瓦萊羅能源 (VLO) 2026 年第三季法說會：煉油利潤達 88 億美元

重點摘要

• 瓦萊羅能源 (Valero Energy) 公布 2026 年第三季歸屬於股東的淨利為 68 億美元，即每股盈餘 23.89 美元，而 2025 年第三季為 11 億美元，即每股盈餘 3.53 美元。
• 煉油業務營運利潤從上一年的 16 億美元增至 88 億美元。平均原油加工量為每日 300 萬桶，每桶現金營運費用為 5.03 美元。
• 再生柴油產生 3.53 億美元的營運利潤，扭轉了 2025 年第三季 2,800 萬美元的虧損。乙醇營運利潤從 1.83 億美元增至 2.72 億美元。
• 調整後營運現金流為 73 億美元。瓦萊羅本季結束時擁有 98 億美元的現金及現金等價物、86 億美元的債務，淨負債對資本比率為 4%。
• 管理層維持 2026 年約 20 億美元的資本投資指引，並表示第四季將是輕度維護季度，支撐高煉油廠利用率。
• 管理層對煉油基本面保持正面看法，理由是成品油庫存低、過剩產能有限、運輸燃料需求具韌性以及美國墨西哥灣沿岸的原料優勢。

關鍵財務數據

第三季一般及行政費用（G&A）為 3.08 億美元，折舊與攤銷為 6.84 億美元，淨利息費用為 1.44 億美元。所得稅費用總計 21 億美元，有效稅率為 23%。

本季對股東的現金回報派發率為 52%。瓦萊羅還償還了 7 月和 9 月到期的 5.26 億美元票據。

業務與營運表現

煉油業務

瓦萊羅在本季將其煉油廠運轉率提升至接近歷史新高。管理層將強勁的市場環境歸因於成品油庫存緊張、過剩煉油產能有限以及對運輸燃料的持續需求。

公司表示，高企的運費拉大了美國墨西哥灣沿岸原油定價的折價幅度。管理層指出，從墨西哥灣沿岸到亞洲的超大型原油輪（VLCC）運輸成本約為每桶 30 至 35 美元，而 2025 年平均約為每桶 5 美元。這擴大了瓦萊羅複雜的墨西哥灣沿岸系統相對的原料優勢，特別是高硫重質原油。

聖查爾斯（St. Charles）煉油廠價值 2.3 億美元的流體催化裂化（FCC）優化項目已按時且在預算內完成。該項目增加了包括烷基化油和汽油在內的高價值產品產量。管理層表示，儘管該項目在第三季並未全季運營，但其第三季 EBITDA 仍超過了最終投資決策的預期。

瓦萊羅在第三季還創下了委內瑞拉原油加工量的公司紀錄。然而，在第四季，加拿大原油折價擴大（據報導比布蘭特原油低多達 27 至 30 美元/桶），使得加拿大原油相較於拉丁美洲的替代原油更具競爭力。

再生柴油與乙醇

再生柴油業務重返獲利，第三季營運利潤為 3.53 億美元。管理層表示，季對季的利潤率獲取受到原料價格滯後、D4 RIN 波動、DGD 3 停機以及使用較多不符合生產稅收抵減資格的外國原料影響。

管理層表示進入第四季時 DGD 的利潤率表現正面，主要受惠於結構性偏高的 D4 RIN 價格，以及透過 Darling Ingredients 取得國內原料。

乙醇業務創下單季產量歷史新高。瓦萊羅正在評估小規模、短週期的擴產計劃，並繼續在多個廠區推動碳捕集與封存項目，管理層預估這些項目可在 2027 年底至 2028 年年中之間開始運作。

管理層指引

瓦萊羅維持其對 2026 年公司應佔資本投資約 20 億美元的預期。其中約 17 億美元用於維持現有業務，其餘則投入成長型項目。

亞瑟港（Port Arthur）煉油廠 DHT 裝置的維修仍預計於年底前完成。總維修費用仍預估約為 2.5 億美元，並已包含在維持性資本指引中。管理層預計保險將支付很大一部分費用。該煉油廠繼續以正常的加工量運作。

