Q2 2025 Valero Energy Corp Earnings Call

July 24, 2025

A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Homer <unk>, Vice President Investor Relations and finance.

Thank you. Please go ahead.

Speaker Change: Good morning, everyone and welcome to Valero Energy Corporation's second quarter 2025 earnings Conference call.

Speaker Change: With me today are lane Riggs, our chairman CEO and President, Jason Fraser, Our executive Vice President and CFO.

Jason Fraser: With respect to the renewable diesel segment, we still expect sales volumes to be approximately 1.1 billion gallons in 2025, reflecting lower production volumes due to economic. Operating expenses in 2025 should be 53 cents per gallon, which includes 24 cents 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 third quarter. Operating expenses should average $0.40 per gallon, which includes $0.05 per gallon for non-cash costs such as depreciation and amortization. For the third quarter, net interest expense should be about $135 million. Total depreciation and amortization expense in the third quarter should be approximately $810 million, which includes approximately $100 million of incremental depreciation expense related to our plan to cease refining operations at our Benicia refinery by the end of April 2026.

Speaker Change: Gary Simmons, our executive Vice President and CFO Rich Walsh, our executive Vice President and General Counsel and several other members of <unk> Senior management team.

Speaker Change: If you've not received the earnings release and would like a copy you can find one on our website at Investor Valero Dot com.

Speaker Change: Also attached to the earnings release are tables that provide additional financial information on our business segments, and reconciliations and disclosures for adjusted financial metrics mentioned on this call.

Speaker Change: If you have any questions. After reviewing these tables, please feel free to contact our investor relations team after the call.

Speaker Change: I would now like to direct your attention to the forward looking statement disclaimer contained in the press release.

Speaker Change: In summary, it says that statements in the press release and on this conference call that state the company's or management's expectations or predictions of the future are forward looking statements intended to be covered by the safe Harbor provisions under federal Securities laws.

Jason Fraser: We expect this incremental depreciation related to the Benicia refinery to be included in DNA for the next three quarters, resulting in a quarterly earnings impact of approximately 25 cents per share based on current shares outstanding. For 2025, we still expect GNA expenses to be approximately $985 million.

Speaker Change: There are many factors that could cause actual results to differ from our expectations, including those we've described in our earnings release and filings with the SEC.

Lane Riggs: Now I'll turn the call over to lane for opening remarks.

Lane Riggs: Thank you Holly and good morning, everyone. We.

Lane Riggs: We are pleased to report solid financial results for the second quarter, driven by our strong operational and commercial execution in fact.

Jason Fraser: That concludes our opening remarks.

Homer Bhullar: Before we open the call to questions, please limit each turn in the Q&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.

Lane Riggs: We set a record for refining throughput rate in our U S. Gulf Coast region in the second quarter, demonstrating the benefits of our investments in growth and optimization projects.

Operator: The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question 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 1 to register a question at this time.

Lane Riggs: Refining margins were supported by strong product demand against the backdrop of low product inventory globally. In particular early July U S diesel inventories in data supplier at the lowest level for the month and almost 30 years.

Lane Riggs: We continue to see strong demand with our quarterly diesel sales volumes up approximately 10% over the same period last year and gasoline sales about the same as last year.

Theresa Chen: Our first question is coming from Theresa Chen of Barclays. Please go ahead.

Lane Riggs: On the financial side, we continued on our commitment to shareholder returns with a payout ratio of 52% in the second quarter and last week, we announced a quarterly cash dividend on our common stock of $1 13 per share.

Gary Simmons: For more information visit www.fema.gov Good morning. Now that we are halfway through the summer driving season, how is refined product demand trending across your footprint? Maybe just unpack some of Lane's opening remarks about sales across your system. Are there any noticeable patterns or shifts? And additionally, what kind of signals are you observing in the export market?

Lane Riggs: On the strategic front, we continued to progress the FCC unit optimization projects at St. Charles will enable the refinery increase the yield of high value products, including high octane alkylate.

Gary Simmons: Hey, good morning, Theresa. It's Gary. You know, overall, I'd tell you the fundamentals around refining continue to look very supportive. Total light product inventory remains below the five-year average range, below where we were last year at this time. And demand for transportation fuels remains robust, not only here in the U.S., but also in our typical export markets. Our view is gasoline demand relatively flat to last year. It looks like vehicle miles traveled are up slightly year over year, but probably only up enough to offset efficiency gains in the automotive fleet, not up enough to really create incremental demand.

Lane Riggs: The project is expected to cost $230 million of startup in 2026.

Lane Riggs: Looking ahead, we remain optimistic on refining fundamentals with several planned refinery closures. This year in our Ltd announced capacity additions beyond 2025.

Lane Riggs: Additionally, we expect our sour crude oil differentials to widen as OPEC, plus and Canada continued to increase production during the third and fourth quarters.

Lane Riggs: In closing we remain committed to maintain our track record of commercial and operational excellence, which has been the hallmark of our strategy for over a decade.

Lane Riggs: And our commitment remains underpinned by a strong balance sheet that also provides us plenty of financial flexibility so with that Homer I'll hand, the call back to you.

Gary Simmons: If you look at our wholesale volumes, they would also indicate flat year over year gasoline demand. In addition to relatively strong gasoline demand domestically, we've also seen good export demand to Latin America. And then on the supply side, you know, the transatlantic ARB to ship gasoline from Europe to the United States has been closed for much of the year. So... When you combine relatively good demand with less supply coming from Europe, you would kind of expect inventory to be a little lower than last year, and that's what we saw in the second quarter. So those factors ultimately resulted in a little stronger gasoline margin environment this year compared to last.

Homer: Thanks, Wayne for the second quarter of 2025, net income attributable to Valero stockholders was $714 million or $2 28 per share compared to $880 million or $2 71 per share for the second quarter of 2024.

Homer: The refining segment reported $1 3 billion of operating income for the second quarter of 2025 compared to $1 2 billion for the second quarter of 2024.

Homer: Refining throughput volumes in the second quarter of 2025 averaged two 9 million barrels per day or 92% throughput capacity utilization.

Additionally, we expect our sour crude oil differentials to widen as OPEC, plus and Canada continued to increase production during the third and fourth quarters.

Gary Simmons: Going forward, the transatlantic ARB is marginally open, so supply seems adequate to meet demand. We're kind of getting to the end of driving season. We'll start RVP transition in some regions soon. So it's hard to see a lot of support for gasoline cracks moving forward, absent some type of supply disruption. We'd kind of expect gasoline cracks to follow typical season patterns, remain around mid-cycle levels through the end of the year.

In closing we remain committed to maintain our track record of commercial and operational excellence, which has been the hallmark of our strategy for over a decade.

Homer: Refining cash operating expenses were $4 91 per barrel in the second quarter of 2025.

Homer: The renewable diesel segment reported an operating loss of $79 million for the second quarter of 2025 compared to operating income of $112 million for the second quarter of 2024.

And our commitment remains underpinned by a strong balance sheet, but also provides us plenty of financial flexibility.

Homer: Homer I'll hand, the call back to you.

Gary Simmons: Distillate, the story is much different, though. You know, where gasoline demand is expected to fall off some, we expect distillate demand to pick up. First, we'll start to get into harvest season, see agricultural demand pick up, and then we'll transition to heating oil season. Overall, diesel demand has continued to trend above last year's level, really strong demand in the first quarter due to colder weather, and then increased demand for refinery-produced diesel with less imports of bio and renewable diesel. In our system, diesel sales are currently trending about 3% above last year's level. Again, while domestic demand has been good, we see a strong pull of U.S.

Homer: Renewable diesel sales volumes averaged $2 7 million gallons per day in the second quarter of 2025.

Homer: The ethanol segment reported $54 million of operating income for the second quarter of 2025 compared to $105 million for the second quarter of 2024.

The refining segment reported $1 3 billion of operating income for the second quarter of 2025 compared to $1 2 billion for the second quarter of 2024.

Homer: Ethanol production volumes averaged $4 6 million gallons per day in the second quarter of 2025.

Homer: For the second quarter of 2025, G&A expenses were $220 million net interest expense was $141 million in income tax expense was $279 million.

Homer: Refining throughput volumes in the second quarter of 2025 averaged $2 9 million barrels per day or 92% throughput capacity utilization.

Gary Simmons: Gulf Coast distillate into the export markets. The export really have kept inventory down near historic lows during a time where restocking typically occurs. We have seen diesel inventory gain in the last couple of weeks, but really that's just a result of an incredibly strong export market in early June. As exports got really strong, freight rates spiked, and so it closed some of those export ARBs. Freight rates have come back off, so the ARBs are open to export both to Latin America and Europe. With those ARBs open, it's difficult to see how we get the normal build in diesel inventory that occurs in the third quarter.

Homer: Depreciation and amortization expense was $814 million, which includes approximately $100 million of incremental depreciation expense related to our planned to seize refining operations at our Benicia refinery by the end of April 2026.

Homer: Refining cash operating expenses were $4 91 per barrel in the second quarter of 2025.

Homer: The renewable diesel segment reported an operating loss of $79 million for the second quarter of 2025 compared to operating income of $112 million for the second quarter of 2024.

Homer: Net cash provided by operating activities was $936 million in the second quarter of 2025.

Homer: Renewable diesel sales volumes averaged $2 7 million gallons per day in the second quarter of 2025.

Homer: Included in this amount was $325 million unfavorable impact from working capital and $86 million of adjusted net cash used in operating activities associated with the other joint venture members share of DTD.

Homer: The ethanol segment reported $54 million of operating income for the second quarter of 2025 compared to $105 million for the second quarter of 2024.

Gary Simmons: So diesel cracks have been strong with low inventory. We expect diesel cracks to remain strong heading into hurricane season. If we have some type of supply disruption, I think you'll see a pretty significant market reaction with inventories as low as they are.

Homer: Excluding these items adjusted net cash provided by operating activities was $1 3 billion in the second quarter of 2025.

Homer: Ethanol production volumes averaged $4 6 million gallons per day in the second quarter of 2025.

Homer: For the second quarter of 2025, G&A expenses were $220 million net interest expense was $141 million and income tax expense was $279 million.

Homer: Regarding investing activities, we made $407 million of capital investments in the second quarter of 2025 of which 371 million was for sustaining the business, including costs for turnarounds catalysts and regulatory compliance and the balance was for growing the business.

Gary Simmons: Thank you, Gary.

Gary Simmons: And what is your near to medium term outlook for light heavy differentials, taking into account the tailwind from incremental OPIC plus barrels coming to market, but also considering potential headwinds from MX production volatility, the unavailability of Venezuelan barrels, GOM crude quality issues, and so on? How do you think these factors play out? Yeah, thus far, year-to-date, I think, you know, the quality differentials have certainly been a headwind for us. We thought coming into the year, you'd see less demand with Linedale going down, but that was kind of offset. The Venezuelan sanction pulled about 200,000 barrels a day out of the U.S.

Homer: Excluding capital investments attributable to the other joint venture members share of DVD and other variable interest entities capital investments attributable to Valero were $399 million in the second quarter of 2025.

Homer: Net cash provided by operating activities was $936 million in the second quarter of 2025 <unk>.

Homer: Moving to financing activities, we returned $695 million to our stockholders in the second quarter of 2025 of which $354 million was paid as dividends and $341 million was for the purchase of approximately $2 6 million shares of common stock, resulting in a payout ratio of 52% for the quarter.

Gary Simmons: Gulf Coast market. You had the wildfires that took about 5 million barrels of June supply off the market. But going forward, we do think things will get better. It'll probably be the fourth quarter before you really see that. Canadian production has not only recovered from the wildfires, but it continues to grow. And as you mentioned, OPEC unwinding their 1.9 million barrels a day of cuts by August. Really, it appears that much of the ramp-up in the production we haven't seen on the market yet so far because there was crude oil burn in the region for seasonal power demand.

Homer: Excluding these items adjusted net cash provided by operating activities was $1 3 billion in the second quarter of 2025.

Homer: <unk>.

Homer: Year to date, we have returned over $1 3 billion through dividends and stock buybacks for a payout ratio of 60%.

Homer: Regarding investing activities, we made $407 million of capital investments in the second quarter of 2025 of which $371 million was for sustaining the business, including costs for turnarounds catalysts and regulatory compliance and the balance was for growing the business.

Homer: And as Leon mentioned on July 17th we announced a quarterly cash dividend on common stock of $1 13 per share.

Homer: With respect to our balance sheet, we repaid the outstanding principal balance of $251 million of 285% senior notes that matured in April we ended the quarter with $8 4 billion of total debt $2 3 billion of total finance lease obligations and $4 5 billion of cash and cash equivalents.

Gary Simmons: As we move out of summer, more of those barrels will make their way to the market. And then, you know, early summer, tensions in the Middle East also caused some countries to front-end load fuel purchases that they use for power demand also. Again, that will unwind fuel coming back off to the market. As fuel comes back, that'll support wider differentials as well. Additionally, in the fourth quarter, with turnaround activity, you should see less demand for those barrels. So all of those should really contribute to wider differentials in the fourth quarter. I think the only unknown here is really what happens with the Russian sanctions.

Homer: The debt to capitalization ratio net of cash and cash equivalents was 19% as of June 32025, and we ended the quarter well capitalized with $5 3 billion of available liquidity excluding cash.

Homer: Moving to financing activities, we returned $695 million to our stockholders in the second quarter of 2025 of which $354 million was paid as dividends and 341 million was for the purchase of approximately $2 6 million shares of common stock, resulting in a payout ratio of 52% for the quarter.

Homer: Turning to guidance, we still expect capital investments attributable to Valero for 2025 to be approximately $2 billion, which includes expenditures for turnarounds catalysts and regulatory compliance and joint venture investments.

Gary Simmons: Thus far, you know, we haven't really seen much of an impact. But if the sanctions are effective and cut some of the Russian barrels, that would obviously be bearish the difference.

Homer: <unk>.

Homer: Year to date, we have returned over $1 3 billion through dividends and stock buybacks for a payout ratio of 60%.

Homer: About $1 6 billion of that is allocated to sustaining the business and the balance to growth.

Gary Simmons: Thank you very much.

Homer: And as Leon mentioned on July 17th we announced a quarterly cash dividend on common stock of $1 13 per share.

Gary Simmons: Thank you.

Manav Gupta: The next question is coming from Manav Gupta of UBS. Please go ahead.

Homer: For modeling our third quarter operations, we expect refining throughput volumes to fall within the following ranges.

Gary Simmons: I think just wanted to understand what's your outlook for the net capacity additions for the remaining part of this year and for 2026. Are you still seeing major capacity additions globally or do you think those things are slowing down and given the demand growth we should be in a better position going ahead if you could talk about that?

Homer: Gulf Coast at 176 to 181 million barrels per day.

Homer: Mid continent at 430 to 450000 barrels per day.

Homer: West Coast at 240 to 260000 barrels per day, and North Atlantic at 465 to 485000 barrels per day.

