Q3 2025 Valero Energy Corp Earnings Call

Speaker #1: Greetings and welcome to Valero Energy Corp third quarter 2020 Earnings Conference Call . At this time , all participants are in a listen only mode .

Operator: Greetings and welcome to Valero Energy Corporation's third quarter 2025 earnings conference call. At this time, all participants are on listen-only mode. 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 Bhullar, Vice President, Investor Relations and Finance. Thank you. You may begin.

Speaker #1: 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 .

Speaker #1: As a reminder , this conference is being recorded . It is now my pleasure to introduce your host Homer Bhullar Vice President , Investor Relations and Finance .

Speaker #1: Thank you. You may begin.

Speaker #2: Good morning , everyone , and welcome to Valero Energy Corporation . Third quarter 2020 Earnings Conference Call . I'm joined today by Elaine Riggs , chairman , CEO , and president .

Homer Bhullar: Good morning, everyone, and welcome to Valero Energy Corporation's third quarter 2025 earnings conference call. I'm joined today by Lane Riggs, Chairman, CEO and President, Jason Frazier, Executive Vice President and CFO, Gary Simmons, Executive Vice President and COO, Rich Walsh, Executive Vice President and General Counsel, as well as several other members of Valero's senior management team. If you have not received a copy of our earnings release, it's available on our website at investorvalero.com. Included with the release are supplemental tables providing detailed financial information for each of our business segments, along with reconciliations and disclosures for any adjusted financial metrics referenced during today's call. If you have any questions after reviewing these materials, please feel free to reach out to our investor relations team. Before we begin, I would like to draw your attention to the forward-looking statement disclaimer included in the press release.

Speaker #2: Jason Frazier , Executive Vice President and CFO . Gary Simmons , Executive Vice president and CEO . Rich Walsh , executive vice president and general counsel , as well as several other members of Valero's senior management team .

Speaker #2: If you have not received a copy of our earnings release , it's available on our website at investor Valero . Comm . Included with the release are supplemental tables providing detailed financial information for each of our business segments , along with reconciliations and disclosures for any adjusted financial metrics referenced during today's call .

Speaker #2: If you have any questions after reviewing these materials , please feel free to reach out to our Investor Relations team . Before we begin , I would like to draw your attention to the forward looking statement disclaimer included in the press release .

Speaker #2: In summary , it says that statements made in the press release and during this conference call that express the company's or management's expectations or forecasts of future events , are forward looking statements and are intended to be covered by the safe harbor provisions under federal securities laws .

Homer Bhullar: In summary, it says that statements made in the press release and during this conference call that express the company's or management's expectations or forecast of future events are forward-looking statements and are intended to be covered by the safe harbor provisions under federal securities laws. Actual results may differ from those expressed or implied due to various factors, which are outlined in our earnings release and filings with the SEC. I'll now turn the call over to Lane for opening remarks.

Speaker #2: Actual results may differ from those expressed or implied due to various factors which are outlined in our earnings release and filings with the SEC .

Speaker #2: I'll now turn the call over to Lane for opening remarks .

Speaker #3: Thank you , Homer , and good morning , everyone . We're pleased to report strong financial results for the third quarter , highlighting our long standing track record of operational and commercial excellence .

Lane Riggs: Thank you, Homer, and good morning, everyone. We're pleased to report strong financial results for the third quarter, highlighting our long-standing track record of operational and commercial excellence. Our refinery throughput utilization was 97%, with the Gulf Coast and North Atlantic regions setting new all-time highs for throughput, following last quarter's record performance in the Gulf Coast. Refining margins remained well supported by strong global demand and persistently low inventory levels, despite high utilization rates. Supply constraints were driven by refinery rationalizations, delayed ramp-ups in new facilities, and ongoing geopolitical disruptions. These market dynamics contributed to the margin strength despite relatively narrow sour crude differentials. The ethanol segment also delivered a strong quarter, achieving record production and solid earnings. Strategically, we continue to make progress on the FCC unit optimization project at our St. Charles refinery.

Speaker #3: Our refinery throughput utilization was 97% with the Gulf Coast and North Atlantic region setting new all time highs for throughput . Following last quarter's record performance in the Gulf Coast , refining margins remained well supported by strong global demand in persistently low inventory levels despite high utilization rates , supply constraints were driven by refinery rationalizations , delayed ramp up of new facilities , and ongoing geopolitical disruptions .

Speaker #3: These market dynamics contributed to the margin strength despite relatively narrow sour crude differentials . The ethanol segment also delivered a strong quarter , achieving record production and solid earnings .

Speaker #3: Strategically , we continue to make progress on the FCC unit optimization project at our Saint Charles refinery . This initiative will enhance our ability to produce high value product yields , including high octane alkylate .

Lane Riggs: This initiative will enhance our ability to produce high-value product yields, including high octane output. The $230 million project is expected to begin operations in the second half of 2026. Looking ahead, refining fundamentals should remain supported by low inventories and continued supply tightness, with planned refinery closures and limited capacity additions beyond 2025. Our crude differentials are also expected to widen with the increased OPEC+ and Canadian production. In closing, our strong financial results and record operating achievements this quarter are a testament to our commitment to commercial and operational excellence. This, coupled with the strength of our balance sheet, should continue to support strong shareholder returns. With that, Homer, I'll turn the call back over to you.

Speaker #3: The $230 million project expected to begin operations in the second half of 2026 . Looking ahead , refining fundamentals should remain supported by low inventories and continued supply tightness with planned refinery closures and limited capacity additions beyond 2025 .

Speaker #3: With crude differentials were also expected to widen with the increased OPEC Plus and Canadian production . In closing , our strong financial results and record operating achievements this quarter are a testament to our commitment to commercial and operational excellence .

Speaker #3: This , coupled with the strength of our balance sheet , should continue to support strong shareholder returns . So with that homer , I'll turn the call back over to you .

Speaker #2: Thanks , Elaine , for the third quarter of 2025 , net income attributable to Valero stockholders was $1.1 billion , or $3.53 per share , compared to $364 million , or $1.14 per share , for the third quarter of 2020 .

Homer Bhullar: Thanks, Lane. For the third quarter of 2025, net income attributable to Valero stockholders was $1.1 billion or $3.53 per share, compared to $364 million or $1.14 per share for the third quarter of 2024. Excluding the adjustments shown in the earnings release tables, adjusted net income attributable to Valero stockholders was $1.1 billion or $3.66 per share for the third quarter of 2025, compared to $371 million or $1.16 per share for the third quarter of 2024. The refining segment reported $1.6 billion of operating income for the third quarter of 2025, compared to $565 million for the third quarter of 2024. Adjusted operating income was $1.7 billion for the third quarter of 2025, compared to $568 million for the third quarter of 2024. Refining throughput volumes in the third quarter of 2025 averaged 3.1 million barrels per day, or 97% throughput capacity utilization.

Speaker #2: For excluding the adjustments shown in the earnings release tables , adjusted net income attributable to Valero stockholders was $1.1 billion , or $3.66 per share , for the third quarter of 2025 , compared to $371 million , or $1.16 per share , for the third quarter of 2020 .

Speaker #2: For the refining segment, reported $1.6 billion of operating income for the third quarter of 2025, compared to $565 million for the third quarter of 2020.

Speaker #2: For adjusted operating income was $1.7 billion for the third quarter of 2025 , compared to $568 million for the third quarter of 2020 .

Speaker #2: For refining throughput volumes in the third quarter of 2025 averaged 3.1 million barrels per day , or 97% throughput capacity utilization adjusted refining cash operating expenses were $4.71 per barrel .

Homer Bhullar: Adjusted refining cash operating expenses were $4.71 per barrel. The renewable diesel segment reported an operating loss of $28 million for the third quarter of 2025, compared to operating income of $35 million for the third quarter of 2024. Renewable diesel segment sales volumes averaged 2.7 million gallons per day in the third quarter of 2025. The ethanol segment reported $183 million of operating income for the third quarter of 2025, compared to $153 million for the third quarter of 2024. Ethanol production volumes averaged 4.6 million gallons per day in the third quarter of 2025, achieving record production. For the third quarter of 2025, G&A expenses were $246 million, net interest expense was $139 million, and income tax expense was $390 million.

Speaker #2: The Renewable diesel segment reported an operating loss of $28 million for the third quarter of 2025 , compared to operating income of $35 million for the third quarter of 2020 .

Speaker #2: For renewable diesel segment sales , volumes averaged 2.7 million gallons per day in the third quarter of 2025 . The ethanol segment reported $183 million of operating income for the third quarter of 2025 , compared to $153 million for the third quarter of 2020 .

Speaker #2: For ethanol production , volumes averaged 4.6 million gallons per day in the third quarter of 2025 , achieving record production for the third quarter of 2025 .

Speaker #2: G&A expenses were 246 million , net interest expense was $139 million , and income tax expense was 390 million . Depreciation and amortization expense was $836 million , which includes approximately 100 million of incremental depreciation expense related to our plan to cease refining operations at our Benicia refinery next year .

Homer Bhullar: Depreciation and amortization expense was $836 million, which includes approximately $100 million of incremental depreciation expense related to our plan to cease refining operations at our Benicia refinery next year. Net cash provided by operating activities was $1.9 billion in the third quarter of 2025. Included in this amount was a $325 million favorable impact from working capital and $86 million of adjusted net cash used in operating activities associated with the other joint venture members' share of DGD. Excluding these items, adjusted net cash provided by operating activities was $1.6 billion in the third quarter of 2025. Regarding investing activities, we made $409 million of capital investments in the third quarter of 2025, of which $364 million was for sustaining the business, including costs for turnarounds, catalysts, and regulatory compliance, and the balance was for growing the business.

Speaker #2: Net cash provided by operating activities was 1.9 billion in the third quarter of 2025 . Included in this amount was a 325 million favorable impact from working capital , and 86 million of adjusted net cash used in operating activities associated with the other joint venture members .

Speaker #2: Share of Dgd . Excluding these items , adjusted net cash provided by operating activities was 1.6 billion in the third quarter of 2025 .

Speaker #2: Regarding investing activities , we made 409 million of capital investments in the third quarter of 2025 , of which 364 million was for sustaining the business , including costs for turnarounds , catalysts and regulatory compliance .

Speaker #2: And the balance was for growing the business , including capital investments attributable to the other joint venture members . Share of Dgd and other variable interest entities .