2026 年第四季營運指引

瓦萊羅預計 2026 全年一般及行政費用（G&A）約為 11 億美元。

風險與關注焦點

• 管理層表示，若成品油價格無法同步調整，原油價格大幅上漲可能會壓縮柴油及整體煉油利潤率。
• 海運運費仍極具波動性。儘管墨西哥灣沿岸系統整體受惠，但運費上漲可能會對彭布羅克（Pembroke）、西岸以及程度較輕的魁北克市的原油採購造成壓力。
• 管理層引述的行業顧問估計，全球每天約有 150 萬桶產量的煉油廠歲修工作被延期，這可能導致 2027 年出現更頻繁的維護活動與可靠性風險。
• 再生柴油的利潤率獲取仍面臨原料價格滯後、D4 RIN 波動、稅收抵減資格認定及營運中斷等風險。
• 亞瑟港 DHT 裝置的維修工作仍在進行中，不過管理層表示預計將於年底前如期完成。
• 重啟閒置的美國煉油產能需要重新配置人力、補充庫存和進行大規模維護。瓦萊羅表示目前沒有重啟貝尼西亞（Benicia）煉油廠的計劃。

分析師問答亮點

需求韌性：瓦萊羅表示，儘管燃料價格上漲，但尚未看到廣泛的需求破壞。美國七天平均批發汽油銷量年增 4%，而蒸餾油銷量成長約 2%。加拿大與英國的汽油及蒸餾油銷量大致持平，但英國住宅取暖油銷量因天氣溫暖及客戶延後購買而下降約 10%。

煉油利潤率展望：管理層認為，目前的裂解價差受到複雜度較低的亞洲煉油廠經濟效益不佳的支撐，在扣除運費壓力後，這些煉油廠的利潤率估計僅為每桶 2 至 3 美元。瓦萊羅預計裂解價差將從最近的波動中復甦，並將此波動主要歸因於戰略儲備釋放和俄羅斯制裁相關的新聞，而非實質性的新增供應。

第四季營運：公司預計第四季將是輕度維護季度，並計劃在利潤率支持的情況下全力運轉其資產。管理層指出，折價的高硫重質原料、冬季丁烷調和、北極柴油溢價以及航空燃料經濟效益改善，皆為第四季獲利能力（capture rate）的有利因素。

資本回報：瓦萊羅將現金維持在長期 40 億至 50 億美元目標之上，以在大宗商品波動期間保持靈活性。管理層表示，過剩現金最終將回饋給股東，股利旨在跨越景氣週期穩定成長，而股份回購則是總回饋中較具彈性的部分。

併購與成長型投資：管理層繼續評估墨西哥灣沿岸的煉油與乙醇機會，以及潛在的北大西洋資產。管理層強調，最低門檻報酬率（hurdle rates）和報酬率標準不會因現金餘額增加而改變。內部成長的優先事項包括原料靈活性、擴大高硫重質原油加工能力，以及減少對外購 VGO（真空瓦斯油）的依賴。

完整財報電話會議記錄

---

完整財報電話會議逐字稿

管理層陳述

Operator

Greetings, and welcome to Valero Energy Corp. Third Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Brian Donovan, VP of Investor Relations. Please go ahead.

Brian Donovan

Good morning, everyone, and welcome to Valero Energy Corporation's Third Quarter 2026 Earnings Conference Call. Today, I'm joined by Lane Riggs, Chairman, CEO and President; Gary Simmons, Executive Vice President and COO; Rich Walsh, Executive Vice President and General Counsel; Homer Bhullar, Senior Vice President and CFO; and several other members of Valero's senior management team.

If you have not yet received a copy of our earnings release, it can be found 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. 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. 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.

Lane Riggs

Thank you, Brian, and good morning, everyone. During the third quarter, our business seems to execute well in all reporting segments. The market volatility and tight product inventories we saw in the prior quarter continued through the third quarter. Our teams remain focused on execution in running our refineries at near record levels of utilization and helping keep the markets apply with critical transportation fuels.

Our ethanol segment also achieved a quarterly record production during the third quarter, supplying fuel and contributing to our overall performance. Financially, we remain in a strong position. During the quarter, we continued to honor our long-standing shareholder commitments while also strengthening our cash position. As we look ahead, we remain constructive on the long-term outlook for our business. Refining fundamentals remain favorable, supported by low product inventories, limited excess refining capacity and continued demand for transportation fuels.

Compared to other regions around the world, the United States is well positioned in the current market environment. And the U.S. Gulf Coast continues to be one of the most advantaged regions globally, supported by abundant domestic crude production and access to cost competitive feedstocks. Combined with our strategically located refining system and the flexibility of our commercial team, these advantages support our ability to respond to changing market conditions and resilient customer demand.