Gary Simmons: Yeah, this is Gary. You know, I think definitely when we look out on the horizon, there's not a lot of new capacity coming online. And a lot of what new capacity there is, is really more geared towards petrochemical production rather than making transportation fuels. If we look at next year, it looks like just over 400,000 barrels a day of new refining capacity coming online. Initially, most consultants were forecasting around 800,000 barrels a day of total live product demand growth, which would have indicated significant tightening starting next year. With some of the economic uncertainty, especially around tariffs, forecasts have fallen off to where a lot of people are only forecasting around 400,000 barrels a day, total product demand growth.

Homer: We expect refining cash operating expenses in the third quarter to be approximately $4 80 per barrel.

Homer: With respect to the renewable diesel segment, we still expect sales volumes to be approximately $1 1 billion gallons in 2025, reflecting lower production volumes due to economics.

Homer: Operating expenses in 2025 should be 53 per gallon.

Homer: About $1 6 billion of that is allocated to sustaining the business and the balance to growth.

Homer: Which includes 24 per gallon for noncash costs, such as depreciation and amortization.

Homer: For modeling our third quarter operations, we expect refining throughput volumes to fall within the following ranges.

Homer: Our ethanol segment is expected to produce $4 6 million gallons per day in the third quarter.

Homer: Gulf Coast at 176 to 181 million barrels per day.

Gary Simmons: And then a lot of consultants are showing a lot of that demand growth being filled by a step change in renewable production. I'm confident we'll see tighter supply-demand balances. The question really is, when does this occur? Is it next year? Do we actually see some type of economic activity slow down? And it isn't until 2027 that things really start to get tight. Thus far, you know, our view is the economy has been fairly resilient. Demand for transportation fuels has remained strong. So I guess I'm a little more optimistic about the economy. And we'll have to see with all the uncertainty on renewables whether we see a ramp-up in renewable production or not.

Homer: Operating expenses should average 40 per gallon, which includes <unk> <unk> per gallon for noncash costs, such as depreciation and amortization.

Homer: Mid continent at 430 to 450000 barrels per day.

Homer: West Coast at 240 to 260000 barrels per day, and North Atlantic at 465 to 485000 barrels per day.

Homer: For the third quarter net interest expense should be about $135 million.

Homer: Total depreciation and amortization expense in the third quarter should be approximately $810 million, which includes approximately $100 million of incremental depreciation expense related to our planned to seize refining operations at our Benicia refinery by the end of April 2026.

Homer: We expect refining cash operating expenses in the third quarter to be approximately $4 80 per barrel.

Homer: With respect to the renewable diesel segment, we still expect sales volumes to be approximately $1 1 billion gallons in 2025%, reflecting lower production volumes due to economics.

Homer: We expect this incremental depreciation related to the Benicia refinery to be included in DNA for the next three quarters, resulting in a quarterly earnings impact of approximately <unk> 25 per share based on current shares outstanding.

Gary Simmons: The other big factor in all this is, you know, will we see additional refinery rationalization? Although some refinery closures have been announced, you know, certainly the recent announcement around the Lindsay refinery in the U.K. was fairly unexpected. Hard to believe there aren't others facing a similar situation with other refinery closure too. Things could really tighten up a lot faster. But the big driver here is really what happens to the economy, and you're probably in a better position to assess that than I am.

Homer: Operating expenses in 2025 should be 53 per gallon, which includes <unk> 24 per gallon for noncash costs, such as depreciation and amortization.

Homer: For 2025, we still expect G&A expenses to be approximately $985 million.

Homer: Our ethanol segment is expected to produce $4 6 million gallons per day in the third quarter.

Homer: That concludes our opening remarks before we open the call to questions. Please limit each turn in the Q&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.

Homer: Operating expenses should average 40 per gallon, which includes <unk> <unk> per gallon for noncash costs, such as depreciation and amortization.

Manav Gupta: A quick follow-up is, I was looking at your Gulf Coast capture.

Greg Bram: Now, that's where heavy light narrowness should hit the capture the hardest, but the capture actually was over 92%, and I'm trying to understand a few dynamics, what allow you to deliver such strong capture, and then going back to the first question, if heavy lights do widen out, should we expect a tailwind to the Gulf Coast capture, because the way your benchmark is constructed, those do not get reflected in the benchmark, so if you could talk about that. Yeah, Manav, this is Greg. So I think you hit on some of the points related to heavy light and capture, because we do include heavy grades in our reference for the Gulf Coast.

Homer: For the third quarter net interest expense should be about $135 million.

Homer: Thank you the floor is now open for questions.

Speaker Change: I would like to ask a question. Please press star one on your telephone keypad at this time.

Speaker Change: Information tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up the handset before pressing the star Keys again Thats Star One to register a question at this time. Our first question is coming from Theresa Chen of Barclays.

Speaker Change: Please go ahead.

Greg Bram: So as those move out and contract, that's picked up in the reference crack that we use. So not as big of an impact on capture rate, because it's built into the indicator margin that we use.

Theresa Chen: Good morning, now that we're halfway through the summer driving season, how is refined product demand trending across your footprint, maybe just unpack some of the mines opening remarks about Stanford cluster systems.

Homer: For 2025, we still expect G&A expenses to be approximately $985 million.

Greg Bram: On our performance in second quarter, a lot of the improvement was driven by really strong operating performance coming out of the heavy maintenance we had in the first quarter. And that was really highlighted, if you remember, by Lane's comment about record quarterly throughput in that region. So good operating performance. We had strong commercial performance as well in that region, particularly on the product side. Good exports, great wholesale performance in that part of our business as well. So those were the primary drivers for the Gulf Coast in the second quarter. And again, as those crude differentials widen out, to the extent that they're in the indicator that we use, probably not as much of a factor when you think about the capture rate relative to our indicator.

Speaker Change: Are there any noticeable patterns or shifts and additionally, what kind of signals are you observing in the export market.

Speaker Change: Hey, good morning curious Gary overall, I would tell you the fundamentals around refining continue to look very supportive.

Homer: Thank you the floor is now open for questions.

Speaker Change: Total light product inventory remains below the five year average range below where we were last year at this time.

Speaker Change: I'd 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 your question from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys again Thats star one.

Speaker Change: Demand for transportation fuels remains robust not only here in the U S. But also into our typical export markets.

Speaker Change: Our view is gasoline demand relatively flat to last year. It looks like vehicle miles traveled are up slightly year over year, but probably only up enough to offset efficiency gains in the automotive fleet not up enough to really create incremental demand. If you look at our wholesale volumes. They would also indicate flat year over year gasoline demand.

Speaker Change: To register a question at this time, our first question is coming from Theresa Chen of Barclays. Please go ahead.

Greg Bram: Thank you.

Theresa Chen: Good morning, now that we're halfway through the summer driving season, how is refined product demand trending across your footprint, maybe just unpack some of lanes opening remarks about Stanford cluster system and.

Speaker Change: In addition to regulatory.

Neil Mehta: The next question is coming from Neil Mehta of Goldman Sachs. Please go ahead. Yeah, good morning, team.

Speaker Change: Relatively strong gasoline demand domestically. We've also seen good export demand in Latin America, and then on the supply side, you know the Trans Atlantic Arb to ship gasoline from Europe to the United States has been closed for much of the year. So.

Homer Bhullar: I want to spend some time on return of capital. Yeah, return $633 million in the first quarter or second quarter with the payout worth of 70%. So just your perspective on, you know, the sustainability of capital returns and how we should be thinking about the buyback in the back half.

Theresa Chen: Are there any noticeable patterns or shifts and additionally, what kind of signals are you observing in the export market.

Speaker Change: When you combine relatively good demand with less supply coming from Europe, you would kind of expect inventory to be a little lower than last year and thats, what we saw in the second quarter.

Speaker Change: Hey, good morning curious Gary overall, I would tell you the fundamentals around refining continue to look very supportive.

Speaker Change: Total light product inventory remains below the five year average range below where we were last year at this time and demand for transportation fuels remains robust not only here in the U S. But also into our typical export markets. Our view is gasoline demand relatively flat to last year. It looks like vehicle miles traveled are up slightly year over.

Speaker Change: So those factors ultimately resulted in a little stronger gasoline margin environment. This year compared to last going forward as the Trans Atlantic Arb is marginally open so supply seems adequate to meet demand, we're kind of getting to the end of driving season will start RVP transition in some regions. Soon so it's hard to see a lot of support for gasoline.

Homer Bhullar: Yeah, Neil, hey, it's Homer. I mean, maybe I'll just start with just the framework around buybacks, right? It's guided by a number of things. Obviously, first and foremost, we've got our stated minimum commitment to an annual payout of 40 to 50% of adjusted cash flow, right? And so you should continue to consider that as non-discretionary. We'll honor that in any sort of environment. Then we've got our target minimum cash position of $4 to $5 billion, and we're right at the midpoint there. So we're not looking to build more cash, right? And as a result of that, because consistent with what we've been saying for quite some time, you know, we'll continue to use all excess free cash flow to buy back shares.

Speaker Change: A year, but probably only up enough to offset efficiency gains in the automotive fleet not up enough to really create incremental demand.

Speaker Change: <unk> moving forward.

Speaker Change: Absent some type of supply disruption, we kind of expect gasoline cracks to follow typical season patterns remain around mid cycle levels through the end of the year.

Speaker Change: If you look at our wholesale volumes. They would also indicate flat year over year gasoline demand.

Speaker Change: Let the story is much different though.

Speaker Change: In addition to regulatory.

Speaker Change: Relatively strong gasoline demand domestically. We are also seeing good export demand in Latin America, and then on the supply side, you know the Trans Atlantic Arb to ship gasoline from Europe to the United States has been closed for much of the year. So.

Speaker Change: Gasoline demand is expected to fall off some we expect distillate demand to pick up first we will start to get into harvest season see agricultural demand pick up and then we'll transition to heating oil season. Overall diesel demand has continued to trend above last year's level really strong demand in the first quarter due to colder weather.

Homer Bhullar: And as you highlighted, second quarter resulted in a payout of 52%. Keep in mind, though, that we also use $251 million towards the April. In addition to $325 million that was consumed by working capital, right? So, you know, looking forward with the balance sheet where it is and discipline around capital investments, I think you can continue to expect us to maintain this posture where all excess free cash is aimed at share buybacks.

Speaker Change: And then increased demand for refinery produce diesel with less imports of bio and renewable diesel.

Speaker Change: So those factors ultimately resulted in a little stronger gasoline margin environment this year compared to last.

Speaker Change: And our system diesel sales are currently trading about 3% above last year's level again, while domestic demand has been good we see a strong poll of U S. Gulf coast distillate into the export markets and the export really have kept inventory down near historic lows during a time, where restocking typically occurs we have seen decent <unk>.

Speaker Change: Going forward as the Trans Atlantic Arb is marginally open so supply seems adequate to meet demand, we're kind of getting to the end of driving season will start RVP transition in some regions. Soon so it's hard to see a lot of support for gasoline cracks moving forward.

Homer Bhullar: Longer term, I mean, I don't know, you know, if you have the investor deck handy, but we've got a slide in there. I think it's slide 11 that puts all of this into, you know, context, actually reflecting our actual results. So if you look at the last 10-year period through 2024, total cash flow from operations was around $61 billion, and that includes changes in working capital, which is roughly $6 billion a year. If you think about run rate capex, right, $2 to $2.5 billion, so $2.25 at the midpoint with $1.5 sustaining and then $500 million to $1 billion of growth.

Speaker Change: And some type of supply disruption, we kind of expect gasoline cracks to follow typical season patterns remain around mid cycle levels through the end of the year desolate. The story is much different though.

Speaker Change: Tori gain in the last couple of weeks, but really that's just a result of an incredibly strong export market in early June as exports got really strong freight rates spiked and so it closed some of those export arbs freight rates have come back off so the arbs are opened exports both to Latin America and Europe.

Speaker Change: Gasoline demand is expected to fall off some we expect distillate demand to pick up first we will start to get into harvest season see agricultural demand pick up.

Speaker Change: With those arbs open it's difficult to see how we get the normal build in diesel inventory that occurs in the third quarter. So diesel cracks have been strong with low inventory. We expect diesel cracks have remained strong heading into hurricane season. If we have some type of supply disruption I think youll see a pretty significant market reaction with inventories as low as they are.

Speaker Change: Then we will transition to heating oil season overall diesel demand has continued to trend above last year's level really strong demand in the first quarter due to colder weather and then increased demand for refinery produce diesel with less imports of bio and renewable diesel.

Homer Bhullar: And layer on top, you've got $1.4 billion or so to fund the dividend, right? So $6 billion of annual cash flow from operations, $2.5 billion capex, $1.4 billion to dividend, that leaves over $2.3 billion for buybacks based on our actual results over the past 10 years. Hopefully that gives you some context.

Speaker Change: And our system diesel sales are currently trading about 3% above last year's level again wide domestic demand has been good we see a strong poll of U S. Gulf coast distillate into the export markets and the export really have kept inventory down near historic lows during a time, where restocking typically occurs we have seen diesel.

Speaker Change: <unk>.

Speaker Change: Thank you Terry.

Speaker Change: What is your near to medium term outlook for light heavy differentials on taking into account the tailwind from incremental OPEC plus barrels convention market, but also considering potential headwinds from production volatility the unavailability of Venezuelan barrels Tom crude quality issues and so on having some.

Neil Mehta: Really helpful, Homer.

Neil Mehta: The follow-up is around DGD. Obviously, a lot of moving pieces and appears to be pretty tough, if not trough conditions.

Eric Fisher: What's the path back to mid-cycle here? How do you think about the evolution of the business and can you talk about your commitment to it?

Speaker Change: These factors play out.

Speaker Change: Yes, thus far year to date I think you know the quality differentials have certainly been a headwind for us we thought coming into the year, you would see less demand with lined down going down but that was kind of offset the Venezuelan sanctions pulled about 200000 barrels a day out of the U S. Gulf Coast market you had the wildfires that took about 5 million barrels of June <unk>.

Eric Fisher: Hey Neil, this is Eric. I think, you know, you've already said that, you know, it's in a lot of policy clarity. You know, vagueness right now. I think, you know, you can see really the linchpin in all of this is going to be what the EPA says post their comment period that are due by August 8th. And so what they do in terms of setting the RVO and what they do in terms of SREs and if in any reallocations, will set the D4 RIN market and then consequently, hopefully, set how the rest of the other markets will react versus the D4 RIN.

Speaker Change: Lie off the market, but going forward, we do think things will get better it'd probably be the fourth quarter before you really see that.

Speaker Change: Canadian production has not only recovered from the wildfires, but it continues to grow and as you mentioned OPEC unwinding their $1 9 million barrels a day of cuts by August.

Speaker Change: Thank you Terry.

Speaker Change: Is your near to medium term outlook for light heavy differentials.

Speaker Change: Really it appears that much of the ramp up in production, we haven't seen on the market yet so far because they were crude oil burn in the region for seasonal power demand as we move out of some are more of those barrels will make their way to the market and then early summer attention and then middle East also caused some countries of front end load fuel purchases that they use for.