Homer Bhullar: Including capital investments attributable to the other joint venture members' share of DGD and other variable interest entities, capital investments attributable to Valero were $382 million in the third quarter of 2025. Moving to financing activities, we returned $1.3 billion to our stockholders in the third quarter of 2025, of which $351 million was paid as dividends and $931 million was for the purchase of approximately 5.7 million shares of common stock, resulting in a payout ratio of 78% for the quarter. Year to date, we have returned over $2.6 billion through dividends and stock buybacks for a payout ratio of 68%. With respect to our balance sheet, we ended the quarter with $8.4 billion of total debt, $2.2 billion of total finance lease obligations, and $4.8 billion of cash and cash equivalents. The debt-to-capitalization ratio net of cash and cash equivalents was 18% as of September 30, 2025.

Speaker #2: Capital investments attributable to Valero were 382 million in the third quarter of 2025 . Moving to financing activities , we returned 1.3 billion to our stockholders in the third quarter of 2025 , of which 351 million was paid as dividends and 931 million was for the purchase of approximately 5.7 million shares of common stock , resulting in a payout ratio of 78% for the quarter .

Speaker #2: Year to date , we have returned over 2.6 billion through dividends and stock buybacks for a payout ratio of 68% , with respect to our balance sheet , we ended the quarter with 8.4 billion of total debt , 2.2 billion of total finance lease obligations and 4.8 billion of cash and cash equivalents .

Speaker #2: The debt to capitalization ratio , net of cash and cash equivalents , was 18% as of September 30th , 2025 , and we ended the quarter well capitalized with 5.3 billion of available liquidity , excluding cash .

Homer Bhullar: We ended the quarter well capitalized with $5.3 billion of available liquidity, excluding cash. Turning to guidance, we expect capital investments attributable to Valero for 2025 to be approximately $1.9 billion, which includes expenditures for turnarounds, catalysts, regulatory compliance, and joint venture investments. About $1.6 billion of that is allocated to sustaining the business and the balance to growth. For modeling our fourth quarter operations, we expect refining throughput volumes to fall within the following ranges: Gulf Coast at 1.78 to 1.83 million barrels per day, Mid-Continent at 420,000 to 440,000 barrels per day, West Coast at 240,000 to 260,000 barrels per day, and North Atlantic at 485,000 to 505,000 barrels per day. We expect refining cash operating expenses in the fourth quarter to be approximately $4.80 per barrel.

Speaker #2: Turning to guidance , we expect capital investments attributable to Valero for 2025 to be approximately 1.9 billion , which includes expenditures for turnarounds , catalysts , regulatory compliance and joint venture investments .

Speaker #2: About 1.6 billion of that is allocated to sustaining the business in the balance to growth for modeling our fourth quarter operations , we expect refining throughput volumes to fall within the following ranges .

Speaker #2: Gulf coast at 1.78 to 1.83 million barrels per day . Mid-Continent at 420 to 440,000 barrels per day . West coast at 240 to 260,000 barrels per day , and North Atlantic at 485 to 505,000 barrels per day .

Speaker #2: We expect refining cash , operating expenses in the fourth quarter to be approximately $4.80 per barrel for the renewable diesel segment . We expect sales volumes of approximately 258 million gallons in the fourth quarter , reflecting lower production due to economics , operating expenses should be $0.52 per gallon , including $0.24 per gallon for non-cash costs such as depreciation and amortization .

Homer Bhullar: For the renewable diesel segment, we expect sales volumes of approximately 258 million gallons in the fourth quarter, reflecting lower production due to economics. Operating expenses should be $0.52 per gallon, including $0.24 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 fourth 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 fourth quarter, net interest expense should be about $135 million. Total depreciation and amortization expense in the fourth quarter should be approximately $815 million, which includes approximately $100 million of incremental depreciation expense related to our plan to cease refining operations at our Benicia refinery next year.

Speaker #2: Our ethanol segment is expected to produce 4.6 million gallons per day in the fourth quarter. Operating expenses should average $0.40 per gallon, which includes $0.05 per gallon for non-cash costs such as depreciation and amortization.

Speaker #2: For the fourth quarter , net interest expense should be about 135 million . Total depreciation and amortization expense in the fourth quarter should be approximately 815 million , which includes approximately 100 million of incremental depreciation expense related to our plan to cease refining operations at our Benicia refinery next year .

Speaker #2: We expect this incremental depreciation related to the Benicia refinery to be included in DNA for the next two quarters , resulting in a quarterly earnings impact of approximately $0.25 per share .

Homer Bhullar: We expect this incremental depreciation related to the Benicia refinery to be included in G&A for the next two quarters, resulting in a quarterly earnings impact of approximately $0.25 per share based on current shares outstanding. For 2025, we still expect G&A expenses to be approximately $985 million. 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.

Speaker #2: Based on current shares outstanding for 2025, we still expect G&A expenses to be approximately $985 million. That concludes our opening remarks.

Speaker #2: 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 .

Speaker #2: As time permits to ensure other callers have time to ask their questions .

Speaker #1: Thank you . The floor is now open for questions . If you would like to ask a question , please press star one on your telephone keypad .

Operator: Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Our first question today is coming from Sam Margolin of Wells Fargo. Please go ahead.

Speaker #1: 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 .

Speaker #1: For participants using speaker equipment and may be necessary to pick up the handset before pressing the star key's . Our first question today is coming from Sam Margolin of Wells Fargo .

Speaker #1: Please go ahead .

Speaker #4: Hey , good morning everybody . Thanks for taking the question . Good morning Sam , on this is a comment from your opening remarks .

[Analyst]: Hey, good morning, everybody. Thanks for taking the question.

Gary Simmons: Good morning, thanks.

[Analyst]: This is a comment from your opening remarks. As you mentioned, not much of a contribution from heavy crude this quarter on differentials. I guess we're like a year into TMX barrels sort of fully flowing. I wonder if you could share any insights you have into the differential side, as you know, kind of 12 months into TMX and then just on the overall kind of availability picture that's emerging into 2026.

Speaker #4: As you mentioned . You know , not much of a contribution from heavy crude . This quarter on differentials . You know , I guess we're like a year into TMX barrels , sort of fully flowing .

Speaker #4: And I wonder if you could share any insights you have into the into the differential side . You know , as you know , kind of 12 months into TMX and then just on the overall kind of availability picture .

Speaker #4: That's emerging into into 2026 .

Speaker #5: Yeah . So I would tell you , you know , we've been somewhat I'll start with TMX somewhat disappointed that TMX hasn't had as much of an impact on West Coast crude values and has really ans didn't come off like we anticipated would .

Gary Simmons: Yeah, I would tell you, we've been somewhat, I'll start with TMX, somewhat disappointed that TMX hasn't had as much of an impact on West Coast crude values as it has. Really, ANS didn't come off like we anticipated it would. Most of those barrels are flowing to the Far East. In the broader sense, in terms of quality differentials, we have seen the quality differentials move quite a bit. WCS now trading at a 12% discount to Brent, Maya a 14% discount to Brent. Those had been as narrow as 7% previously in the year. On medium sours, we had seen discounts as narrow as 2.5%. That's widened out closer to an 8% discount. Discounts have certainly moved to the point where we are seeing an economic benefit in our system to running medium and heavy sour crudes. Our expectation is you'll continue to see those widen.

Speaker #5: And most of those barrels are flowing to the Far East . And the broader sense in terms of quality differentials , you know , we have seen the quality differentials move quite a bit now trading at a 12% discount to Brent Maya , 14% discount to Brent .

Speaker #5: Those have been as narrow as 7% previously in the year on medium sours. You know, we had seen discounts as narrow as 2.5%.

Speaker #5: That's widened out closer to an 8% discount . So discounts have certainly moved to the point where we are seeing an economic benefit in our system to running medium and heavy sour crudes .

Speaker #5: Our expectation is you'll continue to see those widen . Although OPEC began unwinding their production cuts in April , much of that volume was offset by an increase in summer power burn , so it wasn't really until September that we saw any meaningful increase in the export volume from OPEC .

Gary Simmons: Although OPEC began unwinding their production cuts in April, much of that volume was offset by an increase in summer power burn. It wasn't really until September that we saw any meaningful increase in the export volume from OPEC. The pricing signals that are there still suggest that most of that incremental OPEC volume will be directed towards Asia. However, we've been seeing increased offers to the U.S. market, especially for Iraqi crude. We'll be processing both Basra and Kirkuk during the fourth quarter in our system. The arbitrage to move Mars into Asia has closed. Additionally, we're starting to see Asia push back on some of the Latin American grades, which ultimately is beginning to pressure medium sours in the Gulf Coast. All of those effects are things that we're starting to see in October.

Speaker #5: The pricing signals that are there still suggest that most of that incremental OPEC volume will be directed towards Asia . However , we've been seeing increased offers to the US market , especially for Iraqi crude .

Speaker #5: We'll be processing both Basra and Kerkuk during the fourth quarter, and our system, the arbitrage to move Mars into Asia, has closed.

Speaker #5: Additionally, we're starting to see Asia push back on some of the Latin American grades, which ultimately is beginning to pressure medium sours in the Gulf Coast.

Speaker #5: So all of those effects are things that we're starting to see . In October . Then as medium sour discounts widen . You know , you'll see heavy sellers react to remain competitive with medium sours .

Gary Simmons: As medium sour discounts widen, you'll see heavy sours react to remain competitive with medium sours. We anticipate that to continue to happen as we move through the fourth quarter. In addition to just OPEC, heavy Canadian production has continued to ramp up, as well as some of the deep water medium sour production in the Gulf. You've seen Chinese demand has been very high for medium and heavy sour barrels. As they fill their SPR, at some point in time, you'd expect that to be full and they would back off. I think the real wild card here is, with the headlines on ramp-up and Russian sanctions yesterday. In the past, we felt like sanctions were largely ineffective. They just result in a change in trade flows.

Speaker #5: We anticipate that to continue to happen as we move through the fourth quarter . In addition to just OPEC , heavy Canadian production is continued to ramp up as well as some of the deep water medium sour production in the Gulf .

Speaker #5: And then you've seen Chinese demand has been very high for medium and heavy sour barrels as they fill their SPR at some point in time , you'd expect that to be full .

Speaker #5: And they would back off . I think the real wild card here is , you know , with the headlines on ramp up and Russian sanctions yesterday , in the past , you know , we felt like sanctions were largely ineffective .

Speaker #5: They just result in a change in trade flows , at least if you see the market reaction today , the market believes this round of sanctions could be successful .

Gary Simmons: At least if you see the market reaction today, the market believes this round of sanctions could be successful and result in some Russian oil being taken off the market. On paper, OPEC has the capacity to make up that lost supply, but that certainly could be a headwind to quality differentials. However, it would be very bullish for product cracks.

Speaker #5: And result in some Russian oil being taken off the market. On paper, OPEC has the capacity to make up that loss in supply, but that certainly could be a headwind to quality differentials.

Speaker #5: However , it would be very bullish for product cracks .