Turning to strategic capital projects. We completed the FCC unit optimization project at St. Charles refinery during the third quarter on schedule and within budget. This $230 million investment has already increased production of higher-value products, including alkylate and gasoline. We continue to evaluate additional strategic opportunities to further strengthen the competitiveness and long-term value of our refining system. However, as we assess these opportunities, we remain committed to our disciplined investment process that served us well for more than a decade.

In closing, our third quarter performance underscores the quality of our assets and our consistent operational, commercial and financial performance. This is a result of a long-term strategy that we've been committed to for well over a decade.

With that, I'll turn the call over to Homer.

Homer Bhullar

Thank you, Lane. For the third quarter of 2026, net income attributable to Valero stockholders was $6.8 billion or $23.89 per share compared to $1.1 billion or $3.53 per share for the third quarter of 2025. Excluding the adjustments shown in the earnings release tables, adjusted net income attributable to Valero stockholders for the third quarter of 2026 was $6.8 billion or $23.90 per share compared to $1.1 billion or $3.66 per share for the third quarter of 2025.

The refining segment reported operating income of $8.8 billion for the third quarter of 2026 compared to $1.6 billion for the third quarter of 2025. Refining throughput volumes in the third quarter of 2026 averaged 3 million barrels per day. Refining cash operating expenses were $5.03 per barrel in the third quarter of 2026.

The renewable diesel segment reported operating income of $353 million for the third quarter of 2026 compared to an operating loss of $28 million for the third quarter of 2025. Renewable Diesel segment sales volumes averaged 3.4 million gallons per day in the third quarter of 2026. The ethanol segment reported operating income of $272 million for the third quarter of 2026 compared to $183 million for the third quarter of 2025. Ethanol production volumes averaged 4.8 million gallons per day in the third quarter of 2026.

G&A expenses were $308 million for the third quarter of 2026. Depreciation and amortization expense was $684 million for the third quarter of 2026. Net interest expense was $144 million and income tax expense was $2.1 billion for the third quarter of 2026. The effective tax rate was 23%.

Net cash provided by operating activities was $6.9 billion for the third quarter of 2026. Included in this amount was a $526 million unfavorable impact from working capital and $205 million of adjusted net cash provided by operating activities associated with the other joint venture member share of DGD. Excluding these items, adjusted net cash provided by operating activities was $7.3 billion in the third quarter of 2026.

Regarding investing activities, we made $432 million of capital investments in the third quarter of 2026, of which $371 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance and the balance was for growing the business. Excluding capital investments attributable to the other joint venture member share of DGD and other variable interest entities, capital investments attributable to Valero were $429 million in the third quarter of 2026.

Moving to financing activities. We remain committed to our disciplined capital allocation framework. Shareholder cash returns resulted in a payout ratio of 52% for the quarter. Also in the third quarter, we repaid the outstanding principal balances of our $100 million note that matured in July and our $426 million note that matured in September. An additional $146 million of debt maturing later this year will be repaid using proceeds from the debt we proactively issued in the first quarter during a lower rate environment.

Turning to the balance sheet. We ended the quarter with $8.6 billion of total debt, $2.4 billion of total finance lease obligations and $9.8 billion of cash and cash equivalents. The debt-to-capitalization ratio, net of cash and cash equivalents was 4% as of September 30, 2026, reflecting the cash build this year. While our long-term $4 billion to $5 billion cash target remains unchanged, we continue to maintain cash above the high end of that range to preserve optionality in a volatile market environment, consistent with our messaging throughout this year, while also honoring our payout commitment. Overall, we ended the quarter well capitalized with $5.3 billion of additional liquidity, excluding cash.

Turning to guidance. We still expect capital investments attributable to Valero for 2026 to be approximately $2 billion. This includes expenditures for turnarounds, catalyst, regulatory compliance, joint venture investments and the estimated cost to repair the DHT unit at our Port Arthur refinery. Approximately $1.7 billion is allocated to sustaining the business with the remainder directed towards growth projects.

Repairs to the Port Arthur DHT unit remain on track for completion by year-end. Total repair costs are still estimated to be approximately $250 million, which are included in our sustaining capital guidance. As previously guided, we expect a substantial portion of the cost to be covered by insurance. In the meantime, the refinery continues to operate at normal throughput rates.