Taking into account the tailwind from incremental OPEC plus barrels coming to market, but also considering potential headwinds from production volatility and availability of an Australian barrels com crude quality issues and so on having some of these factors play out.

Eric Fisher: So, I mean, we see the LCFS market in California is slowly moving up after they passed their 9% obligation increase, effective July 1. We see that a lot, you know, Europe continues to support its mandate for the 2% SAF requirement. We see the CFR in Canada is going to continue to go forward. So, you know, long term there's still enough tailwind out there that says this segment will continue to be in demand. It's really just a question of When we see these credit prices start to move, you're starting to see the D4 RIN move up.

Speaker Change: Yes, thus far year to date I think you know the quality differentials have certainly been a headwind for us we thought coming into the year, you would see less demand with lyondell going down but that was kind of offset the Venezuelan sanctions pulled about 200000 barrels a day out of the U S. Gulf Coast market you had the wildfires that took about 5 million barrels of June <unk>.

Speaker Change: For power demand also again that will unwind fuel coming back off to the market as fuel comes back that will support wider differentials as well as.

Speaker Change: Additionally, in the fourth quarter with turnaround activity, you should see less demand for those barrels. So all of those should really contribute to wider differentials in the fourth quarter I think the only unknown here is really what happens with the Russian sanctions. Thus far we haven't really seen much of an impact, but if the sanctions are effective and cut some of the Russian barrels that would obviously be bearish the differentials.

Speaker Change: I off the market, but going forward, we do think things will get better it will probably be the fourth quarter before you really see that.

Eric Fisher: You're starting to see it separate from the D6. The big question is going to be when you see FAT prices adjust to these policies once these policies are clarified. And so once those FAT prices start to disconnect, then I think you'll see the margins open up for DGD and you'll see more demand for DGD and renewables with the ongoing policy years.

Speaker Change: Canadian production has not only recovered from the wildfires, but it continues to grow and as you mentioned OPEC unwinding their $1 9 million barrels a day of cuts by August.

Speaker Change: Thank you very much.

Speaker Change: Thank you. The next question is coming from Manav Gupta of UBS. Please go ahead.

Speaker Change: Really it appears that much of the ramp up in the production we haven't seen on the market yet so far because there was crude oil burn in the region for seasonal power demand as we move out of some are more of those barrels will make their way to the market and then early summer attention and then middle East also caused some countries of front end load fuel purchases that they use for.

Speaker Change: Dean just wanted to understand what's your outlook for the net capacity additions for the remaining part of FY 2026 are you still seeing major capacity additions globally or do you think those things are slowing down and given the demand growth we should be.

Speaker Change: Better positioned going ahead, if you could talk about that.

Speaker Change: Power demand also again that will unwind fuel coming back off to the market as fuel comes back that will support wider differentials as well. Additionally.

Eric Fisher: Thank you.

Speaker Change: Yes, Manav. This is Gary I think definitely when we look out on the horizon. There is not a lot of new capacity coming online and a lot of what new capacity. There is is really more geared towards petrochemical production rather than making transportation fuels, if we <unk>.

Doug Leggate: The next question is coming from Doug Leggate of Wolf Research. Please go ahead. Well, thanks. Good morning, everyone.

Speaker Change: Additionally, in the fourth quarter with turnaround activity, you should see less demand for those barrels. So all of those should really contribute to wider differentials in the fourth quarter I think the only unknown here is really what happens with the Russian sanctions. Thus far you know we haven't really seen much of an impact, but if the sanctions are effective and cut some of the Russian barrels that would obviously be bearish the differentials.

Greg Bram: So guys, I think I've got to go back to refining school because you guys are embarrassing us here with your distillate yields versus your light sweet crude throughput. I wonder if you could help us reconcile what's going on there. Obviously, margins are, heat margins were better than gas for, you know, for most of Q2, I guess. But when we look at the last, basically since 2024, I think your light crude input is about 10% higher, but your distillate yield is up materially as well. So, great result, but can you help us understand what's going on there is my first question.

Speaker Change: Look at next year, it looks like just over 400000 barrels a day of new refining capacity coming online.

Speaker Change: Initially most consultants, we're forecasting around 800000 barrels a day of total light product demand growth, which would have indicated significant tightening tightening starting next year.

Speaker Change: <unk>.

Speaker Change: Thank you very much.

Speaker Change: Thank you. The next question is coming from Manav Gupta of UBS. Please go ahead.

Speaker Change: With some of the economic uncertainty, especially around tariffs forecasted fallen off to where a lot of people are only forecasting around 400000 barrels a day total light product demand growth and then a lot of consultants are showing a lot of that demand growth.

Manav Gupta: Just wanted to understand what's your outlook for the net capacity additions for the remaining part of FY 2026.

Greg Bram: I've got a quick follow up for.

Manav Gupta: <unk> seen major capacity additions globally or do you think those things are slowing down and given the demand growth we should be better positioned going ahead, if you could talk about that.

Greg Bram: Yeah, Doug, this is Greg. So I would tell you, it's pretty simple. We've been for the most part in that period in max distillate production mode. So when you think about how we're adjusting the operation, we're maximizing the yield of jet fuel and diesel fuel. So even though you've got a crude slate that might be a bit lighter, we can do some adjusting within the downstream operation to try to make sure we get all the distillate molecules into that pool that we can. And we've been pretty, pretty successful and effective at doing that in that time.

Speaker Change: Being filled by <unk>.

Speaker Change: Step change in renewable production.

Speaker Change: I'm confident we will see tighter supply demand balances. The question really is when does this occur.

Speaker Change: Is it next year when do we actually see some type of economic activity slowdown and it isn't until 2027 that things really start to get tight.

Manav Gupta: Yes. This is Gary I think definitely when we look out on the horizon Theres not a lot of new capacity coming online and a lot of what new capacity. There is is really more geared towards petrochemical production rather than making transportation fuels.

Speaker Change: Thus far our view is the economy has been fairly resilient demand for transportation fuels has remained strong so I guess I'm a little more optimistic about the economy and we will have to see with only uncertainty on renewables, whether we see a ramp up in renewable production or not on the other big factor in all of this as you know will we see additional refinery.

Manav Gupta: We look at next year it looks like just over 400000 barrels a day of new refining capacity coming online.

Greg Bram: I'm sorry for the Part B here, but would I assume that that's part of the reason why your capture is doing so well? Certainly helps it. Certainly it helps when you've got that strong distillate crack and then you're maximizing that yield that certainly will have a positive impact on Thank you for that.

Manav Gupta: Surely most consultants, we're forecasting around 800000 barrels a day of total light product demand growth, which would've indicated significant tightening tightening starting next year.

Speaker Change: Asian, although some refinery closures have been announced certainly the recent announcement around the Lindsey refinery in the UK was fairly unexpected.

Manav Gupta: With some of the economic uncertainty, especially around tariffs forecasted fallen off to where a lot of people are only forecasting around 400000 barrels a day total light product demand growth and then a lot of consultants are showing a lot of that demand growth.

Speaker Change: Hard to believe there arent others facing a similar situation with other refinery closure two things could really tighten up a lot faster, but the big driver here is really what happens to the economy and youre, probably in a better position to assess that than I am.

Eric Fisher: So, Eric, I wanted to follow up on the earlier question, if you don't mind, just on renewable diesel. I see what you've done it down for is, when you roll everything together, and you guys are obviously the lowest cost producer with the best feedstock setup, do you see DGD net to Valero as free cash flow positive on a sustainable? I think the answer to that is yes. You know, we're like I said, but it's going to take a little bit of clarity on what the EPA is going to do with RINs. Because the numbers they're talking about doing will put a positive tailwind into DGD's production.

Manav Gupta: Being filled by <unk>.

Manav Gupta: Step change in renewable production.

Speaker Change: A quick follow up is I was looking at.

Manav Gupta: I'm confident we'll see tighter supply demand balances. The question really is when does this occur.

Speaker Change: Your golf course, Captcha, that's fair heavy light narrow net should hit the capture of the harvest, but the capture actually was over 92% and I'm trying to understand fuel dynamics. What allows you to deliver such strong capture and then coming back to the first question. If heavy light do widen out should we expect that failed.

Manav Gupta: Is it next year when do we actually see some type of economic activity slowdown and it isn't until 2027 that things really start to get tight.

Manav Gupta: Thus far our view is the economy has been fairly resilient demand for transportation fuels has remained strong so I guess I'm a little more optimistic about the economy and we will have to see with only uncertainty on renewables, whether we see a ramp up in renewable production or not and the other big factor in all of this as you know will we see additional refinery.

Speaker Change: Moving to the Gulf coast capture because they need a benchmark is constructing those do not reflect it reflected in the benchmark. So if you could talk about that.

Eric Fisher: And so, to your point, we still have the best market access, both from a feedstock standpoint, a certification of products, and access to all the different markets. And it's still a low CI game. I think one of the things that everyone needs to keep in front of them is that Europe and the UK really only accept waste oil, low CI feedstocks, certified feedstocks. So as much as there's been a lot of talk about the support of domestic production and soybean oil and Canada's canola oil, those are not acceptable feedstocks to most of the customers that are really interested in lowering their carbon footprint.

Speaker Change: Yes, Manav. This is Greg So I think you hit on some of the points related to heavy light and capture because we do include heavy grades in our reference for the Gulf Coast. So as those move out and contract that's picked up in the referenced crack that we use so not as big of an impact on capture rates.

Manav Gupta: Asian, although some refinery closures have been announced certainly the recent announcement around the Lindsey refinery in the U K was fairly unexpected.

Speaker Change: Hard to believe there arent others facing a similar situation with other refinery closure two things could really tightened up a lot faster, but the big driver here is really what happens to the economy and youre, probably in a better position to assess that than I am.

Speaker Change: Because it's built into the into the indicator margin that we use on our performance in second quarter a.

Speaker Change: A quick follow up is.

Lane Riggs: A lot of the improvement was driven by really strong operating performance coming out of the heavy maintenance we had in the first quarter and that was really highlighted remember bye bye lanes comment about record quarterly throughput in that region. So good operating performance, we had strong commercial performance as well in that region, particularly on the product side good exports.

Speaker Change: Your golf course, Captcha, that's fair heavy light narrowness should hit the capture of the harvest, but the capture actually was with 92% and I'm trying to understand fuel dynamics. What allows you to deliver that strong capture and then coming back to the first question if heavy light dual widen out should we expect a deal.

Eric Fisher: And so we're still the most advantaged from a feedstock standpoint. I think once you start to see these credit prices move, and like I said, we have seen LCFS and RIN prices moving higher, those factors and credit prices will continue to make DGD an advantaged platform, and long term, it'll be a positive cash flow into Valero. If you can't make money, nobody can in this business.

Lane Riggs: Great wholesale performance in that part of our business as well. So those were the primary drivers for the Gulf coast in the second quarter and again as those crude differentials widened out to the extent that they are in the indicator that we use probably not as much of a factor when you think about the capture rate relative to our.

Speaker Change: Moving to the Gulf coast capture because they need a benchmark as constructive those do not reflect it reflected in the benchmark. So if you could talk about that.

Eric Fisher: So thanks so much, guys. I appreciate the time.

Lane Riggs: Later.

Lane Riggs: Thank you.

Ryan Todd: Thank you. The next question is coming from Ryan Todd of Piper Sandler. Please go ahead. Thanks, Eric. Maybe one more follow up on that side of the business. I mean, it seems so far that your staff operations, the SAF operations have been going well.

Speaker Change: Thank you. The next question is coming from Neil Mehta of Goldman Sachs. Please go ahead.

Speaker Change: Because it's built into the into the indicator margin that we use on our performance in second quarter a lot of the improvement was driven by really strong operating performance coming out of the heavy maintenance we had in the first quarter and that was really highlighted remember bye bye lanes comment about record quarterly throughput in that <unk>.

Neil Mehta: Yes, good morning team I want to spend some time on return of capital.

Neil Mehta: Yes returned $633 million in the first quarter or second quarter with the.

Ryan Todd: Can you maybe, you're eight or nine months into, you know, post startup of the conversion there, the expansion there, can you maybe talk about what you've seen so far, either operationally, what you've seen in terms of, you know, what's maybe surprised or been as expected in terms of the geographic mix of demand, pricing? etc. and how that market is evolving. Yeah, thanks. I think one thing we discovered operationally that I might say was a pleasant surprise was our unit made SAF very, very well, and it blended very, very well. There were, you know, prior to our startup, we'd heard through, you know, others that had gone down this journey that it was very difficult to make, it was very difficult to blend, it was very difficult to make the certifications and satisfy logistics.

Neil Mehta: Payout north of 70%. So just your perspective on the sustainability of capital returns.

Speaker Change: Region. So good operating performance, we had strong commercial performance as well in that region, particularly on the product side. Good exports great wholesale performance in that part of our business as well. So those were the primary drivers for the Gulf coast in the second quarter and again as those crude differentials widened out to the <unk>.

Neil Mehta: How we should be thinking about the buyback in the back half of the year.

Neil Mehta: Yes, Neal Hey, Tomer, I mean, maybe I'll just start with just a framework around buybacks right. It's guided by a number of things obviously first and foremost we've got our stated minimum commitment to an annual payout of 40% to 50% of adjusted cash flow right and so you should continue to consider that as non discretionary will honor that and any sort of environment.

Speaker Change: Rent that they are in the indicator that we use probably not as much of a factor when you think about the capture rate relative to our indicator.

Neil Mehta: And then we've got our target minimum cash position of $4 to $5 billion and we're right at the midpoint. There. So we're not looking to build more cash right.

Speaker Change: Thank you.

Speaker Change: Okay.

Neil Mehta: Thank you. The next question is coming from Neil Mehta of Goldman Sachs. Please go ahead.

Neil Mehta: As a result of that consistent with what we've been saying for quite some time, we will continue to use all excess free cash flow to buy back shares.

Ryan Todd: We've, you know, with the combination of DGD's gear, the quality of our project startup team and our overall project design, we've got a lot of capability on SAF as well as, you know, everything between SAF and call it traditional RD. So, operationally, this thing has been a positive. The logistics and blendability has been a positive. The ability to move this product through the Valero jet fuel system has been very effective.

Neil Mehta: Yeah. Good morning, Tim I wanted to spend some time on return of capital.

Neil Mehta: And as you highlighted second quarter resulted in a payout of 52% keep in mind, though that we also used $251 million towards the notes that matured in April in addition to 325 million that was consumed by working capital right. So.

Neil Mehta: Return to $633 million in the first quarter or second quarter with the.

Speaker Change: Payout north of 70% so just to your perspective on the sustainability of capital returns.

Speaker Change: How we should be thinking about the buyback in the back half of the year.

Neil Mehta: Looking forward with the balance sheet, where it is and discipline around capital investments I think you can continue to expect us to maintain this posture, where all excess free cash is aimed at share buybacks longer term I mean, I don't know if you have the investor deck candy, but we've got a slide in there I think it's slide 11 that puts all of this into.