Speaker #4: Okay . Well thanks for thanks for all that color . I guess we'll keep it on . You know , industry macro for a second if that's okay .

[Analyst]: Okay, thanks for all that color. I guess we'll keep it on, you know, industry macro for a second, if that's okay. Just on the capacity queue globally next year, we've encountered some feedback about what looks like a fairly heavy schedule of capacity additions next year after a number of years of kind of, you know, trailing demand or lagging demand. If you have any insights onto the timing of the capacity additions or what you think we can expect reliability-wise or just a change in balances, that would be much appreciated. Thank you.

Speaker #4: And just on the capacity queue globally next year , you know we've encountered some feedback about what looks like a fairly heavy schedule of of capacity additions next year after after a number of years of kind of , you know , trailing demand or lagging demand , if you have any insights , you know , onto the onto the timing of the capacity additions or , or , you know , what you think we can expect reliability wise or just a change in balances that would be much appreciated .

Speaker #4: Thank you .

Speaker #5: Yeah. So our numbers would show about 460,000 barrels a day of total light product demand growth next year. Net capacity additions are about 415,000 barrels a day.

Gary Simmons: Yeah, so our numbers would show about 460,000 barrels a day of total light product demand growth next year. Net capacity additions are about 415,000 barrels a day. If you assume somewhere around an 80% total light product yield on crude, you would still have tighter supply-demand balances next year than what you have this year. In addition to that, I think a lot of the forecasts you see assume that new capacity that started up is going to run at nameplate. We haven't seen them be able to get up to nameplate yet. Our expectation is a lot of that capacity won't hit nameplate next year. Russian capacity is a real wild card here. Also, a million and a half barrels a day of Russian capacity offline. A lot of the forecasts assume that Russian capacity is up and running, beginning of the year.

Speaker #5: So you know those numbers . If you assume somewhere around an 80% total light product yield on crude , you would still have tighter supply demand balances next year than what you have this year .

Speaker #5: In addition to that , I think , you know , a lot of the forecasts you see assume that new capacity that started up is going to run at nameplate .

Speaker #5: You know , we haven't seen them be able to get up to nameplate yet . And our expectation is a lot of that capacity won't hit nameplate next year .

Speaker #5: And then Russian capacity is a real wild card here . Also , you know , a million and a half barrels a day of Russian capacity offline .

Speaker #5: A lot of the forecasts assume that Russian capacity is up and running . You know , beginning of the year , our expectation is it will take longer to get that up and running as well .

Gary Simmons: Our expectation is it will take longer to get that up and running as well. We expect things to be tighter next year as well.

Speaker #5: So , you know , we expect things to be tighter next year as well .

Speaker #4: Thank you .

[Analyst]: Thank you.

Speaker #1: Thank you . The next question is coming from Manav Gupta of UBS . Please go ahead .

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

Speaker #6: Good morning . I just quickly wanted to follow up on that . We are seeing a massive spike in global outages . Russia then got , I think , over the weekend there were issues .

[Analyst]: Good morning. I just quickly wanted to follow up on that. We are seeing a massive spike in global outages. Russia, then Gote, Dos Bogas. I think over the weekend there were issues where you had Romania having issues. What are you seeing in terms of global product markets out there, all these outages and what they're causing for the margins out there? If you could talk a little bit about that.

Speaker #6: You know , where you had Romania having issues . So what are you seeing in terms of global product markets out there . All these outages and what they are causing for , you know , the margins out there .

Speaker #6: If you could talk a little bit about that .

Speaker #5: Yeah , this is Gary . I think , you know , we've seen good export demand all year . The fact that we've been unable to restock inventories in the United States , you know , is keeping somewhat of a pull into the domestic markets .

Gary Simmons: Yeah, Manav, this is Gary. I think, you know, we've seen good export demand all year. The fact that we've been unable to restock inventories in the United States is keeping somewhat of a pull into the domestic markets, but the export markets are very good. Continue to see really good export demand for gasoline into Latin America and South America. On the diesel side, you know, a bigger pull into South America than what we've been seeing. Freight has really been volatile. On the export arbs going to Europe, it's kind of been up and down, and it's really just freight that's kind of been what opens and closes that arb. If you look today, that arb is marginally open. While I think you'll start to see a heavier flow going to Europe from the U.S. Gulf Coast on diesel.

Speaker #5: But the export markets are very good . Continue to see really good export demand for gasoline into Latin America and South America on the diesel side , you know , a bigger pull into South America than what we've been seeing .

Speaker #5: Freight has really been volatile and so on . The export arms going to Europe , it's kind of been up and down and it's really just freight .

Speaker #5: That's kind of been what opens and closes at ARB. If you look today, ARB is marginally open, and I think you'll start to see a heavier flow going to Europe from the U.S. Gulf Coast on diesel.

Speaker #6: Perfect . My quick follow up is on the capital returns a big jump in the buybacks and should we assume if margins remain , well above midcycle like they are , then your payout ratio remaining the same ?

[Analyst]: Perfect. My quick follow-up is on the capital returns, a big jump in the buybacks. Should we assume if margins remain well above mid-cycle like they are, then your payout ratio remaining the same, you would continue to buy back your stock as you did in the third quarter? If you could talk a little bit about the capital discipline as well as the return to shareholders.

Speaker #6: The you could would continue to buy back your stock as you did in the third quarter . If you could talk a little bit about the capital discipline as well as the return to shareholders .

Speaker #2: Yeah . Hey , it's Homer . Absolutely . I mean , we've talked about this for the last several quarters . We've been in this mode where effectively all excess free cash flow goes towards share buybacks .

Homer Bhullar: Yeah, hey Manav, it's Homer. Absolutely. I mean, we've talked about this for the last several quarters. We've been in this mode where effectively all excess cash flow goes towards share buybacks. You saw that this quarter as well. You had a small build in cash, but that was largely because of working capital. I think you should continue to assume that we stay in that mode where any excess cash flow goes towards share repurchases.

Speaker #2: And you saw that this quarter as well . You had a small build in cash . But that was largely because of working capital .

Speaker #2: But I think you should continue to assume that, you know, we stay in that mode where any excess free cash flow goes towards share repurchases.

Speaker #2: .

Speaker #6: Perfect . You have done exactly what you had said , that excess cash will go to shareholders . So thank you for that .

[Analyst]: Perfect. You have done exactly what you had said, that excess cash will go to shareholders. Thank you for that. Thank you, sir.

Speaker #6: Thank you sir .

Speaker #3: Thanks a .

[Analyst]: Thanks. Thanks, Manav.

Speaker #1: Thank you . The next question is coming from Neil Mehta of Goldman Sachs . Please go ahead .

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

Speaker #6: Yeah . Good .

Speaker #7: Morning team . You know Elaine , there's been a lot of talk about crude that's on the water . And in transit and some estimates have it north of 3 million barrels a day .

[Analyst]: Yeah, good morning, team. Lane, there's been a lot of talk about crude that's on the water and in transit, and some estimates have it north of 3 million barrels a day if you look at some of the shipping tracking data. You guys have unique visibility into whether that crude is actually on the water. I'd be curious how your commercial team is seeing it. Do you think it's going to land here in OECD or if that moves into China specifically? I say that in the spirit of, to your point of crude differentials potentially starting to widen out, do you start to see that as the factor that could be the catalyst? Maybe you could talk about Iraq in particular because that could be a leading indicator.

Speaker #7: If you look at some of the shipping tracking data, you guys have unique visibility into whether that crude is actually on the water.

Speaker #7: And so I'd be curious how your commercial team is seeing it. And do you think it's going to land here in OECD, or if that moves into China specifically?

Speaker #7: And I say that in the spirit of , you know , to your point of crude differentials potentially starting to widen out , do you start to see that as the factor that could be the catalyst ?

Speaker #7: And maybe you could talk about Iraq in particular , because that could be a leading indicator .

Speaker #3: Hey , Neil , I'm going to a sort of pass the ball over to to Gary to answer that question .

Lane Riggs: Hey, Neil, I'm going to pass the ball over to Gary to answer that question.

Speaker #5: Yeah , Neil , I kind of alluded to that a little bit . You know , previously , but where we see the big change is a lot more Iraqi barrels flowing this way .

Gary Simmons: Yeah, Neil, I kind of alluded to that a little bit previously. Where we see the big change is a lot more Iraqi barrels flowing this way. As I mentioned, we have bought Basra. We've also bought Kirkuk. We see that to be a portion of our diet in the fourth quarter and moving forward, which is really the big change that we've seen. Most of the other barrels seem to be making their way to Asia.

Speaker #5: As I mentioned , we have bought Basra . We've also bought Kirkuk . And we see that to be a portion of our diet in the fourth quarter and moving forward is really the big change that we've seen .

Speaker #5: Most of the other barrels seem to be making their way to Asia .

Speaker #7: All right . We'll keep on watching . And then the other question is just on some of the non refining businesses did better than expected than we expected this quarter .

[Analyst]: All right. We'll keep on watching it. The other question is just on some of the non-refining businesses did better than expected than we expected this quarter. Ethanol continues to perform well. I guess DGD is getting closer to profitability. Can you talk about both of those businesses and whether there's sustainability at the ethanol margins and whether post the RVO we are on a path back to the black in DGD?

Speaker #7: Ethanol continues to perform well . And I guess Dgd is getting closer to profitability . So can you talk about both of those businesses and whether we're we're there's sustainability of the ethanol margins and whether post post the Rvo , we are on a path back to to the black and in Dgd .

Speaker #8: Yeah . Hey , Neil , this is Eric . Ethanol continues to look positive . I think a lot of that is we've had a record corn crop .

Lane Riggs: Yeah, hey Neil, this is Eric. Ethanol continues to look positive. I think a lot of that is we've had a record corn crop. Ethanol demand has been strong both domestically and in the export markets. We're seeing the continued interest in countries going from E0 to E10. Canada has gone to E15 in some of the provinces. You see Brazil and India looking at moving from the E20s to the E30s. All of this is creating more ethanol demand in the world. Being the largest exporter of ethanol, that favors our segment pretty well. Cheap feedstock and lots of demand. Ethanol, I think, outlook is good and continues to look good in the future. On DGD, you're exactly right. We've seen throughout the year, there's just been a lot of impact from tariffs and policy downturns in the U.S.

Speaker #8: Ethanol demand has been strong , both domestically and in the export markets . We're seeing the continued interest in countries going from E0 to E10 .

Speaker #8: Canada has gone to E15 and some of the provinces , and you see , Brazil and India looking at moving from , you know , the E20 to the E30 .

Speaker #8: And so all of this is creating more ethanol demand in the world . And being the largest exporter of ethanol , that that favors our segment pretty well .

Speaker #8: So cheap feedstock and lots of demand . So ethanol I think outlook is good and continues to look good in the future . On Dgd , you're exactly right .