Our growth projects continue to be focused on shorter cycle opportunities that improve crude and product flexibility, optimize the value of our product mix and maximize utilization of existing conversion capacity across our refining operations. We've also been pursuing efficiency and capacity expansion projects at our ethanol plants. These investments should enhance the earnings power of our assets.

For modeling our fourth quarter operations, we expect refining throughput volumes to fall within the following ranges: Gulf Coast at 1.855 million to 1.905 million barrels per day; Mid-Continent at 440,000 to 460,000 barrels per day; West Coast at 100,000 to 110,000 barrels per day; and North Atlantic at 480,000 to 500,000 barrels per day. We expect refining cash operating expenses in the fourth quarter to be approximately $4.85 per barrel.

For the renewable diesel segment, we expect sales volumes of approximately 325 million gallons in the fourth quarter. Operating expenses should be $0.53 per gallon, including $0.23 per gallon for noncash costs such as depreciation and amortization. Our ethanol segment is expected to produce 4.9 million gallons per day in the fourth quarter. Operating expenses should average $0.38 per gallon, which includes $0.04 per gallon for noncash costs such as depreciation and amortization.

For the fourth quarter, net interest expense should be about $135 million and total depreciation and amortization expense should be approximately $700 million. Lastly, G&A expenses for 2026 are expected to be approximately $1.1 billion.

Brian Donovan

Thanks, Homer. That concludes our opening remarks.

Before we open the call to questions, I would ask that you limit each turn in the Q&A to two questions. If you have more than 2 questions, please rejoin the queue as time permits to ensure other callers have time to ask their questions.

Operator

[Operator Instructions] Our first question is coming from Sam Margolin of Wells Fargo.

分析師問答

Sam Margolin

Question on industry fundamentals, if we could start out on crude differentials, which have been pretty topical and also outsized recently. I think some of the crude differential move has been attributed to freight, but if you could just talk about it for a minute and give your views on whether it is structural what's happening with crude differentials because there's more heavy supply coming? Or if you think this is more of a cyclical condition related to some constraints in external factors?

Randy Hawkins

Sam, this is Randy. Obviously, remains extremely volatile. We used to get headlines every day, every night about -- around events in the Middle East, and we're obviously keeping a close eye on that on global trade flows. Over the last several weeks, it does look like we are seeing sustained higher flows moving through the Strait. We've seen media sources over the last couple of days, indicating that the volume over the last week has been actually higher than pre-war levels. In addition to that, we've had some recent SPR releases.

So overall, our indications from what we see in the market, both on spreads and trade flows, it looks like the market is pretty well supplied with oil. And as you mentioned, I mean, the main story right now in the market is freight rates. And as the flow through the straight increase, the inefficient process of the ship-to-ship transferring that they're doing of crude oil in the Gulf of Oman is really tying up global shipping and to require more tankers to move the same amount of oil. This is in addition to insurance risk premiums, transshipment delays, higher bunker cost, they're all kind of driving the freight higher.

As an example, this extreme run-up in freight, I mean, the cost to move a VLCC from the Gulf Coast to Asia is now averaging around $30 to $35 per barrel. That compared with a 2025 average of around $5 a barrel. We're seeing this freight increase kind of play out in all markets around the globe and across all shipping classes, mainly on the dirty freight side. And this is causing severe dislocations in our global crude pricing as refiners seek to keep -- find barrels that are closer to home and sellers are forced to discount barrels to account for the freight cost.

Fortunately for us, the bulk of our systems in the Gulf Coast, which has access to a wide range of crude and crude qualities is now a large exporter of crude. And since this crude must price to export, the sharp run-up in freight costs have forced the discounts to widen all grades. Given the U.S. Gulf Coast, some of the cheapest crude costs in the world, especially on the heavy sour. The Gulf Coast is also freight advantage for heavy barrels out of Latin America compared with the Asian alternative and discounts for these foreign barrels are also having to compensate for the large freight increase.

As Lane mentioned before, the Gulf Coast remains one of the most advantaged crude markets globally, and this freight run-up only further supports that. Looking ahead, our long-term outlook on crude differentials remains very constructive as incremental supply looks to be dominated by heavier and more sour barrels, especially out of Canada, Venezuela and the Middle East, which further supports the value of our complex Gulf Coast system.