Speaker Change: Yes, Neal Hey, Tomer, I mean, maybe I'll just start with just a framework around buybacks right. It's guided by a number of things obviously first and foremost we've got our stated minimum commitment to an annual payout of 40% to 50% of adjusted cash flow right and so you should continue to consider that as non discretionary will honor that and any sort of environment.

Ryan Todd: You know, I think, you know, if there is any sort of downward surprises, we thought there would be much more interest in this product, particularly from airlines. I think everyone is still feeling out this market. We're seeing, you know, a lot of interest in sales. Obviously, the mandate in the EU and the UK. There's some potential that they have underbought for the first half of the year and they may come back and try to make sure they're hitting their 2% blend in the back half of this year. So, we may see some sales pick up in the second half of this year.

Neil Mehta: <unk> context actually reflecting our actual results. So if you look at the last 10 year period through 2020 for total cash flow from operations was around 61 billion and that includes changes in working capital, which is roughly $6 billion a year. If you think about.

Speaker Change: And then we've got our target minimum cash position of $4 to $5 billion and we're right at the midpoint. There. So we're not looking to build more cash right.

Speaker Change: As a result of that consistent with what we've been saying for quite some time, we will continue to use all excess free cash flow to buy back shares.

Neil Mehta: Our run rate Capex rate two to $2 5 billion to two and a quarter at the midpoint with one five sustaining and then $500 million to $1 billion of growth and layer on top you've got $1 $4 billion or so to fund the dividend right. So $6 billion of annual cash flow from operations $2 5 billion Capex.

Speaker Change: And as you highlighted second quarter resulted in a payout of 52% keep in mind, though that we also used $251 million towards the notes that matured in April. In addition to 325 million that was consumed why working capital right. So.

Ryan Todd: So I think this market continues to grow, the demand continues to grow, the interest continues to grow. The interest in the voluntary credits associated with this continue to grow. That is very small volumes, but everyone's trying to explore that as a way to simplify their carbon offset plan by just going direct to DGD. So I still see a lot of upside in that the project is still returning. The returns on our project are still meeting our threshold target, so that's going very well. And the credit prices have supported the making of the product.

Speaker Change: Looking forward with the balance sheet, where it is and discipline around capital investments I think you can continue to expect us to maintain this posture, where all excess free cash is aimed at share buybacks longer term I mean, I don't know if you have the investor deck candy, but we've got a slide in there I think it's slide 11 that puts all of this into.

Neil Mehta: A $1 four to dividend that leaves over $2 3 billion for buybacks based on our actual results over the past 10 years, hopefully that gives you some context.

Neil Mehta: Really helpful.

Speaker Change: The follow up is around DGB, obviously, a lot of moving pieces and appears to be pretty tough tough if not trough conditions, what's the <unk>.

Speaker Change: <unk> context actually reflecting our actual results. So if you look at the last 10 year period through 2020 for total cash flow from operations was around 61 billion and that includes changes in working capital, which is roughly $6 billion a year. If you think about.

Ryan Todd: And so if I add on to that, because the next question, well, with the recent reconciliation bill narrowing the benefit of SAF to equal to RD, we still see premiums above that coming out of the market. And so as everyone figures out how to readjust with the changes in the PTC, we still see premiums for SAF over RD from the customer standpoint. Great, thank you.

Speaker Change: Path back to mid cycle here, how do you think about the.

Speaker Change: The evolution of that business and can you talk about your commitment to it.

Speaker Change: Hey, Neil this is Eric I think.

Speaker Change: <unk> already said that it's in a lot of policy clarity.

Speaker Change: Our run rate Capex rate two to $2 5 billion to two and a quarter at the midpoint with one and a half sustaining and then $500 million to $1 billion of growth and layer on top you've got $1 $4 billion or so to fund the dividend right. So $6 billion of annual cash flow from operations $2 5 billion Capex.

Speaker Change: Vagueness right now I think you can see really the linchpin in all of this is going to be what the EPA says posts their comment period.

Rich Walsh: And then maybe a question for you, Lang. Sorry to ask, but I mean, there are reports that the California government envisions themselves kind of like brokering a sale of the Benicia refinery. Any comments or any thoughts on anything that could potentially change? What would you that would change your mind to to close that that asset next?

Speaker Change: That are due by August eight and so what they do in terms of setting the RVO and what they do in terms of <unk> and <unk>.

Speaker Change: $1 four to dividend that leaves over $2 3 billion for buybacks based on our actual results over the past 10 years, hopefully that gives you some context.

Speaker Change: If in any Reallocations will set the rig the <unk> market and then consequently, hopefully set how the rest of the other markets will react versus the <unk>. So I mean, we see the <unk> market in California is slowly moving up after they.

Speaker Change: Really helpful.

Speaker Change: The follow up is around DGB, obviously, a lot of moving pieces and appears to be pretty tough tough if not trough conditions.

Rich Walsh: Hey, this is Rich Walsh. You know, first, we don't respond to speculation in media reports, you know, along those lines, and, you know, nothing has changed in our plans, you know, regarding Venetia right now, but look, you know, there's been a lot of public discussion about reforming the market and, in particular, the regulatory environment in California to head off refinery closures, and, you know, I think you guys all know the CEC has been tasked with evaluating refinery capacity, on behalf of the state, and I think they're working very hard to see what, if anything, they can do, and, you know, for our part, we've been in discussions with the CEC and other elected officials and policy officials, and regarding Venetia's future, and I think there's a genuine desire for them to avoid the refinery closure, but there's no solutions that have materialized, at least not from our part.

Speaker Change: Pass through 9% obligation increase effective July one.

Speaker Change: Path back to mid cycle here, how do you think about that.

Speaker Change: We see that Europe continues to support.

Speaker Change: The evolution of this business and can you talk about your commitment to it.

Speaker Change: To support its mandate for <unk> for the 2% SaaS requirement, we see the CFR in Canada is going to continue to go forward. So long term there is still enough tailwind out there that says this segment will continue to be in demand.

Speaker Change: Hey, Neil this is Eric I think.

Speaker Change: <unk> already said that it's in a lot of policy clarity.

Speaker Change: Vagueness right now I think you can see really the linchpin in all of this is going to be what the EPA says posts their comment period.

Speaker Change: It's really just a question of.

Speaker Change: When we see these credit prices start to move Youre, starting to see the default RIN move up you're starting to see a separate from the <unk> six.

Speaker Change: That are due by August eight and so what they do in terms of setting the RVO and what they do in terms of Srs and <unk>.

Speaker Change: The Big question is going to be when you see fat prices adjust to these policies. Once these policies are clarified and so once those fat prices start to disconnect. Then I think youll see the margins open up for <unk> and.

Speaker Change: If in any Reallocations will set the rid the D for RIN market and then consequently, hopefully set how the rest of the other markets will react versus the <unk>. So I mean, we see the <unk> market in California is slowly moving up after they.

Speaker Change: And youll see more and more demand for <unk> and renewables.

Rich Walsh: Great, thank you. Thank you.

Paul Cheng: The next question is coming from Paul Cheng of Scotiabank. Please go ahead. Hey guys, good morning. There are questions that, as Saudi is putting more barrels in the market, I assume there's going to be more than medium sour grade, like the Arab medium. I'm wondering that how you think it's going to impact on the global distinct view as more of the medium sour is available? That's the first question.

Speaker Change: With the ongoing policy years.

Speaker Change: Past, there, 9% obligation increase effective July one.

Speaker Change: Eric.

Speaker Change: We see that a lot Europe continues to.

Speaker Change: Okay.

Speaker Change: Thank you. The next question is coming from Doug Leggate of Wolfe Research. Please go ahead.

Speaker Change: To support its mandate for for the 2% SaaS requirement, we see the CFR in Canada is going to continue to go forward. So long term, there's still enough tailwind out there that says this segment will continue to be in demand.

Speaker Change: Hi, Thanks, good morning, everyone.

Speaker Change: So guys I think I got to go back to refining skill because you guys are embarrassing senior with your distillate yields.

Speaker Change: It's really just a question of.

Speaker Change: First as you are light sweet crude throughput I'm wondering if you could help us reconcile what was going on there, obviously morgans or keep margins were better than gas.

Speaker Change: When we see these credit prices start to move Youre, starting to see the default RIN move up you're starting to see it separate from the <unk> six the.

Greg Bram: Hey Paul, it's Greg. Yeah so obviously right those grades have more distillate typically in them than some of the lighter grades so as we see those come into the market you would expect that to have a positive impact on on distillate yield overall and that as a result distillate production would work up a bit. I don't have a good feel for the exact numbers for that but but there's no doubt that's a that those are grades that are more rich in distillate than than most of the other you know crews that we have run in their place over the last few years.

Speaker Change: For most of Q2 I guess.

Speaker Change: But when we look at the <unk> 2024, I think youre right.

Speaker Change: It was about $10, 10% higher.

Speaker Change: But your distillate yield is up materially as well. So great result, but can you help us understand what's going on there is my first question I've got a quick follow up for Eric.

Speaker Change: And youll see more and more demand for <unk> and renewables.

Speaker Change: Yeah, Doug This is Greg So I would tell you it's pretty simple we have been for the most part in that period and Max distillate production mode. So when you think about how we're adjusting the operation we're maximizing the yield of jet fuel and diesel fuel so even though you've got a crude slate that might be a bit lighter we can do some adjusting within.

Speaker Change: With the ongoing policy years.

Speaker Change: Okay.

Greg Bram: Greg I know that it's difficult to pinpoint an exact number. Any yield that is a 2% increase, 5% or anything that you can share? Yeah, yeah, Paul, I don't have those numbers off the top of my head.

Speaker Change: Okay.

Moderator: Thank you. The next question is coming from Doug Leggate of Wolfe Research. Please go ahead.

Speaker Change: Thanks, Good morning, everyone.

Speaker Change: The downstream operation to try to make sure we get all of the distillate molecules into that pool that we can and we've been pretty pretty successful and effective at doing that in that timeframe.

Speaker Change: So guys I think I got to go back to refining skill because you guys are embarrassing senior with distillate yields.

Greg Bram: I'm sure, you know, you can contact Homer, and we can talk about that more offline. But I don't remember the numbers off the top of my head.

Speaker Change: As you are light sweet crude throughput I'm wondering if you could help us reconcile what's going on there obviously margins are.

Speaker Change: Sorry for the part B here.

Lane Riggs: But this is Lane, I think the one thing to add to that is you got to think about the markets you're putting diesel into and the specs around it, whether they're high C-10, or ultra low sulfur diesel. So in a global sense, the incremental diesel, it does, is there open capacity for the higher valued markets, where the stuff's pointed versus does the incremental diesel is produced in the world as these grades get more sour, more heavy, or, you know, they end up just sort of as heavy or, you know, in the marine market, that's the sort of one of the things you got to consider with your the way you're thinking.

Speaker Change: Would I assume that that's part of the reason why youre capture is doing so well.

Speaker Change: Keep margins were better than gas for most of Q2, I guess, but when we look at the <unk> basically since 2024 I think you are right.

Speaker Change: Certainly helps it certainly has helped when you've got that strong that distillate.

Speaker Change: Crack and then Youre maximizing net yield that certainly will have a positive impact on capture.

Speaker Change: It's about 10%, 10% higher but your distillate yield is up materially as well. So great result, but can you help us understand what's going on there is my first question I've got a quick follow up for Eric.

Neil Mehta: Thank you for that so Eric I wanted to follow up on the other.

Speaker Change: Good question, if you don't mind, just on renewable diesel and see if you can dumb it down for us when you when you roll everything together.

Speaker Change: And obviously the lowest cost producer, what's the best feedstocks setup.

Paul Cheng: Okay, great.

Speaker Change: Do you see.

Eric Fisher: The second question, I think, is for Eric. Eric, I mean, with the PPC and everything, that is more in favor of domestic production and also keeping in the local market, I assume. So, is that still economic for us to export RD from DGD? I know that previously you guys quite a lot to Europe. So, are those still economic or that the economic now saying that it's going to be majority of the RD production will be staying local? Yeah, I think so. We do see the markets in Canada, EU, UK and California are still attractive for foreign feedstocks.

Speaker Change: D G D net to the lateral as free cash flow positive on a sustainable basis.

Speaker Change: I think the answer to that is yes.

Speaker Change: Like I said, but it's going to take a little bit of.

Speaker Change: Downstream operation to try to make sure we get all the distillate molecules into that pool that we can and we've been pretty pretty successful and effective at doing that in that time frame.

Speaker Change: Clarity on what the EPA is going to do with Rins.

Speaker Change: Does the numbers Theyre talking about doing we'll put a positive tailwind into <unk> production and so to your point, we still have the best market access both from a feedstock standpoint, a certification of products and access to all the different markets.

Speaker Change: Sorry for the part B here.

Speaker Change: Would I assume that that's part of the reason why youre capture is doing so well.

Speaker Change: Certainly helps it certainly has helped when you've got that strong that distillate.

Speaker Change: Crack and then Youre maximizing net yield that certainly will have a positive impact on capture.

Speaker Change: And it's still it's still a low Ci game I think one of the things that.

Speaker Change: Everyone needs to keep in front of them is that Europe, and the U K really only accept waste oil low Ci feedstocks certified feedstock so as much as there's been a lot of talk about the support of domestic production in soybean oil and then Canada is canola oil those are not acceptable.

Speaker Change: Thank you for that so Eric I wanted to pull up on your other question. If you don't mind just on renewable diesel.

Speaker Change: See if you can dumb it down for us when you when you roll everything together.

Eric Fisher: The challenge that we have is we haven't, you know, most of this is still trading on news. So you you've seen as the EPA will talk about what they're doing with the RIN, you'll see most of the fat prices are tracking the D4 RIN. Even though fat prices have moved up, credit prices are slowly moving up, they haven't separated yet to reflect the impacts of some of the other policy comments on lower PTC, half RIN in the RVO, and really a lot of the tariffs that have been placed on foreign feedstocks. So at some point, those markets will have to adjust.

Speaker Change: And obviously the lowest cost producer with the best feedstocks sets up.

Speaker Change: Do you see.

Speaker Change: Docs to most of the customers that are that are really interested in lowering their carbon footprint and so we are still the most advantaged from a feedstock standpoint, I think once you start to see these credit prices move and like I said, we have seen <unk> and RIN prices moving higher.

Speaker Change: D G D net to collateral as free cash flow positive on a sustainable basis.

Speaker Change: I think the answer to that is yes.

Speaker Change: Like I said, but it's going to take a little bit of.

Speaker Change: Clarity on what the EPA is going to do with returns.

Speaker Change: The numbers that we're talking about doing we'll put a positive tailwind into <unk> production and so to your point, we still have the best market access both from a feedstock standpoint, a certification of products and access to all the different markets.

Speaker Change: <unk>.

Speaker Change: Those factors.

