go ahead Good morning everyone and welcome to Valero Energy Corporation’s fourth quarter 2025 earnings conference call. I’m joined today by Lane Riggs, Chairman, CEO and President Gary Simmons, Executive Vice President and COO Rich Walsh, Executive Vice President and General Counsel Homer Buller, Senior Vice President and cfo, as well as several other members of Valero’s senior management team. If you have not yet received a copy of our earnings release, it is available on our website@investorvolaro.com included with the release are supplemental tables providing detailed financial information for each of our business segments, along with reconciliations and disclosures for any adjusted financial metrics referenced during today’s call.
If you have any questions after reviewing these materials, please feel free to reach out to our Investor relations team. Before we begin, I would like to draw your attention to the forward looking statement disclaimer included in the press release. In summary, it says that statements made in the press release and during this conference call that express the company’s or management’s expectations or forecasts of future events are forward looking statements and are intended to be covered by the safe harbor provisions under federal securities laws. Actual results may differ from those expressed or implied due to various factors which are outlined in our earnings release and filings with the sec.
I’ll now turn the call over to Lane for opening remarks.
Lane Riggs — Chief Executive Officer and President, Chairman
Thank you Brian and good morning everyone. I’d like to begin by highlighting some of our team’s accomplishments in 2025. Last year was our best year for personnel safety and environmental performance, building on personnel and process safety records we set in 2024. Our continued commitment to safe, reliable and environmentally responsible operations resulted in a record refining, throughput and record ethanol production both the fourth quarter and the full year. We also set a record for mechanical availability in 2025. These accomplishments reflect the hard work, expertise and dedication of our entire team. We delivered strong financial results in the fourth quarter, reinforcing our consistent track record of operational and commercial excellence.
We captured favorable refining margins during the quarter driven by strong product cracks and widening sour crude discounts, and our fourth quarter performance capped off excellent financial results for the year. Strategically, we continue to make progress on our SCC unit optimization project at our St. Charles refinery. This $230 million initiative will enhance our ability to produce high valued product yields, including alkylate. We still expect the project to begin operations in the second half of 2026. Looking ahead, we believe refining fundamentals should remain supported by continued demand growth and and tight supply environment driven by limited capacity additions.
Sour crude differentials are also expected to benefit from increased Canadian crude production along with additional Venezuelan crude supply into the U.S. in closing, Luro’s strong financial results and record operating performance highlight our operational and commercial excellence. We remain committed to our disciplined capital allocation framework that prioritizes balance sheet strength, disciplined capital investments and shareholder returns. With that, I’ll turn the call over to Homer.
Homer Bhullar — Senior Vice President and Chief Financial Officer
Thank you, lane for the fourth quarter of 2025, net income attributable to Valero stockholders was 1.1 billion, or $3.73 per share, compared to 281 million, or $0.88 per share for the fourth quarter of 2024. Excluding the adjustments shown in the earnings release tables, adjusted net income attributable to Valero stockholders was 1.2 billion, or $3.82 per share, for the fourth quarter of 2025, compared to 207 million, or $0.64 per share for the fourth quarter of 2024. For 2025, net income attributable to Valero stockholders was 2.3 billion, or $7.57 per share, compared to 2.8 billion, or 858 per share in 2024.
2025. Adjusted net income attributable to Valero Stockholders was 3.3 billion, or 10 DOL share, compared to 2.7 billion, or $8.48 per share in 2024. The refining segment reported $1.7 billion of operating income for the fourth quarter of 2025 compared to $437 million for the fourth quarter of 2024. Adjusted operating income was $1.7 billion for the fourth quarter of 2025 compared To 441 million for the fourth quarter of 2024. Refining throughput volumes in the fourth quarter of 2025 averaged 3.1 million barrels per day, or 98%. Throughput capacity utilization and as Lane highlighted earlier, we achieved record throughput for both the quarter and the full year.
Refining cash operating expenses were $5.03 per barrel in the fourth quarter of 2025. The Renewable Diesel segment reported operating income of $92 million for the fourth quarter of 2025 compared to 170 million DOL of 2024. Renewable Diesel segment sales volumes averaged 3.1 million gallons per day in the fourth quarter of 2025. The Ethanol segment reported $117 million of operating income for the fourth quarter of 2025 Compared to 20 million for the fourth quarter of 2024. Ethanol production volumes averaged 4.8 million gallons per day in the fourth Quarter 2025, also setting a quarterly and full year record.
G and A expenses were $315 million for the fourth quarter of 2025 and $1 billion for the full year. Depreciation and amortization expense was $817 million for the fourth quarter of 2025, which includes approximately $100 million of incremental depreciation expense related to our plan to cease refining operations at our Benicia refinery. Net interest expense was $139 million and income tax expense was $355 million for the fourth quarter of 2025. The effective tax rate was 25% for 2025. Net cash provided by operating activities was $2.1 billion in the fourth quarter of 2025. Included in this amount was a $349 million unfavorable impact from working capital and $269 million of adjusted net cash provided by operating activities associated with the other joint venture member share of dgd.
Excluding these items, adjusted net cash provided by operating activities was $2.1 billion in the fourth quarter of 2025. Net cash provided by operating activities in 2025 was 5.8 billion. Included in this amount was 192 million unfavorable change in working capital and $30 million of adjusted net cash provided by operating activities associated with the other joint venture member share of dgd. Excluding these items, adjusted net cash provided by operating activities was 6 billion in 2025. Regarding investing activities, we made 412 million of capital investments in the fourth quarter of 2025, of which 368 million was for sustaining the business, including costs for turnarounds, catalysts, and regulatory compliance, and the balance was for growing the business, excluding capital investments attributable to the other joint venture member share of DGD and other variable interest entities.
Capital investments attributable to Valero were 405 million in the fourth quarter of 2025 and 1.8 billion for the year. Moving to financing activities, we remain committed to our disciplined capital allocation framework. Shareholder cash returns totaled 1.4 billion in the fourth quarter of 2025, resulting in a payout ratio of 66% for the quarter. For the full year, shareholder cash returns totaled 4 billion, resulting in a payout ratio of 67% for the year. We ended the year with 299 million shares outstanding, reflecting a reduction of 5% for the year and 42% since 2014. Earlier this month, our board approved a 6% increase to the quarterly cash dividend, slightly higher than last year, reflecting a strong financial position and our commitment to a growing dividend.