Sam Margolin

Okay. I was going to ask a follow-up on freight, but it sounds like you characterized your position fairly completely there. And so maybe just a follow-up just for Homer. And on the cash balance, you're carrying a lot of cash. It's an interesting position because you have a lot of optionality. I mean, even if you're just earning a treasury rate on the cash, it's a massive number at this point. And so just your thoughts on how the balance sheet is structured today, whether it's a point in time that isn't necessarily meaningful over the long term? Or if you kind of like having this optionality with an outsized cash position structurally?

Homer Bhullar

Sam, I guess, let me just start by kind of reiterating what we've said throughout this year that our initial decision to start building cash earlier this year was really around prudently managing volatility in commodity prices, right? The risk that we've talked about is when you have a rapid pullback in commodity prices, it's generally accompanied by a draw on working capital and a draw on cash. And so -- in that event, you want to make sure -- like we wanted to make sure that we're not constrained on our ability to return cash to shareholders even if there is a significant draw on cash. In fact, I'd say we want to make sure we're in a great position to lean into shareholder returns in that event.

So in an environment that remains pretty constructive, we're comfortable where we are with respect to a payout. We continue to pay out above 50% and continue to build cash. You touched on it, but we don't have a lot of other kind of commitments to cash. We don't have a lot of maturities over the next 1 year-plus, we have a little under $150 million that matures later this year and a little over $500 million next year. So we have plenty of flexibility, as you highlighted. And obviously, we've talked about this before, but we're not going to change our approach to capital investments just because we have a lot of cash.

So in short, we don't have a lot of other uses of cash. So while the volatility is probably not behind us at this point. We're in a good position to be even more aggressive with shareholder returns, especially if volatility returns and as we ultimately move back towards our long-term cash target balance of $4 billion to $5 billion. In any event, I think whether margins and cash flow profile of our business remains strong or not, our long-term targets on cash have really not changed. So over time, all the excess cash we're accumulating will ultimately be directed towards our owners.

Operator

Our next question is coming from Manav Gupta of UBS.

Manav Gupta

I actually just wanted to follow up a little. U.S. margins look very good. But what we are hearing is when you take into account some of the freight cost accusation, some of your Asian or European peers, they are not doing as well. And again, you are also the low-cost refiner in the world. So I'm just trying to understand, are we seeing a bifurcated scenario where one region of the world is at a good margin and can run much harder versus other parts of the world which are struggling to source crude. And even when it gets there, it's very expensive. So can you talk a little bit about those dynamics, please?

Gary Simmons

Yes. Manav, this is Gary. I think we see the exact same thing you're staring at, which gives us high confidence that this current crack spread environment is very sustainable. When you look at some of the low complexity refining capacity in the Far East, freight cost to get crude to that refiner and freight costs to get back into the export markets, it looks like their margins are in the $2 to $3 a barrel range. In addition to the margin squeeze they're currently facing, we're also seeing natural gas prices begin to take off in those regions would put even a higher floor on where crack spreads need to go in order to force those refineries to continue to -- run at high utilization rates. And I think the world needs that capacity to be running today.

Manav Gupta

And my quick follow-up here is, have you seen any signs of any kind of demand destruction? Or can you generally talk about what you're seeing in both U.S. demand as well as export demand as Valero sees us out there?

Gary Simmons

Yes. Manav, I'll go through some of what we're seeing on the wholesale side. For the most part, I would say we're not seeing any signs of demand destruction at all. On the gasoline side, our U.S. wholesale network, 7-day average sales are actually up 4% year-over-year. In Canada, they're flat year-over-year. In the U.K., flat year-over-year. Second quarter call, I mentioned that we were seeing some demand destruction in the U.K. but actually in the third quarter, demand recovered nicely there. So gasoline demand has been very resilient to the higher prices. And then the export demand also very, very strong. You could see in all of our export markets, we're seeing a good pull from the U.S. Gulf Coast. Certainly, we've seen gasoline cracks come off a little bit. Some of that is just seasonal as you transitioned out of driving season. And also get the well from higher butane blending with the winter grade gasoline specs. But the underlying gasoline fundamental look very, very strong. We don't have a transatlantic arb to ship gasoline from Northwest Europe into PADD 1. We really don't have storage economics to begin to make summer-grade gasoline and store it, which is very constructive to the spring. But I think the biggest thing when I look at the gasoline market, here we are in October out of driving season into high RVP gasoline season, and you still have backwardation in the gasoline market, which is really telling you that the pump market is very tight gasoline supply. And I think all of that is very constructive to gasoline longer term.