Speaker Change: Credit prices will we will continue to make <unk>, an advantaged platform and long term it'll be a positive cash flow and to Valero.

Eric Fisher: I think as the policies get finalized and papered, you'll see there will have to be some reflection in foreign feedstock prices versus domestic feedstock prices to continue meeting the demand of all those other markets. And so like I said before, it's still a low CI game, and a lot of the customers do not want vegetable oil as their feedstock base. So there will be an increase in the RIN, there will be support of vegetable feedstocks feeding into the RIN, but when you go into LCFS markets or markets that are based on LCFS and CI, it's still going to want to pull low CI feedstocks.

Speaker Change: If you can make money and nobody can in this business. So thanks, so much guys I appreciate the time.

Speaker Change: And it's still it's still a low Ci game I think one of the things that.

Speaker Change: Tim.

Speaker Change: Thank you. The next question is coming from Ryan Todd of Piper Sandler. Please go ahead.

Speaker Change: Yes.

Speaker Change: Alright. Thanks.

Speaker Change: Eric maybe one more follow up on that side of the business.

Speaker Change: I mean, it seems so far that you're safe operations. The Saf operations have been going well can you, maybe youre eight or nine months into.

Speaker Change: Docs to most of the customers that are interested that are really interested in lowering their carbon footprint and so we are still the most advantaged from a feedstock standpoint.

Speaker Change: Post startup of the conversion there.

Speaker Change: Can you maybe talk about what you've seen so far either operationally or what you're seeing in terms of what's maybe surprised or been as expected in terms of the geographic mix of demand pricing.

Speaker Change: Think once you start to see these credit prices move and like I said, we have seen <unk> and RIN prices moving higher.

Eric Fisher: And so you'll have to see the market adjust for that. And I think we're starting to see some of those prices move, but it's probably going to take some time for these credit prices to increase based on the length in the credit banks for both RINs and LCFS. So I think as those banks slowly start to get consumed, the credit prices will move up. You'll start to see foreign feedstocks disconnect from domestic feedstocks. Both of them need to disconnect from the D4 RIN in order for anyone to increase production, particularly if you look at a lot of the veg oil BD players.

Speaker Change: Et cetera, and how that market is evolving.

Speaker Change: Those those factors.

Speaker Change: Credit prices will we will continue to make <unk>, an advantaged platform and long term it'll be a positive cash flow and to Valero.

Speaker Change: Yes, Thanks I think.

Speaker Change: One thing we've discovered operationally that I might say it was a pleasant surprise was our unit made SaaS very very well and have blended very very well.

Speaker Change: If you can make money and nobody can in this business. So thanks, so much guys I appreciate the time.

Speaker Change: Prior to our startup we've heard through others that had gone down. This journey that it was very difficult to make it was very difficult to blend it was very difficult.

Speaker Change: Tim.

Speaker Change: Thank you. The next question is coming from Ryan Todd of Piper Sandler. Please go ahead.

Speaker Change: To make the certifications and satisfy logistics.

Speaker Change: Yes.

Speaker Change: With the combination of <unk> gear or the quality of our projects startup team and our overall project design, we've got a lot of capability and on SaaS as well as everything between SaaS and call. It traditional R&D. So operationally. This thing has has been.

Speaker Change: Alright. Thanks.

Speaker Change: Eric maybe one more follow up on that side of the business.

Speaker Change: I mean, it seems so far that you're safe operations staff operations have been going well can you, maybe youre eight or nine months into.

Eric Fisher: Soybean Oil and the D4N just track. There is no margin to run yet. And so I think, you know, once you see whatever the EPA comes out with with RBO and SREs, that will determine when you start seeing BD and RD start to increase in production.

Speaker Change: Post startup of the conversion there.

Speaker Change: Can you maybe talk about what you've seen so far either operationally or what you've seen in terms of what's maybe surprised or been as expected in terms of the geographic mix of demand pricing.

Speaker Change: Positive.

Speaker Change: The logistics and blend ability has been a positive the ability to move this product through the Valero jet fuel system has been very effective.

Eric Fisher: Hey Eric, can we confirm that what percentage of your DGT-RD is currently exported to Europe and Canada? Yeah, we're not going to share that level of detail, Paul. But, but, you know, we are the largest exporter, and, and really, you know, one of the largest producer of SAP. And so we're definitely maxing out what we can sell into those markets. But yeah, you know, that, that will always shift around based on feedstock prices and credit prices. Okay, we do. Thank you.

Speaker Change: I think if there is any sort of downward surprises we thought there would be much more interest in this product.

Speaker Change: Et cetera, and how that market is evolving.

Speaker Change: Yes, Thanks I think.

Speaker Change: One thing that we discovered operationally.

Speaker Change: Particularly from Airlines I think everyone is still feeling out this market.

Speaker Change: You might say it was a pleasant surprise was our unit made SaaS very very well and have blended very very well.

Speaker Change: We're seeing.

Speaker Change: A lot of interest in sales, obviously, the mandate in the EU and the U K.

Speaker Change: Prior to our startup we'd heard through others that had gone down. This journey that it was very difficult to make it was very difficult to blend it was very difficult to.

Speaker Change: Some potential that they have under bought for the first half of the year and they may come back and try to make sure. They are hitting their 2% blend to the back half of this year. So we may see some sales pickup in the second half of this year.

Speaker Change: To make the certifications and satisfy logistics, we've with the combination of <unk> gear or the quality of our projects startup team and our overall project design, we've got a lot of capability and on SaaS as well as everything between SaaS and call. It traditional R&D. So operationally this thing has.

Paul Sankey: The next question is coming from Paul Sankey of Sankey Research. Please go ahead.

Speaker Change: Stare at their end of year compliance target. So I think this market continues to grow the demand continues to grow the interest continues to grow the interest in the voluntary credits associated associated with this continue to grow that is very small volumes, but everyone's trying to explore that as a way to simplify their carbon ores.

Greg Bram: Morning everyone, can you hear me? I don't see it here, yeah, again. Hey, everyone. We've had good, high levels of throughput in US refining this year, despite the shutdowns. Can you just talk a little bit about that? It's been very, fairly steady and very high.

Ben: As Ben.

Speaker Change: Positive.

Speaker Change: The logistics and blood ability has been a positive the ability to move this product through the Valero jet fuel system has been very effective.

Greg Bram: And I just wondered what the components of that were, as well as the outlook for the second half in your view, perhaps ignoring hurricane risks and stuff, but just the general turnaround outlook for the second half.

Speaker Change: Offsets.

Speaker Change: Plan by just going direct to DVD. So.

Speaker Change: I think if there is any sort of downward surprises we thought there would be much more interest in this product.

Speaker Change: So I still see a lot of upside in that the project is still returning.

Speaker Change: The returns on our projects are still meeting our threshold target so that's going very well.

Greg Bram: And the follow up is a very interesting moment in history with the US becoming a exporter to Nigeria. Could you just... talk a little bit about the impact of Nigerian refining on Atlantic Basin markets, interesting stuff.

Speaker Change: Particularly from Airlines I think everyone is still feeling out this market.

Speaker Change: And the credit prices have supported the making of the product and so.

Speaker Change: We're seeing.

Speaker Change: A lot of interest in sales, obviously, the mandate in the EU and the U K.

Speaker Change: If I add on to that.

Speaker Change: The next question will well with the recent reconciliation bill.

Speaker Change: Narrowing the benefit of SaaS to equal to R&D.

Greg Bram: Hey, Paul. Paul, it's Greg. You I'll I'll talk about the first one, just repeat that for me again, what part are you looking at? Well, with the shutdown of Lyondell and stuff, we've just seen, you know, what is it, 17.5 million of throughputs in US refining, seems like a high number. That's been very steady actually, you know, it's a good thing, I just wondered, you know, how come we're so high and holding so high, you know, from your perspective and from an industry perspective? And the follow through is the second half turnarounds and you know, whether or not we're really sustained this kind of throughput.

Speaker Change: Still see premiums above that coming out of the market and so is everyone figures out how to readjust with the changes in the PTC, we still see premiums for staff over R&D from.

Speaker Change: Stare at their end of year compliance target. So I think this market continues to grow the demand continues to grow the interest continues to grow the interest in the voluntary credits associated associated with this continue to grow that as a very small volumes, but everyone's trying to explore that as a way to simplify their carbon ores.

Speaker Change: From the customer standpoint.

Speaker Change: Great. Thank you.

Speaker Change: And then maybe.

Speaker Change: Question for you.

Speaker Change: Sorry to ask but I mean, the reports that the California government.

Speaker Change: Set.

Speaker Change: Plan by just going direct to DVD. So.

Speaker Change: Envisions themselves kind of like broker and a sale of the Benicia refinery.

Speaker Change: So I still see a lot of upside in that the project is still returning.

Greg Bram: Thanks. Right, okay. Yeah, you know, I think throughput's been real strong, particularly in the Gulf Coast, probably a good indication of people coming out of turnaround and running well. You know, one of the things we look at a lot of times is it's been a relatively mild summer weather-wise, which, you know, a lot of times as you get hotter and hotter, you start to hit some limitations operationally at lower rates. And so we haven't seen that. I think you've been able to see the industry hold that at pretty strong performance. Obviously, not a lot of things have been breaking, so that keeps utilization up.

Speaker Change: Any any comments or any thoughts on anything that could potentially change.

Speaker Change: The returns on our projects are still meeting our threshold target so that's going very well.

Speaker Change: Well that would change your mind to to close that.

Speaker Change: And the credit prices have supported the making of the product and so.

Speaker Change: Next year.

Rich Walsh: This rich Walsh.

Speaker Change: If I add onto that.

Speaker Change: First we don't respond to speculation in the media reports.

Speaker Change: The next question will well with the recent reconciliation bill.

Speaker Change: Along those lines and nothing has changed in our plans.

Speaker Change: Narrowing the benefit of SaaS to equal to Rd.

Speaker Change: Still see premiums.

Speaker Change: Regarding venetia right now.

Speaker Change: <unk> that coming out of the market and so as everyone figures out how to readjust with the changes in the PTC, we still see premiums for SaaS over R&D from a customer standpoint.

Speaker Change: But look there's been a lot of public.

Speaker Change: <unk> about reforming the market in particular, the regulatory environment in California to head off refinery closures.

Gary Simmons: And as we get to later parts of the summer, we'll see if warmer weather starts to creep in and we start to see some of those rates tail off. As far as turnarounds in the third quarter, you know, it's always hard to see where the industry goes. I don't think we have any unique insight into that relative to what you can read elsewhere, but it looks like today turnarounds are probably pegged to be a little bit below average. What we typically see, though, is as we get closer, you know, more work starts to get known and identified in the plan, so we'll see where that ultimately lands.

Speaker Change: I think you guys. All know the CEC has been tasked with evaluating refinery capacity on behalf of the state and I think they are working very hard to see what if anything they can do for our part we have been in discussions with the CDC and other elected officials and policy officials regarding.

Speaker Change: Great. Thank you.

Speaker Change: And then maybe.

Speaker Change: A question for you.

Speaker Change: Sorry to ask.

Speaker Change: The reports that the California government envisions themselves kind of like broker and a sale of the Benicia refinery.

Speaker Change: Regarding <unk> future and I think there is a genuine desire for them to avoid the refinery closure, but there is no solutions that have materialized at least not from our perspective.

Speaker Change: Any any comments or any thoughts on anything that could potentially change.

Speaker Change: Well that would change your mind to close that that asset next year.

Gary Simmons: And I think probably you want to take the other half, Gary? Yeah, no, Jerry, I think, you know, it's been there a lot in the press that obviously the Dengote refineries had a lot of trouble bringing up their RISD FCC. So, you know, they're running WTI. We see them continue to be in the market marketing atmospheric tower bottoms, which is, you know, an indication that that RISD FCC is not running right. So, you know, whenever that's the case, they're probably going to push themselves to the lightest diet they can because they don't have that RISD destruction capability.

Speaker Change: Alright, thank you.

Paul Cheng: Thank you. The next question is coming from Paul Cheng of Scotiabank. Please go ahead.

Speaker Change: The switch Walsh.

Speaker Change: First yes, we do.

Paul Cheng: Hey, guys good morning.

Speaker Change: Don't respond to speculation in the media reports.

Paul Cheng:

Speaker Change: Along those lines and nothing has changed in our plans.

Paul Cheng: A question that.

Paul Cheng: Saudi is putting more barrels in the market I assume thats going to be more than medium solid green light.

Speaker Change: Regarding venetia right now.

Speaker Change: But look there's been a lot of public discussion about reforming the market in particular, the regulatory environment in California to head off refinery closures.

Paul Cheng: Dan.

Paul Cheng: Im wondering that.

Paul Cheng: How do you think it's going to impact on the global view as more of the medium sour and yourself available. That's the first question.

Gary Simmons: Ultimately, you know, when they get the Resit FCC fixed, you would expect them to start to transition to a little heavier diet and run more Nigerian grains. So they're still sucking in gasoline then? Yes.

Speaker Change: I think you guys. All know the CEC has been tasked with evaluating refinery capacity on behalf of the state and I think they are working very hard to see what if anything they can do and for our part we have been in discussions with the CDC and other elected officials and policy officials regarding.

Paul Cheng: Yeah.

Paul Cheng: Yes.

Paul Cheng: Hey, Paul its Greg So obviously, you're right those grades have more distillate typically and then some of the lighter grades. So as we see those come into the market you would expect that to have a positive impact on on distillate yield overall and that as a result, distillate production would work up a bit I don't have a good feel for the exact numbers for that.

Gary Simmons: Cool, Douglas Leggat's got me thinking about the School of Refining. I think it's the School of Refining Hard Knobs, right? Thanks, guys. Thanks, Paul. Thank you.

Speaker Change: Alright, thank you.

Paul Cheng: But theres no doubt that.

Phillip Jungwirth: The next question is coming from Phillip Jungwirth of BMO Capital Markets. Please go ahead. Thanks. Good morning. You mentioned in the earlier commentary gasoline demand being flat despite vehicle mileage being up.

Paul Cheng: Those are grades that are more rich and distillate than most of the other crew.

Paul Cheng: Thank you. The next question is coming from Paul Cheng of Scotiabank. Please go ahead.

Crews that we have run in their place over the last few years.

Paul Cheng: Hey, guys good morning.

Paul Cheng: Oh.

Paul Cheng: Okay.

Speaker Change: A question that Saudi is putting more barrels in the market I assume that's going to be more medium sour grade like.

Paul Cheng: Pinpoint an exact number and the key with that yesterday, 2% increased 5% or anything that you can share.

Gary Simmons: Not a new story here, but wondering if there's been any shift in your medium-term outlook for efficiency gains in light vehicle fleet, given consumer preference or government policy incentives, and any reason we could see a slowdown in gains here. I think it's definitely a potential, you know, you should see less EV penetration than what we have been seeing overall, though, you know, the bigger impact in our models has always been kind of the impact of the CAFE standards and vehicles becoming more efficient. We don't see that, you know, changing drastically going forward.