With respect to our balance sheet, we ended the quarter with $8.3 billion of total debt, $2.4 billion of total finance lease obligations and $4.7 billion of cash and cash equivalents. The debt to capitalization ratio net of cash and cash equivalents was 18% as of December 31, 2025, and we ended the quarter well capitalized with 5.3 billion of available liquidity excluding cash. Turning to guidance, we expect capital investments attributable to Valero for 2026 to be approximately 1.7 billion, which includes expenditures for turnarounds, catalysts, regulatory compliance and joint venture investments. About 1.4 billion of that is allocated to sustaining the business and the balance to growth projects.
These growth projects are focused primarily on shorter cycle optimization investments that enhance crude and product optionality across our refining system, as well as efficiency and rate expansion projects within our ethanol plants. Collectively, these projects should strengthen the earnings capacity of our existing asset base. For modeling our first quarter operations, we expect refining throughput volumes to fall within the following ranges. Gulf coast at 1.695 to 1.745 million barrels per day, Mid Continent at 430,000 to 450,000 barrels per day West coast at 160 to 180,000 barrels per day and North Atlantic at 485 to 505,000 barrels per day.
We expect refining cash operating expenses in the first quarter to be approximately $5.17 per barrel. For the renewable diesel segment, we expect sales volumes of approximately 260 million gallons in the first quarter. Operating expenses should be $0.72 per gallon, including $0.35 per gallon for non cash costs such as depreciation and amortization. Our ethanol segment is expected to produce 4.6 million gallons per day in the first quarter. Operating expenses should average $0.49 per gallon, which includes $0.05 per gallon for non cash costs such as depreciation and amortization. For the first quarter, net interest expense should be about 140 million.
Total depreciation and amortization expense in the first quarter should be approximately 835 million, which includes approximately 100 million of incremental depreciation expense related to our plan to cease refining operations at our Benicia refinery. We expect incremental depreciation related to the Benicia refinery to be included in DNA for the first quarter and in April 1st quarter earnings impact is approximately $0.25 per share. Based on current shares outstanding for 2026, we expect G&A expenses to be approximately 960 million. Lastly, our capital allocation framework remains unchanged with a commitment to a through cycle minimum annual payout ratio of 40 to 50% of adjusted net cash provided by operating activities and our long term target net debt to cap ratio remains 20 to 30% with a minimum cash balance between $4 billion to $5 billion with all excess free cash flow going towards shareholder returns.
Questions and Answers:
operator
Thanks Homer. That concludes our opening remarks. Before we open the call to questions, please limit each turn in the Q and A to two questions. If you have more than two questions, please rejoin the queue as time permits to ensure other callers have time to ask their questions. Thank you. The floor is now open for questions. If you would like to ask a question, please press Star one on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press Star two if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys again. That’s Star one to register a question at this time. The first question is coming from Theresa Chen of Barclays. Please go ahead.
Theresa Chen
Good morning. Looking at the macro outlook, certainly we’re seeing inventories building coupled with relatively high domestic utilization, as well as what seems like a precarious supply and demand setup given significant capacity slated to come online in Asia balance against limited closures for the year. In light of these developments, how do you view the evolution of supply and demand dynamics for light products and crack spreads going forward?
Gary K. Simmons
Yeah, Theresa, this is Gary. Certainly during November and December we saw fairly significant builds in total light product inventory. It followed typical seasonal patterns, but the magnitude of the build was much larger than what we typically see. So we kind of went from below the five year average on total light product inventory to above the five year average. We didn’t see anything abnormal in product demand in our system. Gasoline sales in the fourth quarter were flat year over year. Distillate sales in our System were actually up 13%, and I would tell you that’s probably more related to a change in our customer mix than anything else but good domestic demand.
Our exports quarter over quarter were up. Exports year over year were up. So again, good demand in the product market. But really what caused the inventory build is exactly what you alluded to. We just ran very high refinery utilization. So especially in December where you were at 95.4% utilization, very strong for that time of year. I think some of that was related to a very strong margin environment we had in November. Cooler weather allows you to push utilization rates as well. The thing that’s really interesting to us is almost all that inventory build was in PADD three.
And you know, we’ve always stated we like our position in PADD 3 because it allows you to clear any link to the export markets. We didn’t really build any inventory during the fourth quarter, didn’t see any economic incentive to carry inventory or produce summer grade gasoline. So we’re not really sure what caused the inventory build in package padd three going forward. When you look at 2026, most of the consultant data would show similar supply demand balances to last year. But they are assuming lower refinery utilization, refinery utilization coming back to normal levels. I think we agree with that.
You’ve already seen utilization drop as we start into turnaround activity. As we wrap up turnarounds, I think you’d get into warmer weather, which again it’s hard to push refreshment refinery utilization due to some overhead temperature limits. You know, with the assumption of more normal refinery utilization to us it looks like demand is outpacing additional supply. You know, our numbers would indicate about 400,000 barrels a day in net capacity additions. We’re showing about 500,000 barrels a day of total light product demand growth. So things look tight, you know, in the consultant data. There’s also a lot of assumptions in the to consult the data.
They assume Russian refining capacity comes on runs normally. They assume a lot of the new capacity that’s starting up runs at nameplate assumptions around bio and renewable diesel coming back into the market in a strong way and then really no refinery rationalization outside of what’s already been announced. So I would say our outlook is a little more bullish than what the consultants are showing just because we believe execution risk remains high. A lot of those assumptions that I just mentioned, really difficult to get much of a read on the market thus far this year, mainly due to the weather.
You know, I can tell you that first couple of weeks in January were fairly soft on domestic demand. That’s typically the case. Things had started to recover nicely. Last week we were back up to around a million barrels a day on US wholesale. But then we had the winter storm hit. So last weekend we saw wholesale liftings that were about 40% of the prior weekend. It’s remained soft this week but gradually recovering. Sales Yesterday were about 90% of normal. Continue to see good export demand. Diesel export ARB to Europe is open. Diesel exports into Latin America are economic.
