VALERO ENERGY CORP/TX

Valero Energy Corporation is a multinational manufacturer and marketer of petroleum-based and low-carbon liquid transportation fuels and petrochemical products, selling its products primarily in the United States, Canada, the United Kingdom, Ireland, and Latin America. The company owns 15 petroleum refineries located in the U.S., Canada, and the U.K. with a combined throughput capacity of approximately 3.2 million barrels per day ¹. Valero is a joint venture member in Diamond Green Diesel Holdings LLC (DGD), which produces low-carbon fuels at two plants located in the Gulf Coast region of the U.S. with a combined production capacity of approximately 1.2 billion gallons per year ². The company also owns 12 ethanol plants located in the Mid-Continent region of the U.S. with a combined production capacity of approximately 1.7 billion gallons per year ³. The industry is shaped by volatile margins dependent on global supply and demand for feedstocks and products, government regulations including the Renewable and Low-Carbon Fuel Programs, and geopolitical factors affecting crude oil markets.

Valero competes in a highly competitive refining and marketing industry against companies that may obtain feedstocks from company-owned crude oil production, have extensive retail networks, or possess different revenue streams from chemicals, midstream, or integrated operations. The company does not produce any of its primary feedstocks other than distillers corn oils produced by its ethanol plants and does not have a company-owned retail network. Approximately 7,000 outlets carry Valero's brand names ⁴. The company's refineries are positioned in areas offering favorable operating costs and strategic advantages, and it has made multibillion-dollar investments to develop low-carbon fuels businesses, positioning itself as a leading producer of low-carbon transportation fuels.

Valero generates revenue through the manufacture and marketing of petroleum-based and low-carbon liquid transportation fuels and petrochemical products. The company manages its operations through three reportable segments: Refining, Renewable Diesel, and Ethanol. Revenue is primarily generated from contracts with customers, recognized when control of products transfers to customers, typically upon shipment or delivery. The company sells products in wholesale rack and bulk markets, with the majority of rack volume sold through unbranded channels and the remainder to distributors and dealers under multi-year contracts under brands including Valero, Beacon, Diamond Shamrock, and Shamrock in the U.S., Ultramar in Canada, Valero and Texaco in the U.K. and Ireland, and Valero in Mexico.

The Refining segment includes the operations of 15 petroleum refineries located in the U.S., Canada, and the U.K. with a combined feedstock throughput capacity of approximately 3.2 million BPD ⁵. For the year ended December 31, 2025, the Refining segment reported total revenues of $116,166 million ⁶ and operating income of $4,040 million ⁷. The Renewable Diesel segment includes the operations of DGD, which owns two renewable diesel plants with a combined production capacity of approximately 1.2 billion gallons per year ⁸, producing renewable diesel, renewable naphtha, and neat sustainable aviation fuel (SAF). For 2025, the Renewable Diesel segment reported total revenues of $4,597 million ⁹ and an operating loss of $156 million ¹⁰. The Ethanol segment includes the operations of 12 ethanol plants with a combined ethanol production capacity of approximately 1.7 billion gallons per year ¹¹, producing ethanol and co-products including dry distillers grains and inedible distillers corn oils. For 2025, the Ethanol segment reported total revenues of $4,977 million ¹² and operating income of $374 million ¹³.

In March 2025, Valero approved a plan to idle the processing units and cease refining operations at its Benicia Refinery by the end of April 2026. As a result, the company evaluated the assets of the Benicia and Wilmington refineries for impairment and recognized a combined asset impairment loss of $1.1 billion ¹⁴ in the year ended December 31, 2025. During 2025, the company issued $650 million of 5.150 percent Senior Notes due February 15, 2030 ¹⁵ and used a portion of the net proceeds to repay $440 million of public debt that matured in 2025 ¹⁶. The company purchased for treasury 16,659,800 shares for a total cost of $2.6 billion ¹⁷ and paid common stock dividends of $1,405 million ¹⁸. As of December 31, 2025, Valero had $1.7 billion remaining available for purchase under the September 2024 Program ¹⁹.

For the year ended December 31, 2025, Valero reported total revenues of $122,687 million ²⁰ compared to $129,881 million ²¹ in 2024. Net income attributable to Valero Energy Corporation stockholders was $2,348 million ²² compared to $2,770 million ²³ in 2024. Earnings per common share were $7.57 ²⁴ compared to $8.58 ²⁵ in the prior year. Operating income was $3,181 million ²⁶ compared to $3,755 million ²⁷ in 2024. Adjusted operating income, which excludes certain items, increased to $4,414 million ²⁸ from $3,799 million ²⁹ in 2024. Cash provided by operating activities was $5,826 million ³⁰ compared to $6,683 million ³¹ in 2024.

Valero provided expected capital investments for the year ending December 31, 2026 of $1,725 million ³², consisting of $1,425 million ³³ in sustaining capital investments and $300 million ³⁴ in growth capital investments. Capital investments attributable to Valero for 2026 are expected to be $1,700 million ³⁵, with $1,400 million ³⁶ in sustaining and $300 million ³⁷ in growth capital investments. By segment, expected capital investments for 2026 are $1,545 million ³⁸ for Refining, $50 million ³⁹ for Renewable Diesel, $100 million ⁴⁰ for Ethanol, and $30 million ⁴¹ for Corporate.