Paul Cheng: Dan.

Paul Cheng: Yes, Paul I don't have those numbers off the top of my head I am sure.

Paul Cheng: Wondering that.

Paul Cheng: How do you think it's going to impact on the global distillate yield as more of a medium sour and yourself.

Lane Riggs: Contact Homer and we can talk about that more offline, but I don't remember the numbers off the top of my head, but this is lane I think the one thing to add to that as you guys think about the markets you are putting diesel into and the specs around and whether they're high teen or ultra low sulfur diesel so in a global sense the incremental diesel.

Paul Cheng: So that's the.

Paul Cheng: The first question.

Paul Cheng: Yeah.

Paul Cheng: Carrier.

Paul Cheng: Hey, Paul its Greg, Yes, so obviously, you're right those grades have more distillate typically and then some of the lighter grades. So as we see those come into the market you would expect that to have a positive impact on on distillate yield overall and that as a result, distillate production would work up a bit I don't have a good feel for the exact numbers for that but there is no.

Lane Riggs: As our open capacity for the the higher valued markets, where the stuff's pointed versus the incremental diesel is produced in the world of these grades goods more so or more heavy.

Gary Simmons: Okay, great.

Gary Simmons: And then we're all familiar with the affordability conversation in California and the state's tone towards shifting to ensure supply. I know you just have Pembroke in the UK, but wondering, what does the affordability or supply conversation look like here or in broader Europe, given we continue to see closures here too? And you mentioned the Lindsay bankruptcy earlier, really just trying to think about it in terms of the competitive dynamic, given I know you don't have a huge footprint. Yeah, so I would tell you, you know, the UK is a net importer of diesel, so the Lindsay refinery closure probably doesn't impact that much because diesel prices largely set by import parity.

Paul Cheng: Doubt that.

Lane Riggs: They end up just where it is heavier in the marine market, but the investments or one of the things you've got to consider with your the way you're thinking about it.

Paul Cheng: Those are grades that are more rich and distillate than most of the other crew.

Paul Cheng: Crews that we have run in their place over the last few years.

Lane Riggs: Okay great.

Paul Cheng: Great.

Speaker Change: I think he is for Eric.

Paul Cheng: Okay.

Lane Riggs: Jeremy.

Paul Cheng: In calling that makes that number and the key with that yesterday, 2% increased 5% or anything that you can share.

Lane Riggs: PTC and everything that yet more paper.

Lane Riggs: All.

Lane Riggs: Domestic production and also keeping in that local market I assume so.

Paul Cheng: Yeah, Paul I don't have those numbers off the top of my head I am sure.

Lane Riggs: Is that still economic for us.

Paul Cheng: Can contact Homer and we can talk about that more offline, but I don't remember the numbers off the top of my head, but this is lane I think the one thing to add to that is you got to think about the markets youre, putting diesel into and the specs around whether they're high cetane or ultra low sulfur diesel so in a global sense the incremental diesel.

Lane Riggs: Poland.

Lane Riggs: <unk> from <unk>.

Lane Riggs: Know that you guys expand on.

Lane Riggs: Yeah <unk> so.

Lane Riggs: Steel economic all of that.

Lane Riggs: Now, saying that it's going to be a majority of the LNG production would be staying local.

Gary Simmons: But, you know, at least it looks to us like Lindsay made about 50,000 barrels a day of gasoline. About 60% of that remained in the UK. Certainly for our Pembroke asset, you know, some of our net back, best net back barrels are those that we sell into the local market. And so as Lindsay exits, we'll be trying to fill that void, which will make less available for exports to markets like California.

Paul Cheng: As our open capacity for the the higher valued markets, where the stuff's pointed versus the incremental diesel is produced in the world is these grades goods more so or more heavy.

Lane Riggs: Yes, I think so we do see the markets in Canada, EU UK in California are still attractive for foreign feedstocks. The challenge that we have is we havent. Most of this is still trading on news so you've seen as the EPA will talk.

Paul Cheng: They ended up just where it is heavier in the marine market vessels sort of one of the things you've got to consider with your the way you're thinking about it.

Lane Riggs: About what theyre doing with the RIN Youll see most of the fat prices are tracking with <unk>. So.

Paul Cheng: Okay great.

Paul Cheng: And I think you saw Eric Eric I mean with there.

Paul Cheng: PTC and everything that yet more Ava all domestic.

Lane Riggs: Even though fat prices have moved up.

Gary Simmons: Thank you.

Joe Latch: The next question is coming from Joe Latch of Morgan Stanley. Please go ahead. Great, thanks. Good morning, and thanks for taking my questions. So, Eric, I want to go back to RD and results in the first, excuse me, in the second quarter. While they were still challenging, they improved quarter over quarter. I was hoping you could unpack some of the drivers here. I know the indicator was lower, but I think that was offset by a greater recognition of the PTC and continue ramp and SAP sales. So just hoping you could unpack that. Yeah, so I think one thing in the first quarter we had a couple outages on DGD-1 and DGD-2 for catalyst changes.

Lane Riggs: Credit prices are slowly moving up they havent separated yet to reflect the impacts of some of the other policy comments on lower PTC half ran in the RVO and really a lot of the tariffs that have been placed on foreign feedstocks. So.

Paul Cheng: Domestic production and also keeping in the local market I assume so.

Paul Cheng: Is that still economic for us.

Paul Cheng: Paul.

Paul Cheng: <unk> I know that you guys expand on quite yet lots of euro so.

Lane Riggs: At some point those markets will have to adjust I think as the policies get.

Paul Cheng: Although steel economics all of that.

Paul Cheng: Economic now, saying that it's going to be a majority of the LNG production would be staying local.

Lane Riggs: Yet.

Lane Riggs: Paper get finalized and papered and Youll see there will have to be some reflection in foreign feedstock prices versus domestic feedstock prices.

Paul Cheng: Yes, I think so we do see the markets in Canada, EU U K and California are still attractive.

Eric Fisher: So there was a, you know, we had better volume in the second quarter as part of that. But I think, you know, we also had a full quarter of PTC capture on eligible feedstocks versus the first quarter we adjusted our operations to capture, to begin capturing the PTC about mid-Feb. So you only got about half a quarter in the first quarter, but the second quarter had full PTC capture for the eligible feedstocks and for our staff. So, you know, we'd had a lot more. income related to those those factors in the second quarter. And so I think the you know, the offset there is, you know, we're still adjusting to all the different tariffs that will be thrown that are constantly moving around.

Lane Riggs: We continue to <unk>.

Lane Riggs: Meeting the demand of all those other markets and so like I said before it's still a low Ci game and a lot of the customers do not want vegetable oil as their as their feedstock base.

Paul Cheng: For foreign feedstocks. The challenge that we have is we havent. Most of this is still trading on news. So you've seen as the EPA will talk about what theyre doing with the RIN Youll see most of the fat prices are tracking the D for RIN. So.

Lane Riggs: So.

Lane Riggs: There will be an increase in the ran there will be support of vegetable feedstocks, leading into the RIN, but when you go into <unk> markets or markets that are based on our CFS in Ci, it's still going to want to poll low Ci feedstocks and so youll have to see the market adjust for that and I think we're starting to see some of those prices move.

Paul Cheng: Even though fat prices have moved up.

Paul Cheng: Credit prices are slowly moving up they havent separated yet to reflect the impacts of some of the other policy comments on lower PTC half ran in the RVO and really a lot of the tariffs that have been placed on foreign feedstocks. So.

Lane Riggs: But it's probably going to take some time for these credit price.

Eric Fisher: And so we do see that the quarter on quarter is continuing to improve. And like I said, as we continue to see these credit prices creeping up. I'm hoping you'll see in the third quarter that we'll continue this trend for the rest of the year. Great, thanks.

Lane Riggs: For these credit prices to increase based on the length and the credit banks for both <unk> and <unk>. So I think as those banks slowly start to get consumed the credit prices will move up you'll start to see foreign feedstocks disconnect from domestic feedstocks both of them need to disconnect from the <unk> ran in order for anyone to.

Paul Cheng: At some point those markets will have to adjust I think as the policies get get.

Paul Cheng: Papered get finalized and papered and Youll see there will have to be some reflection in foreign feedstock prices versus domestic feedstock prices.

Homer Bhullar: And then with the passage of the tax bill a couple weeks ago, can you talk to any benefits to Valero that we should be mindful of anything around bonus depreciation?

Paul Cheng: We continue to <unk>.

Paul Cheng: Meeting the demand of all of those other markets and so like I said before it's still a low Ci game and a lot of the customers do not want vegetable oil as their as their feedstock base.

Lane Riggs: Increased production, particularly if you look at a lot of the eventual BD players if.

Rich Walsh: Thank Yeah, hey, Joe, it's Homer. So the reinstatement of full expensing should lower our overall cash tax liability in earlier years versus, you know, typical maker's depreciation schedule. So growth capex should definitely be eligible for bonus depreciation. A lot of our sustaining capex should also be eligible with the exception of turnaround capital, which we already expense. The magnitude of the benefit obviously depends on our capex going forward, but that would be one, at least from a tax standpoint benefit.

Lane Riggs: Soybean oil in the depot ran just track there is no margin to run yet and so.

Paul Cheng: So.

Lane Riggs: Once you see whatever the EPA comes out with <unk> that will determine when you start seeing BD, an R&D start to increase in production.

Paul Cheng: There will be an increase in the rent there will be support of vegetable feedstocks feeding into the RIN, but when you go into <unk> markets or markets that are based on our CFS in Ci, it's still going to want to poll low Ci feedstocks and so youll have to see the market adjust for that and I think we're starting to see some of those <unk>.

Lane Riggs: Eric can we confirm that what percentage of DTC.

Colin: As Colin the export.

Lane Riggs: Europe in general.

Paul Cheng: <unk> move, but it's probably going to take some time for these credit price.

Rich Walsh: Rich can talk about some of the other benefits. Yeah, I mean, the other things that are out there that are just kind of directionally helpful is, you know, the federal EV tax credits, you know, go away. And so, and then I think you also see limitations on the CAFE penalty for the autos, which I think kind of opens the door for them to really just try to meet consumer demands, which is, you know, generally for bigger vehicles and puts ICE engines on a more, you know, comparable footing to EVs. And so, you don't have that same level of pressure, you know, to lower fuel economy.

Lane Riggs: Yes, we're not going to share that level of detail, Paul but but.

Paul Cheng: For these credit prices to increase based on the length and the credit banks for both <unk> and <unk>. So I think as those banks slowly start to get consumed the credit prices will move up you'll start to see foreign feedstocks disconnect from domestic feedstocks both of them need to disconnect from the <unk> ran in order for anyone to.

Speaker Change: We are the largest exporter and really one of the largest producer of SaaS and so.

Speaker Change: We are definitely maxing out where we can sell into those markets, but yes.

Speaker Change: That will always shift around based on feedstock prices and credit prices.

Speaker Change: Okay. Thank you.

Paul Cheng: Increased production, particularly if you look at a lot of the eventual BD players if.

Paul Sankey: Thank you. The next question is coming from Paul Sankey of Thank you research. Please go ahead.

Paul Cheng: Soybean oil in the depot ran just track there is no margin to run yet and so I think.

Speaker Change: Good morning, everyone can you hear me.

Paul Sankey: Yes.

Paul Sankey: Hey, everyone.

Paul Cheng: Once you see whatever the EPA comes out with <unk> that will determine when you start seeing BD, an R&D start to increase in production.

Speaker Change: Good high levels of throughput in U S. Refining this year. Despite the shutdowns can you just talk a little bit about that as being very fairly steady.

Rich Walsh: And that should also directionally be a collateral benefit that comes out of this bill that we would expect to see manifested. over the following.

Speaker Change: I'm very high on I, just wondered what the components of that were as well as the outlook for the second half in your view.

Eric: Eric can we confirm that what percentage of your DTC E.

Matthew Blair: Great. Thank you guys.

Matthew Blair: I appreciate it.

Speaker Change: Perhaps ignoring hurricane risks and stuff, but just the general turnaround outlook for the second half and the fall.

Colin: As Colin the export.

Matthew Blair: Thank you.

Matthew Blair: The next question is coming from Matthew Blair of Tudor Pickering Holt. Please go ahead. Thanks and good morning. We thought the results in the North Atlantic were pretty strong and definitely better than our expectations. I think capture moved up quarter per quarter despite tighter Syncrude diffs and the Pembroke turnaround.

Speaker Change: Europe and Panhandle.

Speaker Change: Yes, we're not going to share that level of detail, Paul but but.

Speaker Change: Blow up.

Speaker Change: Very interesting moment in history with the U S, becoming a net exporter to Nigeria could you just sort of oil could you just.

Speaker Change: We are the largest exporter and really one of the largest producer of SaaS and so.

Speaker Change: Talk a little bit about the impacts of Nigeria, and the findings on Atlantic Basin markets interesting stuff.

Speaker Change: We are definitely maxing out what we can sell into those markets, but yes.

Speaker Change: That will always shift around based on feedstock prices and credit prices.

Greg Bram: So could you talk about what helped you out in the North Atlantic and in Q2? Yes, this is Greg. So we did have a fair amount of maintenance in the second quarter. Most of that maintenance impacted throughput, and you can see that in the lower throughput that we had for the quarter, not so much on capture. And then we had, like we talked about in the Gulf Coast, we had really strong commercial margins and contributions in that region as well that created the kind of consistent results versus what we had seen in the prior quarter.

Speaker Change: Sure.

Greg So: Paul It's Greg you all.

Greg So: I'll think I'll talk about the first one can you just repeat that for me again, what part of are you looking at.

Speaker Change: Okay. Thank you.

Paul Sankey: Thank you. The next question is coming from Paul Sankey of Thank you research. Please go ahead.

Greg So: The shutdown of with the shutdown of Lyondell and stuff. We've just seen what $17 5 million of throughput declining seems like a high number but it's been very steady actually.

Paul Sankey: Good morning, everyone can you hear me.

Paul Sankey: Yes.

Paul Sankey: Hey, everyone.

Speaker Change: We've had good high levels of throughput in U S. Refining this year. Despite the shutdowns can you just talk a little bit about that it's been very fairly steady.

It's a good thing I just wondered how come with so high on holdings. So from your perspective and from an industry perspective, and the follow ups.

Speaker Change: Hi, and I, just wondered what the components of that were as well as the outlook for the second half in your view.

Greg So: As the second half turnarounds, and whether or not we're really sustain this kind of throughput.

Greg Bram: Well, our turnaround was in Quebec, right? Turnaround was in Quebec, yeah. Pembroke ran well. Actually, it's a theme for our system. Our operations really was strong across the system, including North Carolina. Sounds good.

Speaker Change: Perhaps ignoring hurricane risks and stuff, but just the general turnaround outlook for the second half.

Greg So: Right. Okay, Yes, yes, I think throughput has been real strong, particularly in the Gulf Coast.

Speaker Change: The follow up is.

