Valero Energy NYSE: VLO posted what Chairman, CEO and President Lane Riggs called an “excellent first quarter,” as the refiner benefited from shifting crude and product market conditions while emphasizing system optimization and commodity risk management.
In prepared remarks, Riggs said early-quarter market disruption included “the availability of incremental Venezuelan supply,” which widened crude differentials and favored Valero’s Gulf Coast system with access to discounted heavy sour feedstocks. Conditions tightened in March, he said, prompting the company to adjust its product slate and “deliver a record monthly jet yield.” Riggs also highlighted continued progress on the company’s FCC unit optimization project at the St. Charles refinery, a $230 million initiative expected to begin operations in the third quarter of 2026.
First-quarter results and segment performance
Senior Vice President and CFO Homer Bhullar reported first-quarter 2026 net income attributable to Valero stockholders of $1.3 billion, or $4.22 per share, compared with a net loss of $595 million, or $1.90 per share, in the first quarter of 2025. Excluding adjustments shown in the earnings release tables, Bhullar said adjusted net income attributable to stockholders in the first quarter of 2025 was $282 million, or $0.89 per share.
By segment, Bhullar said:
- Refining reported operating income of $1.8 billion, compared with an operating loss of $530 million a year earlier (with adjusted operating income of $605 million in first-quarter 2025). Throughput averaged 2.9 million barrels per day, and refining cash operating expenses were $5.13 per barrel.
- Renewable diesel generated operating income of $139 million versus an operating loss of $141 million in the prior-year quarter. Sales volumes averaged 3 million gallons per day.
- Ethanol posted operating income of $90 million, up from $20 million in first-quarter 2025. Production averaged 4.6 million gallons per day.
Bhullar said first-quarter G&A expenses were $285 million, depreciation and amortization expense was $840 million, net interest expense was $140 million, and income tax expense was $401 million, resulting in an effective tax rate of 23%.
Cash flow, capital allocation, and balance sheet actions
Valero generated $1.4 billion of net cash provided by operating activities in the first quarter. Bhullar noted this included a $303 million unfavorable working capital impact and $102 million of adjusted net cash provided by operating activities associated with the other joint venture member share of Diamond Green Diesel (DGD). Excluding those items, he said adjusted net cash provided by operating activities was $1.6 billion.
Capital investments were $448 million in the quarter, including $404 million for sustaining the business—such as turnarounds, catalysts, and regulatory compliance—with the remainder allocated to growth. Excluding amounts attributable to the other joint venture member share of DGD and other variable interest entities, Bhullar said capital investments attributable to Valero were $430 million.
Shareholder cash returns totaled $938 million in the first quarter, which Bhullar said implied a 59% payout ratio for the quarter. He also noted the board approved a 6% increase to the quarterly cash dividend on Jan. 22.
On the balance sheet, Bhullar said Valero issued $850 million of 10-year notes in March at a 5.15% coupon to “de-risk upcoming debt maturities later this year,” adding that the notes priced at a “refining sector record low 10-year spread of 102 basis points over treasuries.” At quarter-end, Valero had $9.2 billion of total debt, $2.3 billion of total finance lease obligations, and $5.7 billion of cash and cash equivalents. Debt to capitalization, net of cash, was 18% at March 31, 2026. Bhullar said Valero moved cash toward the high end of its $4 billion to $5 billion long-term cash target to preserve “optionality in a volatile market environment.”
Market backdrop: resilient demand, export pull, and jet tightness
During Q&A, Executive Vice President and COO Gary Simmons said domestic demand appeared “very resilient” even as transportation fuel prices moved higher. He said lower year-over-year wholesale volumes in Valero’s system reflected the idling of the Benicia refinery and the company’s exit from a position in the Boston market, rather than demand weakness.
Simmons said Valero views U.S. gasoline demand as “flat to slightly up,” with diesel demand “up a little,” and pointed to DOE data indicating increased demand for gasoline, diesel, and jet. He said exports were a major year-over-year change, citing DOE data showing U.S. exports up 470,000 barrels per day, which he said has contributed to U.S. inventory draws. Simmons said total light product inventories were down 30 million barrels since January relative to the five-year average, and that distillate inventories were at five-year lows.
On jet fuel, Simmons said global tightness is “sound,” adding that Valero has been trying to maximize jet output. He said jet as a percentage of total distillates averages about 26% for Valero, but in March the company increased that to “over 30%.” Simmons added Valero is moving “a couple refineries that don’t make jet today” into jet production to further increase yields.