Good gasoline demand into Latin America and then you know, we don’t see an ARB to really send winter grade gasoline to New York Harbor. So all those things are constructive.
Theresa Chen
Super helpful. Thank you. Gary. Looking at the feedstock side of things, with the Venezuelan crude being rerouted to the Gulf coast, how much of this can be absorbed within your footprint over time? And can you also elaborate on how you see this impacting differentials without a meaningful and immediate increase in Venezuelan production itself? How do you see disks equilibrating over time and what are the implications for both Gulf coast light heavy dips as well as light heavy dips in the mid con given the related impact to wcs?
Randy Hawkins
Teresa, this is Randy. I’ll kick that off. Obviously having Venezuela supply kind of back in the fold for our system is great news. The exports that are coming out of Venezuela tend to be very heavy, high sulfur, high acid. And that fits our configuration pretty well. In fact, if you look over the last 10 years, Valero has been the largest purchaser of Venezuelan heavy crude, more than any other US refiner. Historically. Look back and we’ve ran as much as 240,000 barrels a day of Venezuelan heavy in our system. However, that was prior to the new Coker project at Port Arthur that was installed in 2023.
That project substantially increased our processing capability for heavy crude. So we’d expect our Venezuelan processing capability to be substantially north of that number. Now, kind of looking at differentials, not only Venezuela, but we’ve had several beneficial factors that have occurred to kind of help move this market weaker after last year with discounts fairly tight. Most of these market moves tend to are making differentials increasingly favorable for refiners with high complexity refineries such as ours. OPEC increases announced 2.9 million since April of last year. We’ve seen growing sour crude production in the US Gulf. It’s now over 2 million barrels a day.
That’s up about 200,000 barrels from a year ago. We’ve seen a resumption of the Kirkuk exports that started in October and we continue to see high production or growing production out of Canada. That’s been helpful. One other factor that’s been helping Discounts is freight rates have been sharply higher. We look at current rates compared to. Where we were in the fourth quarter. Freight’S up about 30%. So when freight goes up, since the US barrel must price to clear, it’s having to have wider discounts in order to allow those exports to happen. So right now we’re seeing heavy Canadian in the Gulf coast trading at about 11 to 11. Under Brent. That’s about $4 cheaper than our Q4 average. And similarly, Mars in the Gulf has been around five bucks discount to Brent. That’s about a dollar kind of cheaper than we were in the fourth quarter. So all looks pretty favorable I think for discounts kind of heading into 2026.
Theresa Chen
Thank you, Randy.
Randy Hawkins
Sure.
operator
Thank you. The next question is coming from Neil Maida of Goldman Sachs. Please go ahead.
Neil Maida
Yeah, good morning team. First question, I guess this would be for you. Homer would be around return of capital. Last year you guys were pretty strong versus I think what Mark expected. Just, you know, we do get the question with the stock having done well, how aggressive you will continue to be around buying back stock and love your perspective on that, especially as you step into the CFO season.
Homer Bhullar
Hey Neil. Good morning. I’ll start. Obviously returning excess free cash flow to our shareholders through share repurchases has been a pretty core tenant of our capital allocation framework for over a decade and we’ve reduced our share count by over 40% since 2014. So maybe I’ll just talk a little bit about the framework. So it all starts with the balance sheet, right? It’s in one of the best positions in the industry. If you look at our net debt to cap ratio at 18%, it’s actually below our long term target of 20 to 30%. Our year end cash balance was at 4.7 billion again towards the high end of our target range of 4 to 5 billion.
So we don’t really have any pressing need to pay down debt or build more capital cash. So then let’s move to like the discretionary uses of cash. Right. I’m not going to mention sustaining capex and dividend which we obviously consider non discretionary. So on the discretionary side, you’ve got growth projects, you’ve got acquisitions and share repurchases, right. So starting with growth projects, you know, we’re going to be guided by our minimum return threshold, right. We’re going to stay disciplined on acquisitions, you know, saying we have to see good strategic value and a clear and quantifiable assessment of synergies.
So we’re not going to Just do growth projects or acquisitions just because we have excess cash. So absent those uses of cash, we’re going to continue to lean into share repurchases. You know, and if you think about share repurchases, there’s always like an underlying ratable part of share repurchases to meet our minimum commitment of 40 to 50%. And then beyond that we do look for opportunities to be more aggressive around share repurchases. And that’s really any given period where we see weakness, particularly if our share price is weak on a relative basis to the broader sector.
And you know, to your point on stock trading near all time highs, I mean you go back 10 years when the stock was trading around $50 to $60. We’ve been getting that question ever since then. And for what it’s worth, our return on buybacks is above mid teens over that 10 year period with where the share price is today. And frankly I hope we keep getting the same question for the next 10 years because that means the stock is doing well.
Neil Maida
Yeah, that’s a great answer Homer. So thank you for that perspective. The follow up is just, you know, we are seeing heavy start to discount, particularly Western Canadian crude. And so it’s just there is a story out there that some of the, the folks who are marketing the Venezuelan barrels were trying to bid them in pretty tight into the Gulf coast, maybe even move it into China. I just think from your guys perspective you have options for heavies including Western Canadian down on the Gulf coast. If you could expand a little bit more on that.
Specifically as you see the go forward for the barrels that are being marketed in, you think they’re going to have to compete a little bit wider in order to, in order to compete with your alternatives.
Randy Hawkins
Hey Neil, this is Randy. I’ll comment a bit on that. We’re not going to comment on pricing for deals that we’ve done, but I’ll just say that we’re evaluating Venezuelan crude like we always do for all of our alternatives. We put it into the basket of alternatives and we will purchase Venezuelan greed if it beats our alternative. So you’ve seen all the articles, I’ve read them as well. You know, looking forward, you know, we’ve already kind of engaged with the three authorized sellers of crude and we purchased barrels from all three. So we anticipate the Venezuelan crude making up a pretty large part of our heavy diet as we move into February and March.