Valero continues to evaluate investments in economic, low-carbon projects, including carbon sequestration and carbon capture and storage, intended to lower the carbon intensity of its products. Several of the company's ethanol plants are located near geology believed to be suitable for sequestering carbon dioxide, and in 2025 Valero entered into a stand-alone agreement with respect to its ethanol plant in Linden, Indiana to capture, transport, and store carbon dioxide that results from the ethanol manufacturing process. The company continues to evaluate additional carbon sequestration and carbon capture and storage projects. The large-scale SAF production project at the DGD Port Arthur Plant was successfully completed in the fourth quarter of 2024, providing the optionality to upgrade approximately 50 percent of its current 470 million gallon renewable diesel annual production capacity to neat SAF ⁴².

Valero expects that global demand for gasoline, diesel, and jet fuel continues to rise, with growth in demand for jet fuel outpacing growth of other primary petroleum-based transportation fuels. Colder temperatures across the North Atlantic and moderation in biofuel consumption growth are expected to support petroleum-based diesel demand. Expected reductions in refining capacity in the U.S. and Europe, unplanned outages at Russian refineries due to the Russia-Ukraine conflict, and a prolonged ramp-up of new capacity in emerging markets continue to support utilization of remaining global refining capacity. Crude oil differentials are expected to widen as a result of an increase in sour crude oil production from OPEC+ suppliers and recent developments involving the Venezuelan government and associated sanctions. Renewable diesel demand is expected to remain consistent with current levels, and ethanol demand is expected to follow typical seasonal patterns.

Refining segment adjusted operating expenses (excluding depreciation and amortization expense) increased by $430 million ⁴³ in 2025 compared to 2024, primarily due to increases in energy costs of $197 million ⁴⁴, certain employee compensation expenses of $84 million ⁴⁵, and maintenance expenses of $69 million ⁴⁶. The company expects capital expenditures attributable to compliance with government regulations, including environmental regulations, will not have material effects on total capital expenditures in 2026.

Valero expects to contribute approximately $70 million ⁴⁷ to its pension plans and $20 million ⁴⁸ to its other postretirement benefit plans during 2026. The company's capital investment program aims to manage capital investments on average over a multi-year period, with expected capital investments for 2026 of $1,725 million ⁴⁹ and capital investments attributable to Valero of $1,700 million ⁵⁰.

Valero's capital allocation framework includes expected capital investments for 2026 of $1,725 million ⁵¹, with $1,425 million ⁵² in sustaining and $300 million ⁵³ in growth capital investments. As of December 31, 2025, the company had $1.7 billion ⁵⁴ remaining available for share purchases under the September 2024 Program. On February 25, 2026, the Board authorized an additional $2.5 billion ⁵⁵ for share purchases with no expiration date. Dividends on common stock were $4.52 per share ⁵⁶ in 2025.

Valero faces structural headwinds from the transition to the clean fuel production credit, which replaced the blender's tax credit effective January 1, 2025, resulting in fewer volumes being eligible for a tax credit as well as lower credit values for fuels previously incentivized. The company's Renewable Diesel segment was subject to new tariffs on renewable feedstocks imported into the U.S., which have at times made the use of certain foreign-sourced feedstocks economically impractical and resulted in reduced margins. The EPA's proposed RFS Set II rules present considerable risks that could require RVOs for 2026-2027 that are infeasible, significantly impact RIN prices and availability, and adversely impact both the Refining and Renewable Diesel segments.

Valero faces execution risks from the planned idling of processing units and cessation of refining operations at the Benicia Refinery by the end of April 2026, including potential unforeseen delays, costs, negative publicity, litigation, and enforcement. The company also faces risks from the considerable uncertainty and potential adverse effects of California legislation on its remaining operations in California, including SBx 1-2 and other regulatory developments. The company continues to evaluate strategic alternatives for its remaining operations in California.

Valero's financial results are materially affected by volatile margins dependent on the difference between product prices and feedstock costs, which can vary greatly based on global and regional market conditions. The company is subject to risks from the Renewable and Low-Carbon Fuel Programs, including the EPA's proposed RFS Set II rules that could require RVOs for 2026-2027 that are infeasible and significantly impact RIN prices, with the EPA's proposals presenting considerable risks to both the Refining and Renewable Diesel segments. The company faces risks from the transition to the clean fuel production credit under Section 45Z of the Code, which has resulted in fewer volumes being eligible for tax credits and lower credit values, and from U.S. tariffs on renewable feedstocks that have made certain foreign-sourced feedstocks economically impractical. Valero is exposed to risks from the planned idling of the Benicia Refinery by the end of April 2026, which resulted in a $1.1 billion asset impairment loss ⁵⁷ and incremental depreciation of approximately $300 million ⁵⁸ in 2025. The company also faces risks from California legislation including SBx 1-2, which presents considerable uncertainty and potential adverse effects on its remaining operations in California.

Management's message emphasizes that Valero's results for the year ended December 31, 2025 were supported by strong worldwide demand for petroleum-based transportation fuels while worldwide supply remained constrained, though results were impacted by a $1.1 billion asset impairment loss associated with operations in California ⁵⁹ and negative impacts from trade and other policy changes during 2025. Management highlights that the company has taken actions to mitigate the impact of tariffs and duties, including utilizing established free-trade zones, adjusting feedstock slates, and optimizing supply chains. Strategic priorities emphasized include managing the business to responsibly meet growing demand for reliable and affordable energy, leveraging expertise in liquid fuels manufacturing to optimize low-carbon fuels businesses, and continuing to evaluate investments in economic low-carbon projects including carbon sequestration and carbon capture and storage. Management expects capital investments for 2026 of $1,725 million ⁶⁰ and capital investments attributable to Valero of $1,700 million ⁶¹.