Speaker #8: We've seen throughout the year has just been a lot of impact from tariffs and policy downturns in the US . We've seen fat prices rising for the better part of the year , and I think just most recently , we are seeing enough rationalization in both biodiesel and renewable diesel , where fat prices are finally starting to to to soften .

Lane Riggs: We've seen fat prices rising for the better part of the year. I think just most recently, we are seeing enough rationalization in both biodiesel and renewable diesel where fat prices are finally starting to soften. With that lower fat price, we've seen DGD margins return back to positive EBITDA. That's a good sign. That's a good sign for the fourth quarter. Obviously, with the PTC changing January 1 on all foreign feedstocks as well as SAF, that will be a challenge as we start 2026. I think everyone seems to expect that the RVO will be net positive for renewables. That's a lot of speculation because there is a lot of back and forth on these policies right now. I think the general view is the number is probably going up and will probably be supportive of renewable diesel.

Speaker #8: And with that lower fat price , we've seen Dgd margins return back to positive EBITDA . So that's a good sign . That's a good sign for the fourth quarter .

Speaker #8: You know , obviously with the PTC changing , Jan one on all foreign feedstocks as well as SAF , that will be a challenge .

Speaker #8: You know , as we start 2026 . But I think , you know , everyone seems to expect that the Rvo will be net positive for renewables .

Speaker #8: That's a lot of speculation because there is a lot of back and forth on these policies right now . But I think the general view is the number is probably going up and will probably be supportive of of renewable diesel .

Speaker #7: Thanks , Eric .

[Analyst]: Thanks, Eric.

Speaker #1: Thank you. The next question is coming from Teresa Chen of Barclays. Please go ahead.

Operator: Thank you. The next question is coming from Theresa Chen of Barclays. Please go ahead.

Speaker #9: Morning . I wanted to talk about your part three and par two assets and light of two major product pipeline binding open seasons that have been announced over the recent weeks to move more volumes from the regions into part five , given ongoing West Coast refinery closures , including the own facility .

[Analyst]: Morning. I wanted to talk about your PAD 3 and PAD 2 assets in light of two major product pipeline bindings, open seasons that have been announced over the recent weeks to move more volumes from these regions into PAD 5, given ongoing West Coast refinery closures, including your own Benicia facility. If one of these 200,000 barrels per day plus systems were to be built, how do you anticipate this could reshape flows and margin capture across your Gulf Coast and Mid-Continent assets? Is there any volition? Would it make sense for you to be a shipper on one of these pipes?

Speaker #9: So if one of these 200,000 barrels per day plus systems were to be built , how do you anticipate this could reshape flow flows and margin capture across your Gulf Coast and Mid-Continent assets , and is there any volition ?

Speaker #9: Would it make sense for you to be a shipper on one of these types ?

Speaker #5: Yeah , Teresa , this is Gary . We engaged in conversations with with both the projects that we think could go forward . In both cases , we'll have to wait and see what the final tariff numbers are .

Gary Simmons: Yeah, Theresa, this is Gary. We engaged in conversation with both the projects that we think could go forward. In both cases, we'll have to wait and see what the final tariff numbers are. It looks like the tariff would be set such that it's competitive versus a Jones Act movement to the West Coast. We believe we can be more competitive with foreign flag waterborne movements into the West Coast. In addition to that, we like the waterborne movements because, one, the volatility on the West Coast, if you take a position on that pipe, you could be shipping into a closed arb a good portion of the time. We like the waterborne option as well because it allows you to source barrels from anywhere in the world and take advantage of international arbs that can be open.

Speaker #5: It looks like the tariff would be set such that it's competitive versus the Jones Act movement to the West Coast , but we believe we can be more competitive with foreign flagged waterborne movements into the West Coast .

Speaker #5: In addition to that , we like the the waterborne movements because one , you know , the volatility on the West Coast , if you take a position on that pipe , you could be shipping into a closed ARB , a good portion of the time , and then we like the waterborne option as well , because it allows you to source barrels from anywhere in the world and take advantage of international ARBs that can be open .

Speaker #5: So, we have connectivity through McKee already to El Paso and into Phoenix. We have a lot of that connectivity, as well as space on the pipe from Houston to El Paso.

Gary Simmons: We have connectivity through McKee already to El Paso and into Phoenix. We have a lot of that connectivity as well as space on the pipe from Houston to El Paso. I don't think you'll see us participate in those projects.

Speaker #5: So I don't think you'll see us participate in those projects .

Speaker #3: His is the second part of that would be you would expect it to firm up the group in the Gulf Coast , as barrels do get committed and move west .

Lane Riggs: This is Lane. The second part of that would be you would expect it to firm up the group in the Gulf Coast as barrels do get committed and move west, assuming those projects go through.

Speaker #3: Assuming those projects go through.

Speaker #9: Thank you . That's very helpful . And separately , Gary , there's been some noise in the dose as of recently . I'd love to get your take on what you're seeing across your domestic distribution channels .

[Analyst]: Thank you. That's very helpful. Separately, Gary, there's been some noise in the DOEs as of recently. Love to get your take on what you're seeing across your domestic distribution channels and your commentary on domestic demand in addition to the color you gave already on exports.

Speaker #9: And your commentary on domestic demand . In addition to the color you gave already on exports .

Speaker #5: Sure , you know , if you look at our gasoline demand , I think in our system we would say year over year , gasoline demand is flat to slightly down , pretty similar to what's in the Doe's third quarter .

Gary Simmons: Sure. If you look at our gasoline demand, I think in our system, we would say year-over-year gasoline demand is flat to slightly down, pretty similar to what's in the DOEs. Third quarter, our volumes were flat year-over-year. It looks to us like vehicle miles traveled are up year-over-year, but probably not enough to offset the more efficient automobile fleet. Again, probably flat to slightly down gasoline demand. As I mentioned, export demand looks good. When you look at gasoline fundamentals, in addition to good export demand, the transatlantic arb to ship from Europe into New York Harbor is closed, and it's actually closed on paper all the way through the first quarter. Really, for this time of year, gasoline fundamentals look about as constructive as you could hope for. Obviously, we've transitioned out of driving season, producing high RVP winter-grade gasoline.

Speaker #5: Our volumes were flat year over year. It looks to us like vehicle miles traveled are up year over year, but probably not enough to offset the more efficient automobile fleet.

Speaker #5: So again , probably flat to slightly down gasoline demand . As I mentioned , export demand looks good when you look at gasoline fundamentals .

Speaker #5: In addition to good export demand , the transatlantic ARB to ship from Europe into New York Harbor is closed . And it's actually closed on paper all the way through the first quarter .

Speaker #5: So really , you know , for this time of year , gasoline fundamentals look about as constructive as you could hope for . Obviously , we've transitioned out of driving season , producing high RVP winter grade gasoline .

Speaker #5: So you wouldn't expect a lot of strength in gasoline cracks in the fourth quarter . Jet demand . We're continuing to see good nominations from the airline , so again , comparing to the Doe's , which show about a 4% bump in jet demand , that looks consistent with what we're seeing in the market .

Gary Simmons: You wouldn't expect a lot of strength in gasoline cracks in the fourth quarter. Jet demand, we're continuing to see good nominations from the airlines. Comparing to the DOEs, which show about a 4% bump in jet demand, that looks consistent with what we're seeing in the market. Finally, on diesel, in our system, in the third quarter, year-over-year sales were up 8%. I don't think that's representative of the broader market. DOE data showing about a 2% year-over-year increase in diesel demand is probably close. We've seen good agricultural demand in our system. That continues. Harvest season is starting to wind down, but then you'll start heating oil season, which again would be a good pop in demand. As I mentioned, good export demand as well. Freight volatility is hindering that, but the demand is there.

Speaker #5: And then finally , on diesel , you know , in our system in the third quarter , year over year sales were up 8% .

Speaker #5: You know , I don't think that's representative of the broader market Doe data showing , you know , about a 2% year over year increase in diesel demand is probably close .

Speaker #5: We've seen good agricultural demand in our system that continues as harvest season is starting to wind down . But then you'll start heating oil season , which again be a good pop in demand .

Speaker #5: And as I mentioned , you know , good export demand as well . Freight volatility is hindering that . But but the demand is there .

Speaker #9: Thank you .

[Analyst]: Thank you.

Speaker #1: Thank you . The next question is coming from Doug Leggate of Wolfe Research . Please go ahead .

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

Speaker #10: Hey good morning everyone . Thanks for taking my questions . Lynn . Your throughput performance has been extraordinary . Again . And my question is kind of a a bigger picture , I guess it's kind of an AI machine learning kind of question .

[Analyst]: Hey, good morning, everyone. Thanks for taking my questions. Lane, your throughput performance has been extraordinary again. My question is kind of a bigger picture. I guess it's kind of an AI machine learning kind of question. I'm wondering if there's a change going on in how you're running your business, things like planned turnarounds just in time as opposed to the behavioral, you know, once every four year kind of deal. If there's anything happening that would lead us to think some of this throughput performance could be sustainable, not just for you, but perhaps for the broader industry.

Speaker #10: And I'm wondering if there's a change going on in how you're running your business . Things like planned turnarounds just in time as opposed to the behavioral , you know , once every four year kind of deal .

Speaker #10: If there's anything happening that would lead us to think some of this throughput for , for performance could be sustainable , not just for you , but perhaps for the broader industry .

Speaker #3: Yeah , Doug , I'm going to I'm going to I'm going to have Greg Bram sort of start off on this question .

Lane Riggs: Yeah, Doug, I'm going to have Greg Bram sort of start off on this question.

Speaker #8: Hey , Doug . So .

[Analyst]: Hey, Doug. The journey you're talking about related to how we plan turnarounds, we've embarked on that for, gosh, probably at least a decade. I wouldn't say there's a shift there, but we definitely have reaped some benefits from kind of the approach we take now, which aligns with the way you described it. If you want to talk about AI in general, I'd say that we're probably cautiously optimistic about how that can help us further improve our availability. We're evaluating a number of places where we could use that technology. As you'd expect, focusing on areas where we think we can create some tangible value. We've deployed that in some of those new techniques and a few applications.

Speaker #5: You know , the journey you're talking about .

Speaker #8: Related to how we plan .

Speaker #5: Turnarounds . We've been marked .

Speaker #8: On that for , gosh , probably at least a decade .

Speaker #5: So I wouldn't say .

Speaker #8: There's a shift there , but .

Speaker #5: We definitely have reaped .

Speaker #8: Some benefits from the kind.

Speaker #5: Of the approach .

Speaker #8: We take now , which .

Speaker #5: Aligns with kind of the way you.

Speaker #2: Described it .

