Company Overview - Valero Energy Corporation (VLO) has a market cap of $61.8 billion and operates in the production and marketing of petroleum-based and low-carbon transportation fuels and petrochemical products through its Refining, Renewable Diesel, and Ethanol segments [1] Stock Performance - Over the past 52 weeks, VLO stock has increased by 51.7%, significantly outperforming the S&P 500 Index, which rose by 14.9% during the same period [2] - Year-to-date, VLO shares are up nearly 24%, compared to a modest 1.1% gain for the S&P 500 [2] - VLO has also outperformed the State Street Energy Select Sector SPDR ETF (XLE), which saw a 20.2% increase over the past year [3] Financial Performance - In Q4 2025, Valero reported an adjusted EPS of $3.82 and revenue of $30.37 billion, exceeding expectations; however, shares fell slightly due to concerns over declining full-year profitability, with net income expected to decrease to $2.3 billion ($7.57 per share) from $2.8 billion ($8.58 per share) in 2024 [6] - Operating income in the Renewable Diesel segment fell to $92 million from $170 million year-over-year, contributing to investor caution [6] Future Projections - Analysts forecast a 15.8% year-over-year growth in adjusted EPS for the fiscal year ending December 2026, projecting it to reach $12.29 [7] - Valero has a strong earnings surprise history, having beaten consensus estimates in the last four quarters [7] Analyst Ratings - Among 22 analysts covering Valero, the consensus rating is a "Moderate Buy," consisting of 12 "Strong Buy" ratings, one "Moderate Buy," and nine "Holds" [7] - Citi analyst Vikram Bagri raised Valero's price target to $212 while maintaining a "Neutral" rating, with the stock currently trading above the mean price target of $193.95 [8] - The highest price target of $220 suggests a potential upside of 8.6% from current levels [8]

Core Viewpoint - BP is negotiating the sale of its Gelsenkirchen oil refinery in Germany to Klesch Group, an investment firm, as reported by Politico [1] Group 1 - The Gelsenkirchen refinery is currently owned by BP [1] - Klesch Group is identified as the potential buyer in the ongoing discussions [1]

Core Viewpoint - Indian Oil Corp and Hindustan Petroleum Corp have jointly purchased 2 million barrels of Merey crude from Venezuela for delivery in the second half of April [1] Group 1: Company Actions - Indian Oil Corp and Hindustan Petroleum Corp are state refiners in India [1] - The purchase of 2 million barrels indicates a strategic move to secure crude oil supply from Venezuela [1] Group 2: Market Implications - The acquisition of Venezuelan crude may reflect changing dynamics in the global oil market, particularly in sourcing from countries facing sanctions [1]

Corporate News - The National Highway Traffic Safety Administration (NHTSA) has announced multiple vehicle recalls, including BMW of North America LLC recalling 87,394 and an additional 202 vehicles, Ember Recreational Vehicles Inc recalling 317 vehicles, and Daimler Coaches North America recalling 51 vehicles, indicating ongoing quality control and safety challenges within the automotive and recreational vehicle sectors [5][9] Industrial Sector - UACJ is set to produce large parts for Japan's H3 rocket, signifying Japan's continued investment and advancement in its aerospace capabilities [6][9] - Phillips 66 reported an emission incident at its Wood River oil refinery, raising environmental concerns [6]

Core Viewpoint - United Steelworkers is preparing for a potential strike or lockout at BP's Whiting refinery following unsuccessful negotiations [1] Group 1: Company Specifics - The refinery in question has a capacity of 440,000 barrels per day [1] - The union's actions come after weeks of negotiations with BP [1] Group 2: Industry Context - The situation highlights ongoing labor tensions within the oil refining sector [1] - Potential disruptions at major refineries can impact fuel supply and pricing in the broader market [1]

Core Insights - Phillips 66 will lay off approximately half of its employees at its only remaining oil refinery in California following the closure of operations [1] Company Summary - The decision to shut down the refinery and reduce the workforce is part of a broader strategy to streamline operations amid changing market conditions [1] - The layoffs will significantly impact the local economy, given the refinery's role as a major employer in the region [1] Industry Summary - The closure of the refinery reflects ongoing challenges in the oil refining sector, including fluctuating demand and regulatory pressures [1] - This move may signal a trend of consolidation within the industry as companies adapt to evolving market dynamics [1]

Core Insights - Indian Oil Corp (IOC), the leading refiner in India, experienced a more than four-fold increase in third-quarter profit, attributed to improved refining margins as crude prices declined [1] Company Summary - IOC reported a significant profit increase in the third quarter, indicating strong financial performance [1] - The rise in profit is linked to favorable market conditions, particularly the drop in crude oil prices, which enhanced refining margins [1] Industry Summary - The refining sector is benefiting from lower crude prices, leading to improved margins for refiners like IOC [1] - The performance of IOC may reflect broader trends in the oil refining industry, where profit margins are influenced by fluctuations in crude oil prices [1]