Neil Maida
Randy.
operator
Thank you. The next question is coming from Anuf Gupta of ubs. Please go ahead.
Anuf Gupta
First wanted to congratulate Brian on the new role of investor relations and then also really wanted to congratulate the incoming CFO for pushing the stock price to an all time high target achieved very quickly. On a more serious note, Homer, look, even when we go back four or five years for the same refining margin, what we are seeing is the cash flow profile of the company is different. You’re producing more cash even if the margin was the same four or five years ago. Can you help us understand the dynamics over there? Like what’s been behind this transition to generate the ability to generate more cash with the same refining margin?
Lane Riggs
Yeah. Hey Manav. So Lane’s talked about this in the past, but it’s really a result of a number of things. And it all starts with being a good operator, having discipline around capital investments and then a strong balance sheet, which ultimately all translate to higher cash flow and higher shareholder return. So starting with operations, we’ve obviously worked really hard to manage costs and our reliability over the years. And you can see that with the record throughput and mechanical availability this past year. And then we’ve also been very disciplined around growth investments. Obviously you know, our minimum return through threshold, which effectively ensures you have a good return when things are good, but also hopefully protects us with a return that’s well above our cost of capital, even in kind of a downside scenario.
And you can see that if you look at our return on equity or return on invested capital over the last five or 10 years, that’s in the mid teens or higher number. And again, keep in mind that denominator for that return on equity or return on invested capital capital includes all capital, right? Including sustaining capex. And then also generally on capital we have been trending a little bit lower in recent years, which just frees up more free cash flow for shareholder returns. Lastly, I mean, you know, the balance sheet obviously plays a strong role in that both in terms of we’ve got lower debt and higher cash balance.
So at the margin you have lower interest expense, but then higher interest interest income as well. But really more importantly, just having a strong balance sheet gives you much more flexibility with respect to shareholder returns. And then lastly, obviously on a per share basis, share repurchases have helped a lot as well.
Anuf Gupta
All very good points. My quick follow up here is very good improvement in renewable diesel. I know there were a few quarters where the industry struggled. You did much better than the industry, but the industry was struggling. Are we finally seeing at the light end of this tunnel, where possible rvo and then all those Policies will become clear. And do you expect generally a renewable diesel to deliver better earnings in 2026 versus 25? Primarily a function of more maybe policy clarity. If you could talk about that.
Eric Fisher
Yeah, Hemanov, this is Eric. You’re exactly right. We’re still waiting on final policy guidance on the RVO and PTC. And so if you contrast 1H25 being the transition to PTC and everyone trying to understand it, we were the first and perhaps maybe the only company that has really figured out how to capture the PTC. So 2H25 was getting into full PTC capture, getting into full SAF commercialization. And between that differentiation, our ability to capture the PTC and the overall margins, tightening in renewable diesel allowed us to out compete a lot of our competitors. And as we have started 2026, there’s a lot of capacity offline.
There’s a lot of players that are now sitting out waiting for guidance to get finalized before they reenter the market. And that has caused fat prices to really level off and even drop throughout the fourth quarter and into this first quarter. So what I see in 26 is, you know, policy should be a tailwind. The expectation is it should come out favorably for renewables. We do see that. There’s a lot of talk of, you know, tariffs continue to be a pretty strong headwind, but, you know, we’ll see what the Supreme Court comes out with. And so I think, you know, you’re going to see 2026 starting off more like 2H25.
And so that would indicate a stronger year in 26 versus 25.
Anuf Gupta
Thank you so much.
operator
Thank you. The next question is coming from Doug Leggett of Wolf Research. Please go ahead.
Doug Leggett
Hey, good morning, everybody. I’m sure Brian has already told you about my family connection, but welcome, Brian. Guys, I wonder if I could just ask two quick ones. First of all, on all the dynamics of heavy oil in the Gulf coast. There’S obviously a lot of complexities or. Across your system, Mexico looks like it’s. Now running a little better. So less imports or less exports rather. From there, WCS has tmx and then of course there’s Venezuela. And my question really is about your Coker utilization and the volume of your heavy runs, where that can get to, not the crude utilization, but where you can actually get your throughput to. And my specific question is 10 years ago, 15 years ago, you were running about 1.3 million barrels a day of advantage crude, including fuel oil. You’ve added the Coker. You’re less than a million today. Where can that get to?
Lane Riggs
Hey Doug, it’s Lane. I’ll answer this one. If you really look at what happened, we did sort of when we added the Coker because of the dynamics you’re talking about in terms of heavy availability, what we really did is we incremented medium and light crude with some heavy actually ramping up into higher rates to ensure that our Coker availability or Coker sort of utilization was where we felt like it needed to be to meet fid. We’re also purchasing outside resids, so we’re doing all that. I think what you can expect is you get more bales from Venezuela, more bales from Canada.
You’ll see us actually fill the Coker up sooner with that crude diet and we’ll see on an incremental basis whether we actually increase crude rates or actually lower them depending on how incremental crude economics, because we believe there’ll be a driver to fill the Coker with heavy.
Doug Leggett
Lynn, is it possible to give a utilization rate on your Coker so your Coker capacity today and where it could get to, or is that too granular?
Homer Bhullar
I don’t know we’ve ever really been public with Coker utilization. In fact, I don’t think we even have it in front of us. But we normally, just from a signaling perspective, most of the time we optimize the crude diet into sort of the way you would do it. And then we purchase outside feed or internal resid feed to make sure that that Coker is full most of the time.
Doug Leggett
All right, that’s helpful guys. My follow up is actually on one. Of Manav’s questions about the RVO and rin. Prices have obviously spiked here pretty dramatically since the start of the year. I’m trying to understand how should we think. I don’t know if there is such. A thing as mid cycle earnings, but. At today’s RIN price, obviously we’re up around the 1. I think we’re at 120 or something today per gallon. What do you think the mid cycle earnings capacity of BGD is? Or maybe free cash flow? Whichever one you prefer to lean on. And I’ll leave it there, thanks. Yeah, that’s not really a question that you can easily come up with an answer on mid cycle for Rand. What I would say is you’ve kind of been a new framework with the PTC. So the previous 10 years of DGD was on the blender’s tax credit. So everyone gets a dollar cash from the government for every gallon that you produce. Now we’re into a regime where it is dependent on your CI, it’s dependent on your income tax because it’s now an income tax credit. So you’re into a different, just an overall different framework. Now rins have been underlying.