Greg So: Probably a good indication of people coming out of turnaround and running well one of the things we look at a lot of times, it's been a relatively mild summer.

Speaker Change: Very interesting moment in history with the U S, becoming a net exporter to Nigeria.

Speaker Change: You just have oil could you just.

Rich Walsh: And then the RVO proposal, you know, it has this potential SRE reallocation where the larger refineries would have to essentially pay for the SREs granted to the smaller refineries. You know, it seems like it could be, you know, extra hundreds of millions for Valero if that goes through. So, you know, I guess, one, how likely do you think that proposal would be to actually be in the final proposal? And then two, you know, it's generally accepted that the RVO is passed along in the crack. Do you think that the extra reallocation costs would also be passed along in the crack as well?

Speaker Change: Yeah.

Speaker Change: Talk a little bit about the impacts of Nigerian refining on Atlantic Basin markets interesting stuff.

Greg So: Weather-wise, which a lot of times as you get hotter and hotter you start to hit some limitations operationally.

Greg: Sure Hey, Paul Paul its Greg you all.

Greg So: At lower rate and so we haven't seen that I think you've been able to see the industry hold that had pretty strong performance, obviously not a lot of things have been breaking so that keeps the utilization going up and as we get later parts of the summer we will see if warmer weather starts to creep in and we start to see some of those rates tail off as far as.

Greg: I'll think I'll talk about the first one.

Speaker Change: Just repeat that for me again, what part of are you looking at.

Greg: Down with the shutdown of Lyondell and stuff, we've just seen.

Greg: Is it $17 million of throughput and you're finding it seems like a high number that's been very steady actually.

Greg So: In the third quarter, yes, it's always hard to see where the industry goes I don't think we have any unique.

Greg: It's a good thing I just wondered how come were so high in holdings. So high is it from your perspective and from an industry perspective.

Greg So: Insight into that relative to what you can read elsewhere, but it looks like today turnarounds are probably pegged to be a little bit below average what we typically see though as we get closer more work starts to get known and identified in the plants. So we'll see where that ultimately lands and I think probably you want to take the other half Gary Yes Nigel.

Rich Walsh: Yeah, this is Rich Walsh. Let me take an effort to respond to that. You know, I think without getting too deep into this, you know, I think you need to understand the SREs were originally coming out of an exemption that was expired in 2011. And, you know, following that expiration, the Department of Energy was obligated to look at whether or not these, you know, SREs were necessary because the RFS was creating disproportionate harm or impact to the small refiners. And the DOE concluded that it was not impacting small refiners. So today, you know, what we're talking about is extensions from a 2011 exemption.

Greg: <unk> is the second half turnarounds and whether or not we're really sustain this kind of throughput.

Speaker Change: Right. Okay, Yes, yes, I think throughput has been real strong, particularly in the Gulf Coast.

Speaker Change: A good indication of people coming out of turnaround and running well one of the things we look at a lot of times, it's been a relatively mild summer.

Speaker Change: Gary I think it's been there's a lot in the press that obviously, the <unk> refineries had a lot of trouble, bringing up their rigid FCC.

Speaker Change: Weather wise, which you have a lot of times as you get hotter and hotter you start to hit some limitations operationally.

Gary: We're running <unk>, we see them continue to be in the market marketing atmospheric tower bottoms, which is an indication that that rigid FCC is not running right. So whenever that is the case, they're probably going to push themselves to the lightest diet. They can because they don't have that rigid destruction capability.

Speaker Change: Lower rate and so we haven't seen that I think you've been able to see the industry hold that pretty strong performance, obviously not a lot of things have been breaking so that.

Speaker Change: Keeps utilization going up and as we get later parts of the summer we will see if warmer weather starts to creep in and we start to see some of those rates tail off as far as turnarounds in the third quarter, Yes, it's always hard to see where the industry goes I don't think we have any unique.

Rich Walsh: And it requires that these small refiners show a unique and disproportionate economic harm caused by the RFS itself. And like what you're alluding to here, you know, in today's market, the rent obligation is the whole sector and it's embedded in all the refinery margins. So I think EPA and DOE have repeatedly confirmed this with their own analysis. So, you know, while the EPA can't categorically deny all SREs, I believe it's going to be really challenging for these small refiners to make their legal case, you know, for the RFS. is uniquely harming them. So, you know, I, you know, my thought process is that you're not going to see a lot of SREs be granted by EPA, or at least if you do, you're going to see a lot of legal challenges to that.

Speaker Change: Ultimately.

Speaker Change: When they get the <unk> FCC fixed you would expect them to start to transition to a little heavier diet and run more Nigerian grades.

Speaker Change: So thats still sucking in gasoline them.

Speaker Change: Insight into that relative to what you can read elsewhere, but it looks like today turnarounds are probably pegged to be a little bit below average what we typically see though as we get closer more work starts to get known and identified in the plants. So we'll see where that ultimately lands and I think probably you want to take the other half Gary.

Speaker Change: Yes.

Speaker Change: Cool.

Speaker Change: Doug Leggate skilled mix thinking about the school of refining.

Speaker Change: The refining hub helps right.

Speaker Change: Yeah.

Speaker Change: Thanks, guys.

Speaker Change: Thanks, Paul.

Speaker Change: Thank you. The next question is coming from Phillip Jungwirth of BMO capital markets. Please go ahead.

Speaker Change: Nigeria I think it's been there's a lot in the press that obviously, the <unk> refineries had a lot of trouble, bringing up their rigid FCC.

Phillip Jungwirth: Thanks, Good morning.

Phillip Jungwirth: You mentioned in the earlier commentary gasoline demand being flat despite vehicle mileage being up.

Speaker Change: They're running <unk>, we see them continue to be in the market marketing atmospheric tower bottoms, which is an indication that that rigid FCC is not running.

Phillip Jungwirth: Not a new story here, but wondering if there's been any shift in your medium term outlook for efficiency gains in light vehicle fleet.

Rich Walsh: And in terms of the RVO, I mean, remember that the RVO came out, and right after it came out, there were a whole bunch of changes that happened. We had tariffs, we had restriction on foreign feedstocks, RIN for foreign imports having to be cut in half. So I think you're going to see a lot of comments coming in in the proposed process, and I think have to think about what they've got to do to revise it to make it realistic. And so I think those are the things that are coming. Sounds good, thanks. Thank you.

Speaker Change: Right. So whenever that's the case are probably going to push themselves to the lightest diet. They can because they don't have that rigid destruction capability.

Speaker Change: Given consumer preference or government policy incentives.

Phillip Jungwirth: Any reason, we could see a slowdown in gains here.

Speaker Change: Ultimately.

Speaker Change: When they get the <unk> FCC fixed you would expect them to.

Phillip Jungwirth: I think it is definitely a potential you should see less EV penetration than what we had been seeing overall, though.

Speaker Change: Start to transition to a little heavier diet and run more Nigerian grades.

Speaker Change: So thats still sucking in gasoline then.

Phillip Jungwirth: Bigger impact in our models has always been kind of the impact of the cafe standards in vehicles, becoming more efficient we don't see that.

Speaker Change: Yes.

Speaker Change: Cool.

Speaker Change: Doug Leggate skilled mix thinking about the school of refining the school of refining hub helps right.

Phillip Jungwirth: Changing drastically going forward.

Speaker Change: Yes.

Speaker Change: Yeah.

Phillip Jungwirth: Okay, Great and then.

Speaker Change: Thanks, guys.

Speaker Change: Thanks, Paul.

Phillip Jungwirth: We're all familiar with the affordable affordability conversation in California, and the state's tone towards.

Speaker Change: Thank you. The next question is coming from Phillip Jungwirth of BMO capital markets. Please go ahead.

Jason Gabelman: Our final question today is coming from Jason Gabelman of Cowen. Please go ahead. Yeah, hey, morning. Thanks for taking my question.

Phillip Jungwirth: Shifting to ensure supply.

Phillip Jungwirth: Thanks, Good morning.

Phillip Jungwirth: I know you get to September and the UK, but.

Phillip Jungwirth: You mentioned in the earlier commentary gasoline demand being flat despite vehicle mileage being up.

Jason Gabelman: I wanted to go back to the commentary that you provided on the distillate outlook and appreciate all of the discussion around North American dynamics, but it seems like some of the output from other regions is a bit lower. And I wanted to get your thoughts on, to the extent that that's transitory in nature, things like lower net exports out of Spain because of the power outages. It seems like Middle East diesel exports are down a lot. I'm not sure if that is structural or not. So just wondering. So I think all those factors have come into play to where, you know, where we are on the low inventory.

Phillip Jungwirth: Wondering what is the affordability or convert supply conversation look like here earned broader Europe, given we continue to see closures here too and you mentioned the Lindsay bankruptcy.

Phillip Jungwirth: A new story here, but wondering if there's been any shift in your medium term outlook for efficiency gains in light vehicle fleet.

Phillip Jungwirth: Earlier really just trying to think about it in terms of the competitive dynamic given I know you don't have a huge footprint here.

Phillip Jungwirth: Given consumer preference or government policy incentives.

Phillip Jungwirth: Any reason, we could see a slowdown in gains here.

Phillip Jungwirth: Yes, So I would tell you you know the U K is a net importer of diesel so the Lindsey refinery closure, probably doesn't impact that much because diesel prices largely set by import parity, but at least it looks to us like Lindsay made about 50000 barrels a day of gasoline about 60% of that remain.

Phillip Jungwirth: I think it is definitely a potential you should see less EV penetration than what we had been seeing overall, though.

Phillip Jungwirth: Bigger impact in our models has always been kind of the impact of the cafe standards in vehicles, becoming more efficient we don't see that.

Phillip Jungwirth: Changing drastically going forward.

Speaker Change: In the U K certainly for our Pembroke asset some of our netback best Netback barrels are those that we sell into the local market and so as Lindsay exit will be trying to fill that void, which will make less available for exports to markets like California.

Phillip Jungwirth: Okay, Great and then.

Phillip Jungwirth: We're all familiar with the affordable affordability conversation in California, and the state's tone towards.

Phillip Jungwirth: Shifting to ensure supply.

Speaker Change: I know you did September up in the U K, but <unk>.

Phillip Jungwirth: Thanks.

Speaker Change: I'm wondering what is the affordability or comfort supply conversation look like your earned broader Europe, given we continue to see closures here too and you mentioned the Lindsay bankruptcy.

Speaker Change: Thank you. The next question is coming from Joe <unk> of Morgan Stanley. Please go ahead.

Speaker Change: Great. Thanks, Good morning, and thanks for taking my questions.

Speaker Change: Earlier really just trying to think about it in terms of the competitive dynamic given I know you don't have a huge footprint here.

Speaker Change: So Eric I want to go back to R&D and results in the first.

Speaker Change: Excuse me in the second quarter and while there is still challenged and improved quarter over quarter was hoping you could unpack some of the drivers here I know the indicator was lower but I think that was offset by a greater recognition of the PTC and continued ramp and SAP sales. So just hoping you could unpack that.

Speaker Change: Yes, So I would tell you you know the U K is a net importer of diesel so the Lindsey refinery closure, probably doesn't impact that much because diesel prices largely set by import parity, but at least it looks to us like Lindsay made about 50000 barrels a day of gasoline about 60% of that.

Speaker Change: Yes, So I think one thing in the first quarter, we had a couple of outages on <unk> <unk> two for cat for catalyst changes. So there was a.

Speaker Change: Remained in the UK certainly for our Pembroke asset some of our netback.

Speaker Change: Better volume in the second quarter as part of that but I think.

Speaker Change: Best netback barrels or those that we sell into the local market and so as Lindsay exit will be trying to fill that void, which will make less available for exports to markets like California.

Speaker Change: We also had a full quarter of PTC capture on eligible feedstocks.

Speaker Change: The first quarter, we adjusted our operations to capture the begin capturing the PTC about mid February. So you only got about half a quarter in the first quarter, but the second quarter had full PTC capture.

Speaker Change: Thanks.

Speaker Change: Thank you. The next question is coming from Joe <unk> of Morgan Stanley. Please go ahead.

Speaker Change: For the eligible feedstocks and for our SaaS, so we'd add a lot more.

Gary Simmons: Okay, thanks. And then my other one, I'm going to ask... Something else that's already been asked, but a bit more specific on the crude quality differentials that you expect to widen out with OPEC adding barrels. And I guess there's been some reporting recently that China wants to stockpile crude inventories in the back half of the year, and OPEC tends to price things more attractively to Asian markets than to US markets. So how much of these Middle East barrels do you think will flow to North America and really influence crude quality deficit in the back half of the year?

Speaker Change: Income related to.

Speaker Change: Great. Thanks, Good morning, and thanks for taking my questions.

Speaker Change: Those those factors in the second quarter and so I think the offset there is we're still adjusting to all of the different tariffs that would be throw at that are constantly moving around and so we do see that.

Speaker Change: So Eric I want to go back to R&D and results in the first.

Speaker Change: Excuse me in the second quarter, while they were still challenged improved quarter over quarter was hoping you could unpack some of the drivers here I know the indicator was lower but I think that was offset by a greater recognition of the PTC and continue ramp in SAP sales. So just hoping you can unpack that.

Speaker Change: The quarter on quarter is continuing to improve and like I said as we continue to see these credit prices creeping up I.

Speaker Change: Yes, So I think one thing in the first quarter, we had a couple of outages on <unk> one <unk> two for cat for catalyst changes. So there was a.

Speaker Change: Im hoping youll see in the third quarter that will continue this trend for the rest of the year.

Speaker Change: Great. Thanks, and then with the passage of the tax Bill a couple of weeks ago can you talk to any benefits to Valero that we should be mindful of anything around bonus depreciation. Thank you.

Speaker Change: Better volume.

Speaker Change: In the second quarter as part of that but I think.

Speaker Change: We also had a full quarter of PTC capture on eligible feedstocks versus the first quarter, we adjusted our operations to capture the begin capturing the PTC about mid fab. So you've only got about half a quarter in the first quarter, but the second quarter had full PTC capture.

Speaker Change: Yeah, Hey, Joe its Homer so the reinstatement of full expensing should lower our overall cash tax liability and earlier earlier years versus.

Speaker Change: Typical maker's depreciation schedule, so growth capex should definitely be eligible for bonus depreciation a lot of our sustaining capex should also be eligible with the exception of turnaround capital, which we already expense.

Speaker Change: For the eligible feedstocks and for our SaaS, so we'd add a lot more.

Speaker Change: Income related to.

Speaker Change: Those those factors in the second quarter, and so I think the.

Speaker Change: The magnitude of the benefit obviously it depends on our capex going forward, but that would be one at.

Speaker Change: There is we're still adjusting to all the different tariffs that would be thrown at that are constantly moving around and so we do see that the.

Gary Simmons: Okay, great.

Gary Simmons: Thanks. Thank you.

Speaker Change: At least from a tax standpoint benefit.

Rich Walsh: Rich can talk about some of the other stuff.