Financial Data and Key Metrics Changes - In Q4 2025, reported earnings were $2.9 billion or $7.17 per share, while adjusted earnings were $1 billion or $2.47 per share, reflecting a flat performance compared to the previous quarter [10][11] - Capital spending for the quarter was $682 million, with operating cash flow generated at $2.8 billion, including a $708 million working capital benefit due to inventory reduction [12][13] - Net debt to capital ratio stood at 38%, with $756 million returned to shareholders, including $274 million in share repurchases [10][11] Business Line Data and Key Metrics Changes - Total company adjusted earnings were flat at $1 billion, with sequential improvements in Refining, Renewable Fuels, and Midstream, offset by decreases in Chemicals and Marketing and Specialties [11][12] - Midstream adjusted EBITDA increased by 40% since 2022, reaching approximately $1 billion in Q4 2025, driven by higher volumes despite lower margins [6][11] - Refining results benefited from the acquisition of WRB, with higher realized margins in the Gulf Coast, while Marketing and Specialties results decreased due to the sale of a 65% interest in the Germany and Austria retail marketing business [11][12] Market Data and Key Metrics Changes - The company increased its exposure to Canadian heavy crude differentials by 40% following the acquisition of WRB, with differentials widening by approximately $4 a barrel since the acquisition announcement [4][5] - The worldwide crude utilization rate is expected to be in the low 90s for Q1 2026, with turnaround expenses projected between $170 million and $190 million [14] Company Strategy and Development Direction - The company is focused on safe, reliable operations, continuous improvement, and disciplined capital allocation to maximize shareholder returns [3][17] - Strategic actions in 2025 included acquiring the remaining 50% interest in the WRB joint venture and idling the Los Angeles refinery, which is expected to positively influence costs [4][15] - The company aims to achieve an adjusted controllable cost per barrel of approximately $5.50 by the end of 2027, with ongoing initiatives to reduce costs and improve reliability [4][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the refining sector, anticipating that demand will continue to grow in 2026, with challenges in meeting that demand due to low refinery additions [79] - The company highlighted a positive inflection point in results for 2025, with expectations for continued improvement and momentum in 2026 [17][81] - Management emphasized the importance of maintaining investor trust and delivering consistent results in a competitive environment [17] Other Important Information - The company plans to add a gas plant approximately every 12-18 months, with the Iron Mesa gas plant expected to be operational in early 2027 [8] - The Western Gateway project is in the scoping and design phase, with positive feedback from prospective customers and regulatory support [61][66] Q&A Session Summary Question: Outlook for Mid-Continent products and feedstock opportunities post-WRB acquisition - Management noted strong integration between refining, midstream, and marketing assets, with a robust demand profile expected in PADD 2, benefiting from widening heavy dips [20] Question: 2026 priorities on cost outlook - Management indicated a target of $5.50 per barrel for controllable refining costs, with continuous improvement initiatives expected to drive down costs further [26] Question: Turnaround management and utilization rates - Management confirmed a relatively light turnaround cycle for 2026, with costs slightly increasing due to the inclusion of WRB assets, but overall guidance remains stable [32] Question: Midstream growth outlook and potential for stock buybacks - Management outlined a framework for returning over 50% of operating cash flow to shareholders, with expectations for significant debt reduction and share buybacks [36] Question: Refining macro outlook for 2026 - Management expressed bullish sentiment for refining margins in 2026, citing expected demand growth and low unplanned turnarounds [79][81] Question: Likelihood of increased ethane rejection in the Permian - Management does not foresee a material change in ethane rejection due to new gas pipelines, expecting continued balance in supply and demand [85]

Market Overview - Pre-market futures have shown a recovery from early lows, influenced by Q4 earnings reports and private-sector job numbers, with the Dow up by 142 points and the S&P 500 up by 10 points, while the Nasdaq is down by 66 points [1] Employment Data - Private-sector payrolls for January reported by ADP came in at +22K, significantly below expectations, and down from a revised +37K the previous month, marking the first back-to-back monthly job gains since April and May of the previous year [2] - Services employment accounted for most of the private-sector hires, with +21K in services compared to only +1K in goods-producing sectors; Healthcare Services led with +74K hires, followed by Financial Services with +14K and Construction with +9K, while Professional & Business Services lost -57K jobs [3] - ADP Chief Economist noted that hiring trends are following consumer demand rather than technology advancements, indicating a disconnect between stock market performance and private-sector job growth [4] Sector Insights - The job gains in the Construction sector may hint at increased labor demand due to data-center buildouts, although it is considered premature to draw definitive conclusions [5] - A new ADP methodology revealed a downward adjustment of -212K fewer hires for the private sector in 2025, reducing total expected hires from +771K in 2024 to +398K in 2025, which may provide a clearer picture of the labor market [6] Earnings Reports - Eli Lilly & Co. reported a +7.9% earnings surprise with earnings of $7.54 per share and revenues of $19.29 billion, driven by strong performance in diabetes and weight loss drugs [8] - AbbVie reported earnings of $2.71 per share, exceeding estimates of $2.66, while Novartis reported $2.03 per share, beating consensus by 4 cents; however, AbbVie shares fell by -3% despite the positive earnings [9] - Phillips 66 reported earnings of $2.47 per share, surpassing expectations of $2.11 and significantly improving from a loss of -$0.15 per share in the same quarter last year, with shares up by +1.3% in pre-market trading [10]

Group 1 - Marathon Petroleum purchased two cargoes of Venezuelan crude oil at the end of January [1] - The company expects its refineries to process more heavy grades of crude oil [1]