Speaker #8: But if you want to talk about AI in general , I'd say that we're probably cautiously optimistic about how that can help us further improve our availability .

Speaker #5: You know .

Speaker #8: We're we're evaluating a .

Speaker #5: Number of places .

Speaker #8: Where we could use that technology. As you'd expect, we're focusing on areas where we think we can create some tangible value. And we've deployed that in.

Speaker #8: some of those new techniques . And a few applications . But I think one of the key learnings that we've picked up as as we've embarked on , on looking at AI , machine learning applications , is that you really have to have good quality data of your operation to have a successful use of that kind of a tool .

[Analyst]: I think one of the key learnings that we've picked up as we've embarked on looking at AI machine learning applications is that you really have to have good quality data of your operation to have successful use of that kind of a tool. I think it's an advantage for us because we've embarked on an effort to improve that data and gather that data in a consistent way, consistent practices across our system, again, probably 10 or 15 years ago. Having that data makes the opportunity to try to use that to make further improvements more real. We start from a good place. You've mentioned the quality of our operation today, good performance to start with, but again, some optimism that AI-type techniques can help us make some further improvements.

Speaker #8: And and I think that's an advantage for us because we've embarked on a , on an effort to improve that data and gather that data and kind of a consistent way , kind of consistent practices across our system .

Speaker #8: Again , probably 10 or 15 years ago . And so having that data makes it makes the opportunity to try to use that to , to make further improvements .

Speaker #8: More , more real . And so , you know , we start from a good place . You've mentioned the the quality of our operation today .

Speaker #8: Good performance to start with . But again , some optimism that that AI type techniques can help us make some further improvements .

Speaker #10: I appreciate the answer . I guess we're trying to figure out if we should lift our expectations of mid-cycle throughput for Valero . I guess that was at the root of my question , but I appreciate the insights .

[Analyst]: I appreciate the answer. I guess we're trying to figure out if we should lift our expectations of mid-cycle throughput for Valero. I guess that was at the root of my question, but I appreciate the insights. My follow-up, and I apologize to Homer specifically because I've had a couple of chances to talk to him this morning about this already, but I'm trying to understand what's going on with cash flow because your tax rate is obviously up a little bit on mix. If we look at the translation of your earnings to your cash flow, a big beat on earnings didn't show up in cash flow. We're trying to figure out if there's some transitory issues in there.

Speaker #10: My follow up and I apologize to Homer specifically because I've had a couple of chances to talk to him this morning about this already , but I'm trying to understand what's going on with cash flow , because you're your your tax rate is is obviously up a little bit on mix .

Speaker #10: But if we look at the translation of your earnings to your cash flow, a big beat on earnings didn't show up on cash flow.

Speaker #10: And we're trying to figure out if there's some transitory issues in there . Don't necessarily go into all the specifics , but is cash tax part of that or was there another reason that this might be seen as a transitory quarter from that standpoint ?

[Analyst]: I don't necessarily go into all the specifics, but is cash tax part of that, or was there another reason that this might be seen as a transitory quarter from that standpoint? It's maybe for Jason.

Speaker #10: Maybe for Jason ?

Speaker #2: Hey Doug , it's Homer . I mean , you'll see this when you see the Q file , but part of that is some , you know , like PTC , for example , you book it within earnings and then obviously the payment comes in later .

Homer Bhullar: Hey, Doug, it's Homer. You'll see this when you see the Q file, but part of that is some, you know, like PTC, for example, you book it within earnings, and then obviously the payment comes in later. You'll see that as a deduct from net cash flow from operations. That's one of the big variances. You'll see that when you see the statement of cash flows in the Q.

Speaker #2: So you'll see that as a deduct from net cash flow from operations . So that's one of the big variances . Again you'll see that when you see the statement of cash flows in the Q .

Speaker #10: So, no tax issue, Homer. No temporary tax issues.

[Analyst]: No tax issue, Homer. No temporary tax issues.

Speaker #2: There might be some small deferred tax items , but nothing , you know , that's substantial .

Homer Bhullar: There might be some small deferred tax items, but nothing that's substantial.

Speaker #10: All right. We'll have to wait in the queue. Thanks so much, guys. Appreciate it.

[Analyst]: All right. We'll have to wait in the queue. Thank you so much, guys. I appreciate it.

Speaker #11: Yep .

Speaker #1: Thank you . The next question is coming from Ryan Todd of Piper Sandler . Please go ahead .

Homer Bhullar: Yeah.

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

Speaker #12: Great . Thanks . Maybe one on refining utilization . US refining utilization has been quite strong versus historical norms over the last six months .

[Analyst]: Good, thanks. Maybe one on refining utilization. U.S. refining utilization has been quite strong versus historical norms over the last six months. Any thoughts on drivers of this, whether it's an impact of exiting a period of heavy maintenance over the last couple of years? Any thoughts on whether there are suggestions that this or that would prevent this from normalizing as we head into next year, or are there reasons to believe that we can, the U.S. system can continue to run in running this hard?

Speaker #12: Any thoughts on drivers of this ? Whether it's an impacts of of exiting a period of heavy maintenance over the last couple of years , and any thoughts on , you know , whether like suggestions that this or that would prevent this from normalizing as we head into next year or are there reasons to believe that we can the US system can continue to run in running as hard .

Speaker #12: ?

Speaker #3: Hey, Ryan, are you talking about just the U.S. industry refining utilizations that improved over the last few years?

Lane Riggs: This is okay, Ryan. Lane, are you talking about just the U.S. industry refining utilization has improved over the last few years?

Speaker #11: Yeah .

[Analyst]: Yeah, I mean, it's been very strong this year, like over the last four or five months.

Speaker #12: I mean , it's been very strong this year . Like over the last 4 or 5 months .

Speaker #3: Well , you know , I'll start and you know , Gary or Greg tune me afterwards . I think , you know , we started on the journey .

Lane Riggs: I'll start and let Gary or Greg tune me afterwards. I think we started on the journey, I'm going to say 15 years ago, to work extensively on our reliability, and we actually showed that this could be done. I think a lot of the rest of the industry is sort of working on the same things, and they're getting better at it and being more careful in their execution. The systems are getting better, whether, like the previous question from Doug, how many people are using something that they might call AI? I don't know, but there are systems out there to let you execute turnarounds better, do your maintenance better, have some predictive capabilities with respect to failure mechanisms, which all that improves what we actually term as availability, even through even better scheduling, things like this.

Speaker #3: I'm going to say 15 years ago to work extensively on our reliability . And we actually showed that this could be done . I think a lot of the rest of the industry is sort of working on the same things , and they're getting better at it and being more careful in their execution .

Speaker #3: You know , the systems are getting better , whether , you know , like the previous question from Doug , how many people are using something that they might call AI , I don't know , but there are systems out there to let you execute turnarounds better .

Speaker #3: Do your maintenance better , have some predictive capabilities with respect to failure mechanisms , which all that improves what we actually term as availability .

Speaker #3: Even through even better scheduling, things like this, and I think, generally, the industry has done a better job on this. So that's how I would answer it.

Lane Riggs: I think that generally, yeah, the industry's done a little better job on this. That's how I would answer it.

Speaker #8: Yeah . The only thing I might add , Ryan , just maybe the only thing I would add , you know , the only thing I think about when I think about this past summer versus some of the previous periods is we didn't really have a lot of extreme weather throughout the summer .

[Analyst]: Yeah, the only thing I might add, Ryan, maybe the only other thing I would add, the only thing I think about when I think about this past summer versus some of the previous periods is we didn't really have a lot of extreme weather throughout the summer. Refineries run well when you've kind of got nice, nice ambient conditions. I think we all have been incented to run hard throughout these different periods. It could be maintenance part of it. It could just be that when you're not dealing with a lot of really hot temperatures, you can definitely tune up the operation and geek out that last little bit. I don't have proof of that, but when I think about how our operation runs, I can see that being a positive impact this past summer.

Speaker #8: And , you know , refineries run well when you kind of got nice , nice ambient conditions . And so I think we all have been incented to run hard for , you know , throughout these different periods .

Speaker #8: It could be maintenance part of it . It could just be that , you know , when when you're not dealing with a lot of really hot temperatures , you can definitely tune up the operation and eke out that last little bit .

Speaker #8: So I don't have proof of that . But when I think about how our operation runs , I can see that being a positive impact .

Speaker #8: This past summer .

Speaker #3: Well , that's a great point . Hurricanes . We have not had any hurricane activity to speak of in the .

Lane Riggs: That's a great point. Hurricane. We have not had any hurricane activity to speak of in the Gulf Coast.

Speaker #11: Gulf . So .

Speaker #12: Right . Thank you . Maybe one other as we think about the fourth quarter here during the third quarter , there were a number of things that were I mean , you had a great quarter , but there were a number of things that were , kind of I would say , like modest headwinds on on margin capture , whether it was narrow crew differentials , crude backwardation , some West Coast jet fuel dynamics and secondary products , etc.

[Analyst]: Right. Thank you. Maybe one other as we think about the fourth quarter here. During the third quarter, there were a number of things that were, I mean, you had a great quarter, but there were a number of things that were, you know, got I would say like modest headwinds on margin capture, whether it was narrow crude differentials, crude backwardation, some West Coast jet fuel dynamics, and secondary products, etc. Many of these appear to, you know, reversed or improved here early on in the fourth quarter. Any thoughts on direction of some of these trends that may impact the type of capture or profitability that we see during the fourth quarter and what looks like a pretty strong environment?

Speaker #12: many of these appear to have reversed or improved here early on in the fourth quarter . Any thoughts on on direction of some of these trends that may impact the type of of capture or profitability that we see during the fourth quarter , and what looks like a pretty strong environment ?

Speaker #8: Yeah , Ryan , it's Greg , it's early for the fourth quarter . Right . And you did mention a few of the things that have have turned more favorable as we've gotten started out here in October .

Gary Simmons: Yeah, Ryan, it's Greg. It's early for the fourth quarter, right? You did mention a few of the things that have turned more favorable as we've gotten started out here in October. A couple of things I always think about as we approach the winter season: we'll blend more butane into gasoline as RVP shifts to winter specifications. That tends to create some uplift on margin capture. I think it's also worth noting, while there have been a number of things that have moved favorably, you still have some pretty weak secondary products. Naphtha has turned a bit weaker. Propylene continues to be fairly weak. There are a few things out there that have not really turned positively yet as we started out in the quarter.

Speaker #8: A couple of things I always think about as we approach the winter season , you will blend more butane into gasoline as as RVP shifts to winter specifications , that tends to be create some uplift on on margin capture .

Speaker #8: But I think it's also worth noting that while there have been a number of things that have moved favorably, you still have some pretty weak secondary products.