This will be a part of this in the past, as it will as it is going forward. I think as we think about where this all goes, what the government has suggested as a obligation range of 5.2 to 5.6 billion gallons for 26 and 27 is well above domestic production capability. So if you see that and with the combination of tariffs on foreign feedstocks and the elimination of credits for foreign imports, the entire compliance, essentially you’re raising the obligation while also making it harder to generate. That all points to a higher D4RIN price, especially as you draw the bank down, which a 5.2% to 5.6% obligation number would certainly do.
And so what I would say is it’s not really trying to think about. What a mid cycle.
Eric Fisher
It is more just saying that there’s a good chance D4Rins are going to go up. And so then the next question is, does fat prices just follow that up and keep overall RD margins tight or do you see from a competitive standpoint going back to the PTC that low CI and the ability to run waste oils over veg oils is still going to have an advantage in this new framework of PTC. So all of that, you know, just really saying 2026 is going to likely look better than 2025 for the segment and then it particularly looks better for those that can export into advantaged markets into Canada and Europe and the uk those that operate just like refining in the most efficient capacity in the Gulf coast and then those that can run waste oils over veg oils.
Doug Leggett
Great answer, Eric, thanks so much.
operator
Thank you. The next question is coming from Paul Chang of Scotiabank. Please go ahead.
Paul Chang
Hey guys. Good morning. Name I don’t know whether you guys will be willing to share. That’s a. As usual every several years that we have the neighbor contract being negotiated, Marathon is heading that with the usw. And can you tell us that which of your refinery is currently under that contract? So in other words that if that’s in case, if there’s any strike, I’m sure that you guys are well prepared, management will be able to take care of it for a period of time. But which refine you what percent of your capacity is actually will be impacted.
Second question is that I think that had been Asked previously. If we look back in your utilization way historically, I think on a full year basis that your maximum may be doing somewhere in the 94, 95%. Do you believe given you look like there have been done a phenomenal job in operating your facility, better and better. Do you think that now on a maximum full cycle basis that you will be able to do better than that or does it mean that the entire curve have been shift up? What I mean, they Compare to maybe 10 years ago, what, 1 or 2%? Is there anything that you can help to quantify it?
Lane Riggs
Hey Paul, it’s Lane. I’ll take a stab at the first one. I just. Yeah, so your instincts were correct. We’re very. We’re not really going to disclose exactly where, which one of our sites and Everything are under USWorld, some of the other maybe unions that are out there. What I will say one of the advantages that Bolero has versus our competitors in that space, however you think about it, is we are, you know, we’re less unionized directionally than a lot of the other people in the space.
Lane Riggs
I want to say I don’t buy. Everybody, but directionally that’s true. And on the second one, I guess it’s. Yeah. So I think, you know, Paul, you know what I’d tell you is we obviously had a record year in terms of mechanical availability last year. With better mechanical availability, you would expect to see better refinery utilization. You know, to try to quantify that would be very difficult.
Brian Donovan
Hey Gary, do you think that the whole industry is getting better?
Gary K. Simmons
You know, it’s a good question. I think, you know, a lot of what you saw in the fourth quarter was very strong margins and moderate temperatures. And so, you know, that allows you to kind of push refinery hardware a little bit harder than you normally could. I think it’ll come back off. I don’t think what we saw in December is sustainable, but everyone is certainly trying to drive up mechanical availability as we have.
Paul Chang
And that you’re talking about the weather. Do you guys have any noticeable downtime from the winter? That’s my last question. Thank you.
Homer Bhullar
Yeah, Paul, we really fared the winter storm pretty well. We had a few nuisance type heater trips, but nothing material. I think most of what we saw was really things external to the refinery. Some interruptions in hydrogen steam hitting up against product containment type limits. But you know, if you look at our guidance, I would tell you there was nothing material that related to the winter storm that’s going to impact the quarter.
Paul Chang
Thank you.
operator
Thank you. The next Question is coming from Ryan Todd of Piper Sandler. Please, go ahead.
Ryan Todd
Okay, thanks. Maybe one on the West Coast. If you could just talk a little. Bit about west coast refining, a couple things. Maybe profitability was a little weaker in the quarter. Can you maybe talk about what some. Of the drivers were there and then can you maybe walk us through the timeline of the coming shutdown of Benicia and how you’re thinking about West Coast Dynamics for 2026?
Lane Riggs
Yes, I’ll start on the 1st. Yeah, our capture rates were a little down on the West Coast. Some of that is to do with the fact that gasoline relative to diesel, gasoline was pretty weak relative to diesel, as we’ve talked about. Especially our Benicia refinery has a really strong gasoline yield and so it tends to lower our capture rates. The other thing that hurt us is there was a retroactive tariff adjustment on one of the pipelines we utilized on the west coast and all those charges hit during the fourth quarter. So those are the two big things that impacted our capture rates in the fourth quarter on the west coast.
And this. Rich Walsh, I’ll try to answer on the timeline there. You know, in terms of the Benicia idling, you know, we’re executing our plan to safely idle it, the refinery operating units, that is. And you know, it’s a well planned out and phased process. And in February, you know, we, you saw, I’m sure you saw our most recent announcement. You know, we will be idling the process units because they have some mandatory inspection requirements that are, that are kicking in then. And so we’ll be pulling those offline. And but you know, we will be continuing to produce fuel as we work down the inventory through this process.
And you know, as we’ve shared with the governor and the cec, we are going to be importing some gasoline and or gasoline blend components, you know, over the near term. And we remain committed to our, you know, contractual obligations out there to meet, to meet the supply obligations that we have. So we’re working cooperatively with state officials, the CEC and the governor on our plans. And we’ve come, kept them fully informed and they’re aware of our supplemental supply commitments to the Bay Area. So I think that’s pretty much where we are. And then in terms of Wilmington, it’s normal operations and we’ll continue to supply the California market out of Wilmington.