Homer Bhullar: I'd like to turn the floor back over to Mr. Bhullar for closing comments. Thank you, Donna. Appreciate everyone joining us today. As always, please feel free to contact the IR team if you have any additional questions. Thanks again, and have a great day, everyone.

Speaker Change: Yes.

Speaker Change: Quarter on quarter is continuing to improve and like I said as we continue to see these credit prices creeping up.

Speaker Change: The other things that are out there that are just kind of directionally helpful. As you know the federal EV tax credits.

Speaker Change: Im hoping youll see in the third quarter that will continue this trend for the rest of the year.

Speaker Change: Go away and so and then I think you'll also see.

Speaker Change: The limitations on the cafe penalty for the autos, which I think kind of opens the door for them to really just try to meet consumer consumer demands, which is generally for bigger vehicles and puts ice engines on a more.

Operator: Ladies and gentlemen, 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.

Speaker Change: Yeah, Hey, Joe its Homer so the reinstatement of full expensing should lower our overall cash tax liability and earlier earlier years versus.

Speaker Change: Comparable footing to Evs and so you don't have that same level of pressure.

Speaker Change: Two lower lower fuel economy and that should also directionally.

Speaker Change: A collateral benefit that comes out of this bill that we would we would expect to see manifest over.

Speaker Change: Over the following years.

Speaker Change: Great. Thank you guys I appreciate it.

Speaker Change: The magnitude of the benefit obviously it depends on our capex going forward, but that would be one at.

Speaker Change: Thank you. The next question is coming from Matthew Blair of Tudor Pickering Holt. Please go ahead.

Speaker Change: At least from a tax standpoint benefit.

Rich: Rich can talk about some of the other stuff.

Matthew Blair: Thanks, Pete and good morning.

Speaker Change: Yes.

Speaker Change: The other things that are out there that are just kind of directionally helpful. As you know the federal EV tax credits.

Matthew Blair: We saw good results in the North Atlantic were pretty strong and definitely better than our expectations I think capture moved up quarter over quarter, Despite tighter syncrude diff and Pembroke turnaround, but could you could you talk about what helped you out in the North Atlantic in Q2.

Speaker Change: Go away and so and then I think you'll also see.

Speaker Change: The limitations on the cafe penalty for the autos, which I think kind of opens the door for them to really just trying to meet consumer consumer demands, which is generally for bigger vehicles and puts ice engines on a more.

Matthew Blair: Yes. This is Greg So we did have a fair amount of maintenance in the second quarter most of that maintenance impacted throughput as you could see that in the lower throughput that we had for the quarter.

Speaker Change: Comparable footing to Evs and so you don't have that same level of pressure.

Speaker Change: Two lower lower fuel economy and that should also directionally.

Matthew Blair: So much on capture and then we had like we talked about in the Gulf Coast, We had really strong commercial.

Speaker Change: A collateral benefit that comes out of this bill that we would we would expect to see manifest over.

Matthew Blair: Margins and contributions in that region as well that crew.

Matthew Blair: Created that kind of.

Speaker Change: Over the following years.

Matthew Blair: Consistent results versus what we had seen.

Speaker Change: Great. Thank you guys I appreciate it.

Matthew Blair: In the prior quarter.

Matthew Blair: But our turnaround local back Ryan Fairmount <unk>.

Speaker Change: Thank you. The next question is coming from Matthew Blair of Tudor Pickering Holt. Please go ahead.

Matthew Blair: <unk> actually kind of it's that.

Matthew Blair: For our system, our operations really was strong across the system, including North Atlantic.

Matthew Blair: Thanks, and good morning.

Matthew Blair: Sounds good and then the.

Matthew Blair: The RVO proposal.

Matthew Blair: Yes it has.

Matthew Blair: Principal FRE reallocation, where the larger refinery without the.

Matthew Blair: Essentially pay for the Fsrus granted in the smaller refineries.

Matthew Blair: It seems like it could be extra hundreds of million for Valero that goes through so I guess, one how likely do you think that proposal.

Speaker Change: Yes. This is Greg So we did have a fair amount of maintenance in the second quarter most of that maintenance impacted throughput as you could see that in the lower throughput that we had for the quarter not so much on capture and then we had like we talked about in the Gulf Coast, We had really strong commercial.

Matthew Blair: It would be to actually be in the final proposal and then.

Matthew Blair: <unk>.

Matthew Blair: Generally accepted that the RVO is passed along in the crack you think that the extra reallocation costs would also be passed along in the crack as well.

Matthew Blair: Margins and contributions in that region as well that <unk>.

Matthew Blair: Created that kind of consistent results versus what we had seen in.

Speaker Change: This rich Wiles, let me, let me take a an effort to respond to that I think.

Ryan Fairmount: In the prior quarter, but our turnaround in Quebec, Ryan Fairmount <unk>.

Speaker Change: Youre getting too deep into this I think you need to understand the SRU, where originally coming out of an exemption that was expired in 2011 and.

Ryan Fairmount: <unk> actually kind of it's a theme for our system. Our operations really was strong across the system, including North Atlantic.

Speaker Change: Following that exploration of the department of energy was obligated to look at whether or not these.

Ryan Fairmount: Sounds good and then the.

Ryan Fairmount: The RVO proposal.

Ryan Fairmount: Yes it has.

Ryan Fairmount: Principal FRE reallocation, where the larger refineries would have to essentially pay for the fsrus granted there's a smaller refineries.

Speaker Change: Sru's, where necessary because the RFS was creating disproportionate harm or impact to the small refiners in the Doe concluded that it was not <unk>.

Ryan Fairmount: It seems like it could be extra hundreds of million for Valero that goes through so I guess, one how likely do you think that proposal.

Speaker Change: Impacting small refiners. So today, what we're talking about is extensions from our 2011.

Speaker Change: <unk> exemption and it requires that these small refiners show a unique and disproportionate economic harm caused by the RFS itself and like what you are alluding to here.

Ryan Fairmount: It would be to actually be in the final proposal.

Ryan Fairmount: And then too.

Ryan Fairmount: Generally accepted that the RVO is passed along in the crack you think that the extra reallocation costs would also be walnuts.

Speaker Change: In today's market. The RIN obligation is equally applied across the whole sector and it's embedded in all the refinery margins. So I think EPA in Doa have repeatedly confirm this with their own analysis. So.

Ryan Fairmount: Alone in the crack as well.

Speaker Change: This rich Wiles, let me, let me take a an effort to respond to that I think.

Speaker Change: While the EPA can't categorically deny all of <unk> I believe it can be really challenging for these small refiners to to make their legal case.

Speaker Change: Without getting too deep into this I think you need to understand the SRU, where originally coming out of an exemption that was expired in 2011 and.

Speaker Change: The RFS.

Speaker Change: Following that exploration of the department of energy was obligated to look at.

Speaker Change: <unk> is uniquely harming them so.

Speaker Change: Whether or not these.

Speaker Change: My thought process is that youre not going to see a lot of fsrus be granted by EPA or at least if you do youre going to see a lot of legal challenges to that.

Speaker Change: Sru's, where necessary because the RFS was creating disproportionate harm or impact to the small refiners in the Doe concluded that it was not.

Speaker Change: And in terms of in terms of the RVO I mean remember that the RVO.

Speaker Change: Impacting small refiners. So today, what we're talking about is extensions from our 2011.

Speaker Change: It came out right. After it came out there were a whole bunch of changes that happened we had tariffs we had restrictions on foreign feedstocks.

Speaker Change: Exemption and it requires that these.

Speaker Change: While refiners show, a unique and disproportionate economic harm caused by the RFS itself and like what you are alluding to here.

Speaker Change: For foreign imports having to be cut in half so I think youre going to see a lot of.

Speaker Change: A lot of comments coming in and the proposed process and I think EPA is going to have to look really hard at it.

Speaker Change: Yeah.

Speaker Change: The RVO and have to think about what they've got to do to revise it to make it realistic. So I think those are the things that are kind of play out.

Speaker Change: While the EPA can't categorically deny all of <unk> I believe it can be really challenging for these small refiners to to make their legal case.

Speaker Change: Sounds good thanks.

Speaker Change: Thank you. Our final question today is coming from Jason <unk> of Cowen. Please go ahead.

Speaker Change: For the RFS.

Speaker Change: Yes.

Speaker Change: As uniquely harming them so.

Speaker Change: Yeah, Hey, good morning, Thanks for taking my question.

Speaker Change: My thought process is that youre not going to see a lot of fsrus be granted by EPA or at least if you do youre going to see a lot of legal challenges to that.

Speaker Change: I wanted to go back to the commentary that you provided on the distillate outlook and appreciate all of the discussion around North American dynamics, but it seems like some of the output from other regions is a bit lower than I wanted.

Speaker Change: And in terms of in terms of the RVO I mean remember that the RVO.

Speaker Change: It came out and right. After it came out there were a whole bunch of changes that happened we had tariffs we had restrictions on foreign feedstocks.

Speaker Change: To get your thoughts on to the extent that that's transitory in nature things like.

Speaker Change: Ren for foreign imports, having to be cut in half. So I think youre going to see a lot of.

Speaker Change: Lower net exports out of Spain, because of the power outages. It seems like middle East diesel exports are down a lot.

Speaker Change: A lot of comments coming in and the proposed process and I think EPA is going to have to look really hard at it.

Speaker Change: Not sure if that is structural or not so just wondering if you could provide your thoughts on things going on in other parts of the world.

Speaker Change: Yes.

Speaker Change: The RVO and have to think about what they've got to do to revise it to make it realistic. So I think those are the things that are kind of play out.

Speaker Change: Yes, Jason This is Gary I think obviously the strength in diesel is due to low inventories in July we've been trending at historic low type of inventories and I would say a lot of that really started late last year late last year, we had a relatively weak refinery margin environment based on where inventories were I would say that the margin.

Speaker Change: Sounds good thanks.

Speaker Change: Thank you. Our final question today is coming from Jason <unk> of Cowen. Please go ahead.

Jason: Yeah, Hey, good morning, Thanks for taking my question.

Jason: I wanted to go back to the commentary that you provided on the distillate outlook and appreciate all of the discussion around North American dynamics, but it seems like some of the output from other regions is a bit lower than I wanted.

Speaker Change: <unk> environment was too weak and that led lower refinery utilization, which limited diesel inventories from restocking as they typically do and then we had a colder winter, which raised heating oil demand and further depleted inventory heading into the first quarter. We have had some refinery shutdowns and then some of the new capacity to come online has really struggled.

Jason: To get your thoughts on to the extent that that's transitory in nature things like.

Speaker Change: Come up to full rates. So I think in a supply demand balances are certainly tighter than expectations based on projected net capacity additions a shift we've had in 2024 as jet demand increased its incentivize refiners to produce jet which has come at the expense of diesel in general one of the things we've been talking about is refiner.

Jason: Lower net exports out of Spain, because of the power outages. It seems like middle East diesel exports are down a lot.

Jason: I'm not sure if that is structural or not so just wondering if you could provide your thoughts on things going on in other parts of the world.

Jason: Yes, Jason This is Gary I think obviously the strength in diesel is due to low inventories in July we've been trending at historic low type of inventories and I would say a lot of that really started late last year late last year, we had a relatively weak refinery margin environment based on where inventories were I would say that the margin.

Speaker Change: These are running lighter crude diets that was exacerbated by the Venezuelan sanctions and Canadian wildfires, so with tight quality differentials the incentive to run lighter crudes results in lower distillate yields and then another factor here is with the poor renewable biodiesel margins resulted in lower production of those products, which has increased the demand for <unk>.

Jason: Environment was too weak and that led lower refinery utilization, which limited diesel inventories from restocking as they typically do and then we had a colder winter, which raised heating oil demand and further depleted inventory heading into the first quarter. We have had some refinery shutdowns and then some of the new capacity to come online has really struggled to.

Speaker Change: Conventional diesel as well.

Speaker Change: So I think all of those factors have come into play to where where we are on the low inventories today.

Speaker Change: Okay. Thanks, and then my other one.

Speaker Change: Ask.

Speaker Change: Something else, that's already been asked but a bit more specific on the crude quality differentials that.

Jason: Come up to full rates. So I think in a supply demand balances are certainly tighter than expectations based on projected net capacity additions a shift we've had in 2024 as jet demand increased its incentivize refiners to produce jet which has come at the expense of diesel in general one of the things we've been talking about as refinery.

Speaker Change: Do you expect to widen out with OPEC, adding barrels and I guess, there's been some reporting recently that China wants to stockpile crude inventories in the back half of the year and OPEC tends to price things more attractively to Asian markets than to U S market. So how.

Jason: As a running lighter crude diets that was exacerbated by the Venezuelan sanctions and Canadian wildfires, so with tight quality differentials the incentive to run lighter crudes results in lower distillate yields and then another factor here is with the poor renewable biodiesel margins a resulted in lower production of those products, which has increased the demand for <unk>.

Speaker Change: How much of these middle East barrels do you think will flow to North America, and really influence crude quality depths in the back half of the year.

Speaker Change: Well, Jason I can't say, we have a lot of insight into what's going on in China. So I don't know their plans in terms of restocking inventory I can tell you that we really haven't been mined much crude from.

Jason: Invention of diesel as well.

Jason: So I think all those factors have come into play to where where we are on the low inventories today.

Speaker Change: Historic partners in the Middle East for quite some time, but we have re engage with them. So the fact that they are re engaging with US tells me that they plan on some of the production, making its way to the U S. So I am confident we will see some of those barrels.

Speaker Change: Okay. Thanks, and then my other one.

Jason: Ask.

Speaker Change: Something else that has already been asked but a bit more specific on the crude quality differentials that.

Speaker Change: Okay, great. Thanks for the answers.

Speaker Change: You expect to widen out with OPEC, adding barrels and I guess, there's been some reporting recently that China wants to stockpile crude inventories in the back half of the year and OPEC tends to price things more attractively to Asian markets than to U S market. So how.

Mr. Behler: Thank you I'd like to turn the floor back over to Mr. Behler for closing comments.

Mr. Behler: Thank you Donna I appreciate everyone joining us today as always please feel free to contact the IR team. If you have any additional questions.

Mr. Behler: Thanks, again and have a great day everyone.

Speaker Change: How much of these middle East barrels do you think will flow to North America, and really influence crude quality depths in the back half of the year.

Mr. Behler: Ladies and gentlemen. This concludes today's event you may disconnect your lines or log off.

Mr. Behler: Webcast at this time and enjoy the rest of your day.

Speaker Change: Jason I can't say, we have a lot of insight into what's going on in China. So I don't know their plans in terms of restocking inventory I can tell you that we really haven't been mined much crude from.

Speaker Change: Okay, great. Thanks for the answers.

Mr. Behler: Thank you I'd like to turn the floor back over to Mr. Behler for closing comments.

Mr. Behler: Thank you Donna I appreciate everyone joining us today as always please feel free to contact the IR team. If you have any additional questions.

Mr. Behler: Thanks, again and have a great day everyone.

Speaker Change: Ladies and gentlemen. 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.

Speaker Change: [music].

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