He also discussed a potential constraint on vacuum gasoil (VGO) availability, saying it may become difficult to fill both FCC and hydrocracking capacity, with economics favoring hydrocracking, which could reduce gasoline production.
Crude sourcing and system positioning
Valero executives repeatedly pointed to feedstock flexibility as a differentiator. Vice President of Crude, Feedstocks Supply and Trading Randy Hawkins told analysts crude availability is “not much of an issue” for Valero’s largely Mid-Continent and Gulf Coast footprint. He said the company has adjusted by “cutting back waterborne crudes” and running more pipeline crude amid high freight costs, and has also purchased more SPR volumes. Hawkins also said Valero had already oriented its system toward maximum heavy sour crude, and that this remained advantageous after the Iran-related market disruption, citing Canadian heavy crude trading at roughly a $16 discount versus WTI in the Gulf.
Asked about North Atlantic sourcing, Hawkins said Québec City runs a “mostly 100% North America crude slate,” taking barrels from Western Canada and the Gulf Coast to avoid some Dated Brent volatility. He said Valero had “avoided some of the peak numbers” on certain purchases at Pembroke and still sees favorable margins there.
Executive Vice President and General Counsel Rich Walsh addressed the possibility of restrictions on product exports, saying the administration is “keenly aware” of the risks and that “any kind of export ban actually just makes the situation way worse.” Walsh cited an early Jones Act waiver as helpful and said he did not see “any real meaningful potential” for an export ban.
Operational updates: Port Arthur incident and Benicia idling
Simmons provided an update on Port Arthur, saying a fire occurred on March 23 in the diesel hydrotreater and the entire refinery was shut down as a precaution. He said all employees were accounted for and there were “no refinery reportable injuries.” Simmons said Valero restarted the smaller crude unit train in early April along with other units, and that the company was starting up the larger crude unit, FCC and alkylation units during the call timeframe. He said Valero expects throughput to look “fairly normalized” at Port Arthur by May 1.
However, Simmons said the diesel hydrotreater that experienced the fire and an adjacent kerosene hydrotreater remain down, which “could negatively impact capture rates some in the second quarter.” He said the kerosene hydrotreater is expected back by the third quarter, while the diesel hydrotreater sustained “extensive damage” and the company does not yet have a rebuild timeline.
Bhullar noted depreciation and amortization in the first quarter included about $100 million of incremental depreciation related to ceasing refining operations at the Benicia refinery. For the second quarter, he said total D&A is expected to be about $730 million, including about $33 million of incremental Benicia-related depreciation, and that the second-quarter earnings impact from that incremental depreciation is expected to be about $0.09 per share.
Second-quarter guidance ranges
For the second quarter, Bhullar provided operating expectations that include reduced rates at Port Arthur and the idling of Benicia. Valero expects refining throughput volumes in the following ranges:
- Gulf Coast: 1.69 million to 1.74 million barrels per day
- Mid-Continent: 450,000 to 470,000 barrels per day
- West Coast: 120,000 to 130,000 barrels per day
- North Atlantic: 480,000 to 500,000 barrels per day
Refining cash operating expenses are expected to be about $4.85 per barrel in the second quarter. In renewables, Valero expects renewable diesel sales volumes of about 320 million gallons, with operating expenses of $0.46 per gallon (including $0.22 per gallon of non-cash costs). For ethanol, production is expected at 4.7 million gallons per day, with operating expenses of $0.39 per gallon (including $0.04 per gallon of non-cash costs). Bhullar said second-quarter net interest expense should be about $145 million and 2026 G&A is expected to be about $960 million.
Bhullar also said Valero expects the Port Arthur incident to lead to additional 2026 capital expenditures that “should be covered by insurance subject to our applicable insurance deductibles,” and that the company will update full-year capital investment guidance once it can provide a definitive cost estimate and repair timeline.
About Valero Energy NYSE: VLO
Valero Energy Corporation is a San Antonio, Texas–based integrated downstream energy company that manufactures and markets transportation fuels, petrochemical feedstocks and other industrial products. The company's operations focus on refining crude oil into finished fuels such as gasoline, diesel and jet fuel, as well as producing asphalt and other refined product streams for commercial and industrial customers.
In addition to refining, Valero has significant operations in renewable fuels, including the production of ethanol and other biofuels, and it manages an extensive logistics network of pipelines, terminals, rail and marine assets to move feedstocks and finished products.
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