Ryan Todd
Great, thank you. And then maybe, just maybe one follow. Up for you, Eric, on the RVO stuff.
Gary K. Simmons
Any thoughts in terms of what you’re hearing on timing or any of the. Items which are kind of debated out. There whether it’s SREs or reallocations or penalties for foreign fees or products. Directionally, what you’re hearing on those things. Yeah, that’s really kind of a government question. I’m going to let Rich.
Homer Bhullar
Yeah, you know, I mean, look, look, EPA’s got a big challenge on, you know, dealing with the RVO right now. And you know, the SREs in this. I think the administration’s starting to recognize how now that, you know, all of this is getting caught up with these SREs, they’ve really gotten out of hand. You know, if you look at epa, they sort of defaulted to this out dated DOE process that the Government Accounting Office has already, you know, said was a flawed process in both EPA and DOE had acknowledged that previously. And you know, this matrix is so out of date it doesn’t even account for the shell revolution and the domestic production which has completely transformed the US energy market.
So it’s a really flawed SRE basis that’s out there. You know, and in terms of, you know, solutions, I mean, I think there is a legislative, you know, proposal out there that’s a compromise that’s supported by API, by ag interest, by retail trades and most refiners that, you know, would allow a process to go forward that would kind of help correct all this and get us kind of realigned and supporting the rfs. But you know, there are a small number of conglomerate, so called small refiners that are out there that are having a windfall on these SREs and they’re kind of holding it up.
So that’s where we think this stuff is going to have to be worked out. It’s a challenge for the agency. They’ve kind of gotten into a fix with over issuing these SREs.
Ryan Todd
Great, thank you.
operator
Thank you. The next question is coming from Paul Sanke of Sankey Research. Please go ahead.
Paul Sanke
Morning everyone.
Lane Riggs
Good morning, Paul.
Paul Sanke
Glad to hear Brian, that you got the job because of your close family relationship to Doug Leggett. But I joke. Hey guys. We’ll have to clarify that. Just on demand. Demand and supply at the moment, obviously we’re seeing oil through 70. Is that, would you say that’s related to the sanctions shadow fleet being shut down effectively or more shut down than it has been? You know, I’m just wondering. It’s a big surprise, I think to all of us. There’s obviously the demand side of the equation. And I was just wondering what your perspective is on US oil demand right now in this storm because we’re seeing Some big numbers from some of the northeastern generators. I mean 300,000 plus type daily use of oil to generate power.
You didn’t seem to really highlight that in your very complete comments so far. I just wondered if you’re seeing a big impact from this storm in terms of the demand side of the equation which might help to explain why we’re at 70. So the overall question is how come we’ve gone through 70 here at a time seasonally of weak oil prices.
Lane Riggs
Thanks Paul. I’ll just touch on the flat price. I mean I think what we’re seeing right now with the geopolitical wrangling going on in Iran I think has put quite a bit of geopolitical risk factor on top of flat price. Plus you had the winter storm take off some oil production in the shale patch in addition to the continued issues with the CPC and Tengis over in Kazakhstan had quite a bit of oil offline. So I think all those are leading to some short term tightness plus the geopolitical factor that’s kind of running up oil here in the short term.
Paul Sanke
Yeah. In terms of heating oil demand, I think, you know, a lot of that is just where we have a strong wholesale presence. We’re not really strong in the heating oil markets, you know, in markets like Boston where we do have a presence, we have seen a significant uplift in diesel demand as a result of heating oil and then the rest of it for us, you know, a strong incentive to ship to New York harbor which is again tied to heating oil demand.
Paul Sanke
Great, thanks. If I could ask a follow up Lane, is there a way that you could see more investment as you shut down California? I’m wondering how your exposure to California is going to change if you’re going to kind of effectively exit that market or if you have access to it through other means. And secondly, whether or not you would consider perhaps with more heavy oil coming back on the market with the decline of potential certainly decline of US light sweep production, whether there might be more capex to be undertaken.
Lane Riggs
Hey Paul, this is Lane. I don’t think you’ll see our capex increase with respect to the West Coast. As a matter of fact, I’d have to go back and look how long we’ve sort of. We’ve obviously what we’ve done out there is put maintain our sustaining capital for all these years with respect to the west coast because we didn’t see a market that we were going to grow, you know, grow the capacity to produce into it. So what you actually are going to See is when as we shut Benicia down, our sustaining capex should fall. I’m going to pick a number, somewhere around 150 million ish.
So our sustaining capital will actually fall. With respect to how we see California, it’s still a very, you know, it’s a challenge to operate out there. We’ll continue to operate. Wilmington. It’s a, a good asset and a good market. It has its challenges with respect to regulatory capital at the end of the decade and that’s when we’ll sort of make our decision on how we’ll, how our presence on the west coast will. You know, how it’ll be and anything on incremental spending on a heavier slate going forward potentially. Blaine?
Homer Bhullar
No, not on the West Coast. Meaning the car footprint. Yes, we will definitely look at, we’ll definitely look at that. You know, in terms of our strategic cap. We are looking at that. We have, you know, that we have in our gated process. We don’t necessarily. Our tendency as a company is to talk about projects as we fid and not as we are studying them. But you know, we have a pretty good position as it is so we want to make sure that we don’t hurt that position. But clearly as we, there’s more bales in the heavy oil market and we hit these constraints again, we’ll study, we’ll see what it would take to do, you know, it’ll probably still fit into the small capex.
We’re not going to do a great Coker expansion or anything like that. That’s not the foreseeable future.
Paul Sanke
Great, appreciate that, thanks.
operator
Thank you. The next question is coming from Sam Margolin of Wells Fargo. Please go ahead.
Sam Margolin
Hey, Morning. Thanks for the question on revisiting capex growth. Capex is pretty moderated. I think you’ve explained why, just drilling into it. How much is inflation a factor with. The gated process and returns and if. It is a big factor, what do. You think that means for buy versus build decision making to the extent that you’re interested in growth?