Speaker #8: Naphtha has turned a bit weaker. Propylene continues to be fairly weak, so there are a few things out there that have not really turned positively yet.

Speaker #8: As we started out in the quarter.

Speaker #11: Great .

[Analyst]: Great. Thanks for the help.

Speaker #12: Thanks for the help .

Speaker #1: Thank you . The next question is coming from Paul Chang of Scotiabank . Please go ahead .

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

Speaker #13: Hey guys . Good morning . Just before my question , just just curious that and have a comment . I was surprised that you guys didn't increase your a full year .

[Analyst]: Hey, guys. Good morning.

[Analyst]: Hey, Paul.

[Analyst]: Just before my question, just curious and have a comment. I was surprised that you guys didn't increase your G&A full year. I thought with the strong earnings that you guys are going to increase your bonus accrual. I was surprised. Maybe that is a part of the cost saving from Lane.

Speaker #13: I thought with the strong earnings that you guys are going to increase your bonus accrue . So I was surprised . Maybe that is a part of the cost savings from links .

Speaker #3: Yeah , well that's not one we'd eagerly jump on .

Lane Riggs: Yeah, that's not one we'd eagerly jump on.

Speaker #11: For sure .

Speaker #13: So that I told her that this is not going to become as my question . But anyway .

[Analyst]: I told Homer that this is not going to be cut as my question anyway.

Speaker #11: We'll count that as a good comment . Paul .

Lane Riggs: We got that as a good comment, Paul.

Speaker #13: Okay , my question is actually that in the third quarter , I think part of the issue related to the margin capture is on the octane octane value compared to the second quarter , I think has come down .

[Analyst]: Okay. My question is actually that in the third quarter, I think part of the issue related to the margin capture is on the octane value compared to the second quarter, I think has come down. Just curious if you guys would be able to share some insight, what happened and then whether you think that will continue that trend. Second, I want to go back into not so much about just AI, but also robotic technology and all that.

Speaker #13: Just curious that if you guys will be able to share some insight , what happened and then whether you think that will continue that trend .

Speaker #13: Secondly , I want to go back into not so much about just AI , but also robotic technology and all that . So and the team or Greg , do you guys think that we are seeing all these new technology now available to you ?

[Analyst]: Lane and the team or Greg, do you guys think that we are seeing all this new technology now available to you as more evolution or that is going to transform the way how you guys may conduct business, not just in the refining side, but also in your back office, in your trading commercial as such that, I mean, we have seen your upstream counterparts, some of them that announced some pretty sizable cost reduction effort because of the new technology. Just want to see where we stand for you guys or for the industry.

Speaker #13: It's more evolution or that it's going to transform the way how you guys may conduct business , not just in the in the , in , in the refining side , but also in your back office , in your trading commercial as such that , I mean , we have seen your upstream counterparts , some of them , they announce some pretty sizable course reduction effort because of the new technology .

Speaker #13: Just want to see where we stand for you guys or for the industry .

Speaker #5: So maybe I'll take the naphtha question and let Greg take the second one . You know , so or the octane question . Sorry .

Gary Simmons: Maybe I'll take the NAPDA question and let Greg take the second one. Yeah, you know, or the octane question, sorry. You know, when we look at octane, we tend to view that it trades at an inverse to NAPDA. What you really had in the last quarter was NAPDA got a little bit stronger. I think there's several reasons for that. You had less NAPDA coming out of Russia. You had some of the NAPDA from the U.S. Gulf Coast going back to Venezuela as diluent. You're seeing a little bit more NAPDA pull to Asia into the pet chem market. When NAPDA is weak, there's a big incentive to try to blend it into gasoline, and that takes octane to do it. When NAPDA gets stronger, there's less of an incentive. Although the octane regrade was a little bit weaker, it probably helped set up stronger gasoline fundamentals.

Speaker #5: You know , when we look at octane , we tend to view that it trades at an inverse to , to naphtha . And so what you really had in the in the last quarter was , was naphtha got a little bit stronger .

Speaker #5: And I think there's several reasons for that . It had less naphtha coming out of Russia . You had some of the naphtha from the US Gulf Coast going back to Venezuela as diluent .

Speaker #5: And then you're seeing a little bit more natural to to Asia into the pet market . So , you know , when nafta's weak , there's a big incentive to try to blend it into gasoline .

Speaker #5: And that takes octane to do it . But when naphtha gets stronger , there's less of an incentive . So although the octane regain was a little bit weaker , it probably helped set up stronger gasoline fundamentals .

Speaker #8: All right , Paul . And so this is Greg on the question around robotic automation and AI . You know , I think maybe we don't talk about this a lot , but we've been using those techniques .

[Analyst]: All right, Paul. This is Greg. On the question around robotic automation and AI, I think maybe we don't talk about this a lot, but we've been using those techniques and further expanding the use of those techniques over time, as they make sense in terms of improving efficiency. It improves our ability to inspect equipment, certainly to execute some of the work that we do. That will continue to grow, I suspect. Some of these new techniques will create more opportunity to use those tools going forward, which is kind of back to the answer before. I think there will be some improvement that comes from some of this new technology and these new techniques that are out there.

Speaker #8: And further expanding the use of those techniques over time . As again , as they make sense in terms of improving efficiency . And it improves our ability to inspect equipment , certainly to execute some of the work that we do so that will continue to grow .

Speaker #8: I suspect . And some of these new techniques will create more opportunity to use those tools going forward , which is kind of back to the answer before I think there will be some improvement that comes from this .

Speaker #8: Some of this new technology and these new techniques that are out there . And it will be , you know , if you start from a really good place like we do , you know , it's going to be harder to find a lot of big opportunities there .

[Analyst]: If you start from a really good place like we do, it's going to be harder to find a lot of big opportunities there, but we're certainly focused on trying to find ones that make good sense from a value standpoint.

Speaker #8: But we're certainly focused on trying to find ones that make good sense from a value standpoint .

Speaker #3: And Paul , I'll add to it . The only , you know , some examples of those things is we we like many other people in the industry , have been using robotics with respect to tank cleaning .

Lane Riggs: Paul, I'll add to it. Some examples of those things is we, like many other people in the industry, have been using robotics with respect to tank cleaning. I could see where the upstream guys would really, that would really help them. The other thing that we've used is drones for inspection. Like if you go into a, today we get into a big structure on an FCC unit and we can actually just, rather than have to get in, scaffold up to a particular location that might be problematic, we can put a drone in, float up, look at it, get, you know, understand that situation without having to, we may have to go back in and put scaffold in, but now we understand the scope of work. There's certainly things like that.

Speaker #3: I can see where the upstream guys would would really help them . really that thing that we've used is drones for inspection . Like if you go into a today , we get into a big structure on an SCC and we can actually just rather than have to get in scaffold up to a particular location that might be problematic .

Speaker #3: We can put a drone in , float up , look at it , you know , understand that situation without having to . We may have to go back in and put scaffolding , but now we understand the scope of work .

Speaker #3: So there's certainly things like that . And then in our systems we're always trying to think about ways to consolidate our control rooms and work on being more efficient with the operators that we have , and some of which has to do with you .

Lane Riggs: Within our systems, we're always trying to think about ways to consolidate our control rooms and work on being more efficient with the operators that we have, and some of which has to do with technology improvements.

Speaker #3: Know , technology improvement .

Speaker #13: Great . Thank you .

[Analyst]: Great. Thank you.

Speaker #1: Thank you . The next question is coming from Joe lack of Morgan Stanley . Please go ahead .

Operator: Thank you. The next question is coming from Joe Laetsch of Morgan Stanley. Please go ahead.

Speaker #14: Great . Thanks . Good morning and thanks for taking my question . So I wanted to start on the refining side . And with the strength in the diesel crack , can you talk about the ability to maintain the strong .

[Analyst]: Great. Thanks. Good morning, and thanks for taking my question. I want to start on the refining side. With the strength and the diesel crack, can you talk about the ability to maintain the strong, I think it was 38% or 39% diesel yield level going forward? As part of that, the crude slate got a bit lighter quarter over quarter, but the diesel yield also stepped up, which I was hoping you could talk to as well. Thank you.

Speaker #14: I think it was a 38% or 39% diesel yield level going forward. And then, as part of that, the crude slate got a bit lighter quarter over quarter.

Speaker #14: But the diesel yield also stepped up , which I was hoping you could talk to as well . Thank you .

Speaker #8: So I'll take, I'll start with the second one. I think so. Well, actually, I can probably cover both of them. Yeah.

Gary Simmons: I'll start with the second one, I think. Actually, I can probably cover both of them.

[Analyst]: Yeah.

Speaker #8: Joe , we've had strong diesel yield . You know that . 38 , 39% . It's not too far from where we we've run in the past .

Gary Simmons: Joe, we've had strong diesel yield, you know, that 38%, 39%. It's not too far from where we've run in the past. It reflects a mode of operation where we're maximizing diesel production or distillate production over gasoline. As we kind of tuned up the operation and ran very well in the quarter, I think you saw us reach some of the highest levels that I think we can achieve with the current hardware we have. Sustainable, we can probably stick in this range with continued strong operations like we had. Remind me, Joe, what was the second part of that question?

Speaker #8: It reflects a mode of operation where we're maximizing diesel production or distillate production over gasoline . Again , as we kind of tuned up the operation and ran very well in the quarter , I think you saw us reach some of the highest levels that I think we can achieve with the current hardware we have .

Speaker #8: So sustainable , we can probably stick in this range with continued strong operations like we had , you know . Remind me , Joe , what was the second part of that question ?

Speaker #14: Yeah . So I was just asking about the the crude slate got a bit lighter , a quarter over quarter which able to step up the distillate yield .

[Analyst]: I was just asking about the crude slate got a bit lighter quarter over quarter to be able to step up the distillate yield. I was just hoping to get a little bit of thoughts on that.

Speaker #14: So just hoping to get a little bit of thoughts on that .

Speaker #8: Yeah . Now I you know , it did get a little bit lighter . But I think in some of the places where we lightened up , we were still able to , you know , the growth was more on the jet side than on the diesel side .

Gary Simmons: Yeah, it did get a little bit lighter, but I think in some of the places where we lightened up, we were still able to, you know, the growth was more on the jet side than on the diesel side. We were able to kind of drop that back into the NAPDA, into the jet, still make a distillate product, and had good incentive to do so. I'm not sure that the slate itself, if I were to try to back in it, and I haven't tried to back into what was the total available distillate yield, but I don't know that it was a big enough shift in some of the places where we got lighter that would have had a material impact on our distillate, our yield there.

Speaker #8: We were able to to kind of drop that back into the naphtha , into the jet , still make a distillate product and had good , good incentive to do so .