Lane Riggs
Hey, Sam. So I will back up and explain kind of our strategic capex. If you really go back for a long time and we feel like we have the capacity to strategically develop about a billion and a half dollars of strategic capex. When we went into Covid, we sort of lowered that number to about half a billion, really emphasizing at the time renewables or renewable side of the business. So if you kind of, if you were to look at the trend of where we’ve been for like the past five Years or six years or something like that.
Our half of the joint venture where we’re spending about $250 million ish of capex with respect to RD but with all the policy uncertainty starting last year and on an ongoing basis until we get some more clarity on how all that will work. That’s falling, right? Our refining Capex, strategic Capex is fairly stable. And it is in that, you know, sort of 300ish, you know, 300ish kind of number. And that is. I’m not going to. With respect to inflation. What I will say about inflation and regated process is it does make these projects more difficult to do because the cost of building has gone up. I mean our. As an example, our alky cost, I don’t know, 4, 350, 400 million and now they’re up. You know we costed one out not too long ago, more like 600 million. So when you. It is, you have to have, you have to think about, you have to think about Ford price set and do you believe the Ford price set is going to accommodate the inflationary cost of standing up units? And obviously we are always interested in existing assets.
We looked at them through a lens of. Are there, you know, are there arbitrages with our current system? Either through, you know, sort of, I’ll call it processing arbitrage or trading arbitrage. That’s how we like to think of these things. And we’re obviously we always look at those and through the, and particularly through that lens.
Sam Margolin
Got it. Okay, thank you.
Lane Riggs
And then just revisiting heavy crude for a second. You know, I know there’s competitive reasons why you might not want to give.
Sam Margolin
An exact number of what you know, the headroom is for incremental barrels. But maybe we could frame it this way on crude valuation just like, you. Know, while TMX has been ramping and. Availability has been low. Do you have just kind of a. Ballpark number off the top of your head of how much you think heavy. Crude globally has sort of been overvalued from a refinery economics perspective. And you know, where, where it could. Normalize to whether that’s freight costs or some other method that you use.
Lane Riggs
Hey Sam. Just ready. Probably difficult to kind of give a value. I just will may harken back to 2025 when differentials on the sours were all pretty narrow. And we got to a point where we were indifferent on running sweet crude versus sour for most of the year, especially in through Q2 and Q3. I think where we’re at Today it’s firmly planted. We’re going to buy as much on the heavy and medium side as we can to fill up the fokers and downstream units.
Sam Margolin
All right, thank you so. Much. Thank you.
operator
The next question is coming from Joe Latch of Morgan Stanley. Please go ahead.
Joe Latch
Great, thanks. Good morning and thanks for taking my questions. Eric, can you talk a bit about the ethanol segment? The segment continues to perform well from. Both the volume and capture standpoint. Can you unpack some of the drivers here? And then as part of that, I. Was hoping you could talk about how you think about the potential impact and probability of nationwide E15. Thank you.
Lane Riggs
Sure. Yes. Ethanol has had another good year and continues to, as Lane said, break throughput records as we’ve kind of grown capacity, you know, capacity creep for the last couple of years and have plans to continue to creep capacity in the ethanol segment. The corn crop has been good the last two years, so we see essentially cheap feedstock as one of the big drivers. And then I think overall, you know, it’s easy to see with the way export demand has grown that the world is figuring out that ethanol is a very cheap source of octane. And so we’ve seen a lot of growth in ethanol exports.
There’s also continued growth in ethanol as a low carbon solution. So we see a lot of programs that are now allowing first gen ethanol into low carbon programs. So between those two things, you’ve seen export demand grow. So the ethanol segment continues to be very competitive and flow a lot of cash. I think, you know, in terms of E15, all of our ethanol plants are registered to sell E15. That’s. We still see very slow customer acceptance of that, but it is slowly growing. I think that’s one of those that, you know, if and when that happens, we’re positioned to take advantage of that. And it’s just a question of, you know, how this RVO policy is going to work out. So, you know, Rich alluded to this is all wrapped up in the entire SRE conversation. And this idea that, you know, what part of renewables is going to. What part is renewables going to play in the domestic slate is what we’re waiting for clarification on. I don’t know, Rich, if you had other comments about E15.
Homer Bhullar
No, I mean, I do think it’s. You know, the national E15 waivers caught up with this SRE issue. And, you know, you can’t have anything that’s going to undermine the RFs like these SREs are doing. And so I think you’re going to see UC AG and most of refinery aligned on how to and a solution for SRE over. Authorization. And so those will have to be.
Joe Latch
Great. That’s helpful. And then shifting to the refining side. I was hoping to get your perspective. On the fuel oil market here. Cracks have weakened recently, which I think is driven by the prospects of more Venezuela crude. But I was hoping to get your thoughts on the recent dynamics and outlook. Here for fuel oil as it relates to Coker economics. Thank you.
Randy Hawkins
This is Randy again, I would say things look really weak right now. I think we’re hit 79% on high sulfur fuel oil this morning. If I look at the paper, you know, I think it’s what you mentioned before, more heavy crude in the market. We’re also seeing some of the Venezuelan fuel get pointed to the US at least get offered this way, which are barrels that normally didn’t get shown into the US market. We’re also seeing a little bit higher runs out of Mexico which they tend to make fuel incrementally. So that’s more barrels that are getting pointed this way as well.
All that’s kind of pushing freight costs are high. So there’s typically a movement from the west to the east on fuel oil. So the higher freight goes, the west just needs a discount more.
Joe Latch
Great, thank you.
operator
Thank you. The next question is coming from Philip Jungwirth of BMO Capital Markets. Please go ahead.
Philip Jungwirth
Thanks. Good morning. As far as Russia, how are you. Seeing the EU refinery loophole sanctions impacting diesel markets and could there be a greater call on US Gulf coast barrels and Tougher question to answer, but it’s been a quieter month. As far as drone strikes on Russian refineries, just how are you thinking about the fundamental versus geopolitical tightness and diesel cracks currently?
Gary K. Simmons
Yes, this is Gary, I think overall you are seeing EU shy away from Russian diesel barrels. Thus far we’ve seen that being able to rebalance throughout other parts of the world. I think the big area we saw some of those barrels were going to South America. We’ve seen those South American markets return to the US Gulf coast, which has been supportive of the US Gulf coast market. I don’t know. We have seen a fairly quiet month in terms of drone attacks on Russia. What happened there going forward?
Lane Riggs
I really don’t have any insight.
Philip Jungwirth
Okay, great. And then this might be a short. Answer, but you’ve always said you’ll stay. Out of the Citco auction. But just given the regime changes in Venezuela, is there any reason you might. Revisit this stance depending on what happens. With the process in here. Yeah, this is Lane.
Lane Riggs
You know, it’s still, I mean, if anything, it’s added a degree of uncertainty to the process. I think again, so we’re still sort of, you know, we chose to stay out of it because of the uncertainty of the process, the length of it all, just all the difficulty with respect to how that would all work. And I don’t know that it’s, I don’t know that our change with respect to Venezuela has made that clearer. I would say, like we always do, we’re obviously interested in any assets that become open or there gets to be more certainty around the process that might change way we think of it.
Philip Jungwirth
That’s helpful. Thanks guys.
operator
Thank you. The next question is coming from Jean Ann Salisbury of Bank of America. Please go ahead. Hi, good morning.
Jean Ann Salisbury
Capture in the North Atlantic has outperformed in recent quarters. Is this driven by closure related tightness. In Europe and do you view it. As a structural shift?
Lane Riggs
Yeah, I think a lot of it has been from our Pembroke refinery. Our highest netback barrels are the ones that we can sell domestically. And as people have chosen to exit that market, we’ve seen our wholesale volumes grow in the UK significantly and it certainly improves the capture rate when that happens.
Jean Ann Salisbury
Okay, thanks. And then as a follow up, both. Refined products pipeline open seasons were extended. And I believe one now offers a path to multiple California markets. Now do you still prefer, as you kind of said on previous calls, to move product waterborne thinking that that’s a, a better solution here? Yes. So, you know, overall there’s a lot of volatility in the California market. So we hate to be committed to a pipeline that has a shipping into closed arbs. We like the optimization opportunities from waterborne supply. You can supply the barrels from anywhere in the world. The one thing I would clarify is, you know, we have a significant commitment to supply the market in Phoenix. And to the extent one of these pipeline projects offers us a more efficient way to get to the Phoenix market, we would certainly entertain that. That’s helpful. Thank you.
operator
Thank you. The next question is coming from Matthew Blair of Tudor Pickering Holt. Please go ahead.
Matthew Blair
Thank you and good morning. You touched on the 45Z for your renewable diesel segment, but are you going. To be recording 45Z credits in your. Ethanol segment in 2026 due to the. Removal of of the indirect land use change? And if so, do you have a approximate EBITDA benefit? It might be. We’re estimating somewhere between like 50 and 100 million.
Eric Fisher
Yeah, this is Eric, we are looking at that very closely. So what I’d say is, you know, given our experience with PTC through dgd, we have set the ethanol segment up to capture PTC from a prevailing wage and qualified sales standpoint. So really, we’re just waiting on final guidance from the PTC to be able to answer your question directly. But what I would say is we are poised to capture whatever the PTC is going to give us. And, you know, what I will add is it works in 10 cent increments. So if you qualify, you’ll get 10 or 20 cents a gallon for whatever they ultimately define as qualified sales.
So you can, you can speculate on how that’s all going to work. But really, yes, we are poised to capture PTC in the ethanol segment. We’re just waiting on finalization of guidance.
Matthew Blair
Thank you. And one follow up on the Venezuela discussion. You mentioned you’re already running more Venezuelan. Crude in the first quarter. What barrels are you pushing out to do that? Are you shifting to an overall heavier crude slate? So pushing out lights and mediums, or. Are you pushing out other heavies?
Randy Hawkins
Yes, this is Randy. It’s kind of a mix of everything. I mean, depending on the location, it may be some incremental fuel cargoes, it may be some Latin America heavy, and it could be Canadian heavy. So it’s kind of a bit of a mix. But I would say, as mentioned before, we are pushing to maximize heavy crude processing in the system going forward with the better differentials.
Matthew Blair
Great. Thank you.
operator
Thank you. The next question is coming from Jason Gableman of TD Cowan. Please, go ahead.
Jason Gableman
Yeah, hey, thanks for taking my questions. I wanted to ask another one on the crude quality dis, given they’ve. They’ve widened out quite a bit. And I know you kind of mentioned a bunch of reasons why that is. But if we kind of look back a few years prior to Covid, it seems like there was more kind of. Sour availability back then than there is now. But at the same time, differentials look wider today than they were prior to Covid. So I guess the question is, do you think that the levels we’re at today are sustainable? Are there reasons why the differential should. Be wider now than they were prior to Covid? Thanks.
Randy Hawkins
Yeah, this is Randy again. I mean, I don’t know that I have a firm answer on what we think markets should be. I think the things that I mentioned before are kind of chief reasons, and I don’t see those really going away as we head through the year. Probably the one thing on the freight side, that is kind of pressuring differentials down in the prompt as freight rates have went up significantly. That’s kind of a result is more enforcement on some of these shadow fleet vessels. And that could be with us as we head through the rest of the year.
Jason Gableman
Got it. Great, thanks. And my quick follow up is just on 2026 throughput and it seems like sustaining CAPEX is down a couple hundred. Million dollars versus what you’ve done the past couple years. So is that an indication that mechanical. Availability should be higher? And given your track record of squeezing out more barrels out of the system, should we expect kind of throughput excluding the shutdown of Benicia, to continue to improve?
Lane Riggs
This is Lane. I would say you can attribute most of it. There’s timing, obviously timing, year over year differences. But a big part of it is we’re, you know, is Benicia. We have one less refinery to sustaining capital on.
Jason Gableman
All right, thanks.
operator
Thank you. This brings us to the end of the question and answer session. I would like to turn the floor back over to Mr. Donovan for closing comments.
Lane Riggs
Yeah. Well, we appreciate everyone joining us today and of course feel free to contact our IR team if you have any follow up questions and have a wonderful day.
operator
Ladies and gentlemen, thank you for your participation. This concludes today’s event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.