Speaker #8: So I'm not sure that the slate itself , if I were to try to back in and I haven't tried to back into what was the the total available distillate yield , but I don't know that it was a big enough shift in some of the places where where we got lighter .

Speaker #8: That would have had a material impact on our distillate , our , our yield . There .

Speaker #14: Great . That's helpful . And then , Eric , I want to shift to to DH and then as we wait for clarity on the , on the rvo and the SR reallocation , can you talk to how you're thinking about the path for D4 Rins here ?

[Analyst]: Great, that's helpful. Eric, I want to shift to RD. As we wait for clarity on the RVO and the SRE reallocation, can you talk to how you're thinking about the path for D4 rins here? As part of that, is there a level that you think it needs to rise to to incentivize the marginal producer?

Speaker #14: And then as part of that , is there a level that you think it needs to rise to to incentivize the marginal producer ?

Speaker #8: Yeah , I think , you know , it's it's one of those things where there's more variables than knowns . I mean , so but you know , there's any number of combinations of a number , an SRA , a reallocation and a final number .

Lane Riggs: Yeah, I think it's one of those things where there's more variables than knowns. I mean, there's any number of combinations of a number, an SRE, a reallocation, and a final number. Any combination of those numbers, the current number is 3.3 billion D4s. I think if you go back and look at the original premise of keeping the BD producer break even with a $1 BTC, they've done a lot of work this year with removing ILUC out of the model for soybean oil. They gave a small producer benefit, which I think counts almost every single BD producer. I think they're around $0.70 to $0.80 versus that $1 last year. This last $0.20 is probably, if you took that to a D4 RIN, you probably need RINs to go up something like $0.25 to $0.30 to get BD back to break even.

Speaker #8: But any combination of those numbers , the current number is 3.3 billion D4's . I think if you go back and look at the original premise of keeping the BD producer break even with a dollar BTC , they've they've done a lot of work this year with removing , I luck out of the model for soybean oil .

Speaker #8: They gave a small producer benefit , which I think counts almost every single BD producer . And I think they're around 70 to $0.80 versus that dollar last year .

Speaker #8: So this last $0.20 is probably if you took that to a d4 rin , you probably need Rins to go up something like 25 to $0.30 to get BD back to break even .

Speaker #8: So that's kind of how I see , you know . So any combination of the math that gets to that kind of number essentially satisfies the original design of , of trying to keep BD operational .

Lane Riggs: That's kind of how I see it. Any combination of the math that gets to that kind of number essentially satisfies the original design of trying to keep BD operational. What that number translates out to RINs is a number higher than today. One of the challenges I think is they're trying to figure out this math is 2025 D4 RIN production is down versus last year. We have a current target of 3.3. If we underperform that number, we will consume the bank early into next year. Depending on how high you set that number, it's very difficult to pick exactly where you'll meet that BD requirement, but not overshoot and then create an impact to overall diesel prices. I think that's kind of the challenge of how this works.

Speaker #8: What that number translates out to Rins is , is a is a number higher than today , although one of the challenges I think is they're trying to figure out this math is 25 d4 Rin production is down versus last year .

Speaker #8: So, we have a current target of 3.3. If we underperform that number, we will consume the bank early into next year.

Speaker #8: So, depending on how high you set that number, it's very difficult to pick exactly where you'll meet that BD requirement, but not overshoot.

Speaker #8: And then create an impact to overall diesel prices . So I think that's kind of the challenge of how all this works . But you know , if I tried to anchor on something , you know , I go back to the dollar BTC and where was the BD producer and where are they today ?

Lane Riggs: If I try to anchor on something, I go back to the $1 BTC and where was the BD producer and where are they today. I think there's still a gap there. Clearly, with the trade issue with China and soybean oil and soybeans in general, how that plays into this is really difficult to predict. I think the math is something like that.

Speaker #8: And so I think there's still a gap there . And clearly with the trade issue with China and soybean oil and soybeans in general , how that plays into this is really difficult to predict .

Speaker #8: But I think the math is something like that .

Speaker #14: Great , thanks . Yeah , I realize there's a lot of moving pieces , but I appreciate your thoughts . Thanks .

[Analyst]: Great, thanks. Yeah, I realize there's a lot of moving pieces, but I appreciate your thoughts. Thanks.

Speaker #1: Thank you . The next question is coming from Phillip Jungwirth of BMO Capital Markets . Please go ahead .

Operator: Thank you. The next question is coming from Philip Jungworth of BMO Capital Markets. Please go ahead.

Speaker #11: Thanks . Good morning . Specific to the heavy sour mix in the Gulf Coast , can you just talk through the moving pieces here with Mexico production declining , the Venezuela uncertainty , assume that wasn't any help in the quarter .

[Analyst]: Thanks. Good morning. Specific to the heavy sour mix in the Gulf Coast, can you just talk through the moving pieces here with Mexico production declining, the Venezuela uncertainty? I assume that wasn't any help in the quarter, and also just Canada TMX capacity, and also just how fuel imports might be helping replace some of these barrels in your Gulf Coast system. Maybe also just touch on Kroger margins with high diesel cracks, but also still tight differentials.

Speaker #11: And also just Canada team capacity. And then also just help fuel imports might be helping replace some of these barrels in your Gulf Coast system.

Speaker #11: And maybe also just touch on Coke or margins with high diesel cracks , but also still tight differentials .

Speaker #5: Yeah . So you overall yeah , we do see declining production from Mexico . Our volumes from Mexico aren't really down much yet , but they continue to forecast that we'll see declining production from Mexico .

Gary Simmons: Yeah, overall, we do see declining production from Mexico. Our volumes from Mexico aren't really down much yet, but they continue to forecast that we'll see declining production from Mexico. A lot of that is being made up with additional volumes from Canada as they continue to ramp up production and fill the pipeline capacity coming to the Gulf Coast. I would say those somewhat offset each other. We do have Venezuelan barrels back in the mix, which is helping. The additional OPEC+ production, as I alluded to, getting the Basra barrels and Kirkuk barrels, all that really, I think you'll see in the fourth quarter, a heavier crude diet than what we had in the third quarter, filling out a lot of our conversion capacity.

Speaker #5: A lot of that is being made up with additional volumes from Canada as they continue to ramp up production and fill the pipeline capacity coming to the Gulf.

Speaker #5: So I would say those somewhat offset each other . We do have Venezuelan barrels back in the mix , which is helping . And then the additional OPEC production , as I alluded to , getting the barrels and Kirkuk barrels , all that really , I think you'll see in the fourth quarter a heavier crude diet than what we had in the third quarter .

Speaker #5: You know , filling out a lot of our conversion capacity on the high sulfur fuel oil . Question . You know , actually high sulfur fuel has been pretty strong .

Gary Simmons: On the high sulfur fuel oil question, actually, high sulfur fuel oil has been pretty strong, and we haven't seen a real strong incentive to buy high sulfur fuel to put into cokers. There's been some opportunistic purchases, but for the most part, on paper, those economics haven't been strong.

Speaker #5: And we haven't seen a real strong incentive to buy high sulfur fuel to put into cokers . There's been some opportunistic purchases , but for the most part , you know , on paper , those economics haven't been strong .

Speaker #11: Okay , great . And then on the on the planned Benicia closure , you did have the charge in the quarter recognizing the state would like to keep this open .

[Analyst]: Okay, great. On the planned Benicia closure, you did have the charge in the quarter. Recognizing the state would like to keep this open and the official close date isn't in April, when do you kind of reach the point of no return here, just given preparations needed and the scheduled turnaround?

Speaker #11: And the official closed date is in April, but when do you kind of reach the point of no return here? Just given the preparations needed.

Speaker #11: And the scheduled turnaround ?

Speaker #3: This this .

Speaker #5: Walsh I'll .

Gary Simmons: This is Rich Walsh. I'll take an effort to answer at least the interaction with the government part of it. We have been in discussions with California, but nothing has materialized out of that. As a result, nothing's changed. Our plans are still moving forward as we've shared and as we've informed the state. I don't see anything changing on that.

Speaker #15: Take an effort to to answer at least the the interaction with the government part of it . I mean , we have been in discussions with California , but , you know , nothing is materialized out of that .

Speaker #15: And so as a result , nothing's changed . Our plans are still moving forward as we've as we've shared and as we've informed the state .

Speaker #15: So, I don't see anything changing on that.

Speaker #11: Great . Thanks .

[Analyst]: Great, thanks.

Speaker #1: Thank you . Our next question is coming from Matthew Blair of Tudor Pickering Holt . Please go ahead .

Operator: Thank you. Our next question is coming from Matthew Blair of Tudor Pickering Holt & Company. Please go ahead.

Speaker #16: Thank you . And good morning . Could you talk about Dgd performance so far in the fourth quarter ? Take your indicators right a bit .

[Analyst]: Thank you, and good morning. Could you talk about DGD performance so far in the fourth quarter? I think your indicator is up quite a bit, maybe, you know, $0.36 a gallon quarter to quarter. Are you realizing that improvement so far, or are there other factors we need to take into account, like hedging or feedstock lag? I think some of the staff credits changed on October 1. Just any sort of broad commentary on DGD so far in Q4 would be great.

Speaker #16: Maybe $0.36 a gallon , quarter or quarter . Are you are you realizing that improvement so far or are there other factors we need to take into account , like hedging or feedstock lag ?

Speaker #16: Or I think some of the staff credits changed on October 1st , but yeah , just any sort of broad commentary on on Dgd so far in Q4 would be great .

Speaker #8: Yeah , I think the most of that , I would say is tied to lower feedstock prices . I think you're seeing rationalization and feedstock prices starting to come come off .

Lane Riggs: Yeah, I think most of that I would say is tied to lower feedstock prices. I think you're seeing rationalization and feedstock prices starting to come off, and a lot of that is improving the profitability of DGD. We still have strong staff benefits, both in the U.S. and in the European and UK markets. That's an advantage that DGD has over a lot of other RD producers. SAF has a premium in the base. Fourth quarter looks good from an overall production rate standpoint, as well as just PTC capture, and on lower fat prices is really the fourth quarter. I think the question is still going to be, as we enter into 2026, will you see adequate premiums on SAF to cover the loss of the PTC benefit? Are you going to see, as we've discussed a couple of times, what is going to be the RVO impact?

Speaker #8: And so a lot of that is is improving the profitability of Dgd . We still have strong staff benefits both in the US and in the European and UK markets .

Speaker #8: So that's , you know , an advantage that Dgd has over a lot of other producers . And SAF has a premium in the base .

Speaker #8: And so , so fourth quarter looks good from an overall production rate standpoint as well as just PTC capture and and on lower fat prices is really the fourth quarter .

Speaker #8: I think the question is still going to be as we enter into 26 , will you see adequate premiums on SAF to cover the loss of the PTC benefit ?

Speaker #8: And are you going to see , as we we've discussed a couple of times , what is going to be the Rvo impact , because that will have to be the vehicle to make up any gap in profitability for biodiesel .

Lane Riggs: That will have to be the vehicle to make up any gap in profitability for biodiesel and renewable diesel to comply with wherever the RVO gets set. We still have a lot of policy that appears to be in conflict of increased RVO but decreased generation because of foreign feedstocks. Those are all going to be things where you're trying to raise the number but make it more difficult to generate. That usually is going to mean higher RIN prices. I think that is the question that everyone's got to get settled on. I think there's good awareness of how all these knobs will affect the overall market. I think those are the two things that will determine whether or not this fourth quarter improved profitability can continue into 2026.

Speaker #8: And renewable diesel to comply with wherever the Rvo gets set . And so , you know , we still have a lot of policy that appears to be in conflict of .

Speaker #8: Increased rvo , but decreased generation because of foreign feedstocks . Those are those are all going to be things where you're trying to raise the number , but make it more difficult to generate .

Speaker #8: That usually is going to mean higher Rin prices. And so I think that is the question that everyone's got to get settled on.

Speaker #8: And I think and I think there's good awareness of how all these knobs will affect the overall market . But I think those are the two things that will determine whether or not this fourth quarter improved profitability can continue into 26 .

Speaker #11: Indeed , a lot of moving parts there .

Homer Bhullar: Indeed, a lot of moving parts there. If I could follow up on Theresa's question on the new product pipes that are headed west, could you talk about what this means for the prospects for your Wilmington refinery? I think Los Angeles currently ships about 125,000 a day of product east, out of the market to Phoenix. If one of the proposals goes through, Los Angeles could actually receive about 200,000 a day. That's a pretty big shift on California's supply-demand. Do you think Wilmington would be able to compete with an extra 200,000 a day coming into that Los Angeles market?

Speaker #16: And then if .

Speaker #11: I could follow .

Speaker #16: Up on Theresa's question about the new product types that are heading west, could you talk about what this means for the prospects for your Wilmington refinery?

Speaker #16: You know , I think Los Angeles currently ships about 125 a day of product East . You know , out of the market to Phoenix .

Speaker #16: If one of the proposals goes through , then Los Angeles could actually , you know , receive about 200 a day . So that's a pretty big shift on California's supply demand .

Speaker #16: And , you know , do you think Wilmington would be able to compete with an extra 200 a day coming into that Los Angeles market ?

Speaker #5: Yeah , this is Gary . I think , you know , when we look at the numbers , if you look at the California market today , it looks like it's being set by import parity .

Gary Simmons: Yeah, this is Gary. I think, you know, when we look at the numbers, if you look at the California market today, it looks like it's being set by import parity. If you look at the tariffs on those pipes, import parity through the pipeline doesn't look to be significantly different than import parity on the waterborne barrels. I don't know that you'll see much of a change in the California market as a result of the pipelines.

Speaker #5: And if you look at the tariffs on those pipes, import parity through the pipeline doesn't look to be significantly different than import parity on the waterborne barrels.

Speaker #5: So I don't know that you'll see much of a change in the California market as a result of the pipelines .

Speaker #16: Sounds good. Thank you.

Homer Bhullar: Sounds good. Thank you.

Speaker #1: Thank you . Our next question is coming from Jason Gabelman of TD Cowen . Please go ahead .

Operator: Thank you. Our next question is coming from Jason Gabelman of TD Cowen. Please go ahead.

Speaker #17: Hey , thanks for taking my questions . Hopefully two quick ones . First , just on the Russian refining disruptions . You know , there's a lot of headlines on the Ukraine drone strikes , but it does seem like in many cases the refineries come back online quickly .

Gary Simmons: Hey, thanks for taking my questions. Hopefully, two quick ones. First, just on the Russian refining disruptions, there's a lot of headlines on the Ukraine drone strikes, but it does seem like in many cases, the refineries come back online quickly. I was wondering if you could provide some numbers around the amount of disruption that you're seeing on Russian product exports and kind of before today, trying to parse out how much of the product strength was driven by actual disruptions versus geopolitical risk premium in the prices. My second one is on the Benicia shutdown. Can you talk about your plans to resupply the market? Are you going to have to import products from Asia in order to meet your contractual obligations, or do you not have really many outstanding in that market once the plant shuts down? Thanks. Yes, I'll take the first part of that.

Speaker #17: So, I was wondering if you could provide some numbers around the amount of disruption that you're seeing on Russian product exports. And kind of before today, you know, trying to parse out how much of the product strength was driven by actual disruptions.

Speaker #17: Versus geopolitical risk premium in the prices. And then my second one is on the shutdown. Can you talk about your plans to resupply the market, or are you going to have to kind of import products from Asia in order to meet your contractual obligations?

Speaker #17: Or do you not have really many outstanding in that market ? Once the plant shuts down ? Thanks .

Speaker #5: Yes . I'll take the first part of that . You know , I think we we do think the drone strikes have been pretty effective .

Gary Simmons: I think we do think the drone strikes have been pretty effective. It looks like a lot of what's happening in Russia is that they're largely attacking some of the higher complexity refining capacity. As that happens, Russia will go ahead and ramp up some of the lower complexity refining capacity. You can kind of see that with the fuel oil exports and some of those things. The second part of your question, I think the spike we're seeing today is not so much due to any kind of disruption from Russia yet. It is just hyping the market on what could happen in the future. We've definitely seen product exports from Russia falling.

Speaker #5: It looks like a lot of what's happening in Russia is that they're largely attacking some of the higher complexity , refining capacity . And so as that happens then , then Russia will go ahead and ramp up some of the the lower complexity refining capacity .

Speaker #5: So you can kind of see that with fuel oil exports and some of those things . The second part of your question , you know , I think , you know , the spike we're seeing today , you know , is not so much due to any kind of disruption from Russia .

Speaker #5: Yet it is just hyping the market on what could happen in the future . But we've definitely see exports from product exports from Russia falling .

Speaker #3: Hey Jason , this is Lane on the second part . Our intent is to continue to supply our contractual obligations for our wholesale business .

Lane Riggs: Hey, Jason, this is Lane on the second part. Our intent is to continue to supply our contractual obligations for our wholesale business after we shut down the refinery.

Speaker #3: And after we shut down the refinery .

Speaker #17: Okay. And those would be essentially imports from Asia, presumably.

Gary Simmons: Okay, and those would be essentially imports from Asia, presumably?

Speaker #3: It could be from anywhere in the world . This is kind of what Gary alluded to earlier . What waterborne allows you to have optionality to try to , you know , work ARBs into that short versus maybe having a huge commitment on a pipeline .

Lane Riggs: It could be from anywhere in the world. It's just kind of what Gary alluded to earlier. Waterborne allowed you to have optionality to try to, you know, work arbs into that short versus maybe having a huge commitment on a pipeline. That's sort of our intent. They're not going to go out and term up barrels from some particular market. You know, we'll figure out how to supply it.

Speaker #3: That's sort of our intent . We're not going to go out and turn up barrels from some particular market . You know , we'll figure out how to supply it .

Speaker #17: Okay . Thanks .

Gary Simmons: Okay, thanks.

Speaker #1: Thank you . The next question is coming from Nitin Kumar of Mizuho Securities . Please go ahead .

Operator: Thank you. The next question is coming from Nitin Kumar of Mizuho Securities. Please go ahead.

Speaker #18: Hi . Good morning . Thanks for taking my question . I really just have one . I'll do a part A and B , you know , you've talked a little bit about the crude spreads widening from here on out .

[Analyst]: Hi, good morning. Thanks for taking my question. I really just have one. I'll do a part A and B. You've talked a little bit about the crude spreads widening from here on out. Just maybe some thoughts on what do you see the mid-cycle or some of the at least 12 months view on some of these spreads because you should have, at least based on what's going on between Canada, Iraqi barrels you were mentioning, there seems to be a lot of supply of heavier crudes coming at the same time to the market. Maybe part B is, given your complexity, especially in the Gulf Coast, you have like a buffet of crudes that you could choose from. Is there a specific crude that you think falls to the bottom if it's not discounted appropriately?

Speaker #18: Just maybe some thoughts on what do you see the mid-cycle or at least 12 month view on some of these spreads . Because you should have at least based on what's going on between Canada , Iraqi barrels .

Speaker #18: You were mentioning . There seems to be a lot of supply of heavier crude coming at the same time to the market , and then and maybe part B is , you know , given your complexity , especially in the Gulf Coast , you have like a buffet of crudes that you could choose from .

Speaker #18: Is there a specific crude that you think falls to the bottom ? If it's not discounted appropriately ?

Speaker #5: Yeah . So I'll take a stab at that . I guess . You know , our view is without getting into a lot of specifics on what we call mid-cycle , I guess we would say where the quality differentials are today , it would be a little inside of what we would view as mid-cycle .

Gary Simmons: I'll take a stab at that. Our view is, without getting into a lot of specifics on what we call mid-cycle, we would say where the quality differentials are today, it would be a little inside of what we would view as mid-cycle, and we do see those continuing to widen going forward. In terms of crude we see falling out, I don't really know that I have a view on that, Greg. I don't know if you have one.

Speaker #5: And we do see those continuing to widen going forward . In terms of , crude . We see falling out . I don't really know that I have a view on that , Greg , I don't know if you have one , but .

Speaker #8: Yeah , what I'd probably add if you if you look back and I think the market works this way today as well . The , the Latin American grades are the ones that tend to be the swing .

[Analyst]: You know what I'd probably add? If you look back, and I think the market works this way today as well, the Latin American grades are the ones that tend to be the swing. They're probably the one that's kind of moved in to fill holes when there was a short in the Gulf Coast. They're probably the first ones that would back back out as some of that supply comes in.

Speaker #8: And so they're probably the one that's kind of moved in to fill holes when there was a short in the Gulf Coast . They probably the first ones that would , would back back out as some of that supply comes in .

Speaker #18: Great . Thanks . The answers .

[Analyst]: Great. Thanks for the answers.

Speaker #1: Thank you. At this time, I would like to turn the floor over to Mr. Baller for closing comments.

Operator: Thank you. At this time, I would like to turn the floor over to Mr. Bhullar for closing comments.

Speaker #2: Great . Thank you Donna . We appreciate everyone joining us today . And as always , please feel free to contact the IR team if you have any additional questions .

Homer Bhullar: Great. Thank you, Donna. We appreciate everyone joining us today.

[Company Representative]: As always, please feel free to contact the IR team if you have any additional questions. Have a great day, everyone. Thank you.

Speaker #2: Have a great day everyone . Thank you . .

Speaker #1: 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.

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.