On the distillate side, similar trends. Our wholesale network would indicate about 2% year-over-year growth in sales, 7-day average sales. Both the U.K. system and Canadian system are showing flat year-over-year sales. The only area where we're actually seeing lower sales is home heating oil in the U.K. It is off about 10%. When you visit with our commercial teams over there, they think that's a combination of a couple of reasons: One, you've had unseasonably warm weather; and two, you've also had customers that are really trying to delay filling their tanks as long as they can.

So what that actually could tell you is you could see a surge in demand in the U.K. when you actually have cold weather hit. Export demand for diesel also very, very strong, both for Latin America and Europe. So for us, no indication of demand destruction. And in fact, some of the leading indicators, both GDP remaining flat. And also a lot of the trucking survey is actually ticking up, which would tell you that diesel demand is hanging in there very nicely.

Operator

The next question is coming from Neil Mehta of Goldman Sachs.

Neil Mehta

And maybe the first question is just on volumes. The volume guide you provided for 4Q probably a little bit higher than what we thought. And so just maybe you could talk about you're running the system hard in the fourth quarter, I guess, that DHT is back up, too. So that should be a help as you go into the fourth quarter. And then maybe stepping back for the industry broadly. Because we did run so hard in 2026, you think '27 is going to be a decent-sized turnaround year for the industry? Any thoughts around that.

Gary Simmons

Yes. Neil, so I'll start with the DHT. We really don't expect to have mechanical completion of the DHT until the end of the quarter. So it won't have a -- the DHT won't really isn't in the guidance. We are -- it is a light maintenance quarter for us, and so we'll run the assets hard with margins where they are.

In terms of the rest of the industry and deferring of turnarounds, we've been public. We don't really defer any of our maintenance. We'll continue on our schedule for turnarounds. What you do hear from consultants is that there was about 1.5 million barrels a day of refinery turnarounds globally that was deferred, which means turnaround activity is currently a little lighter than normal, and you would expect a heavier turnaround season next year.

Neil Mehta

That's helpful. And then just in terms of Q4 considerations, maybe this is for you, Homer or Gary, but just -- we have averaged the start of the quarter, the Gulf Coast indicator is up the Mid-Con indicator is up as well. Just any thoughts as we think about the fourth quarter, seasonally, typically, things tick down, but we started off the quarter pretty strong. So any advice for us as we model out the fourth quarter.

Gary Simmons

Yes. So I think the big tailwinds for the fourth quarter, typically, you get the uplift of the lending butane into gasoline. In our North Atlantic system, you generally have a nice uplift that we start to make Arctic diesel that carries some premium there. Seeing some good tailwinds on the feedstock side with the heavy sours discounted and a lot of feedstock optimization opportunities. And then we're starting to see jet rates turn positive again, which is also a tailwind. Outside of that, when you look at secondary products, it's kind of a bit of a mix. Propylene and naphtha are off a little bit, but aromatics are up. So overall, I would say, mainly tailwinds when it comes to capture rates in the fourth quarter.

Operator

The next question is coming from Theresa Chen of Barclays.

Theresa Chen

Gary, as we look at the very recent volatility in craft, keeping in mind your comments about demand resiliency across your footprint plus the floor being incrementally higher for international refiners given high freight costs, natural gas and so on. How would you explain the recent downside volatility? Is that a result of incremental crude and products finding its way through the street? What explains this? And how do you expect these factors to evolve over the near medium term?

Gary Simmons

Yes. It looks like some of the downward pressure on cracks is really related to more headlines. People announcing releases from strategic reserves, lifting of Russian sanctions, some of those types of things is what is actually driving some of the downward pressure on cracks. I think when you digest the data and you look at how much volume is actually coming out and then lifting of sanctions is more just a change in trade flows. I think we'll see a recovery in cracks moving forward.

Theresa Chen

Got it. And we've seen various headlines about the Trump administration potentially working with operators to reopen U.S. refining capacity that's been idled in the last 10 years. How seriously should we take these efforts and more broadly, how do you think the supply shortage of the market would be most effectively addressed?

Richard Walsh

This is Rich Walsh. I'll try to answer that one. I really think you're focusing in here on Benicia. And so I would just remind you that the status of that refinery is -- it's safely idle and has been since April, and we have no plans to restart it. When we first announced and even just before we announced the shutdown of that facility, we had lots of discussions with both the state and the federal government and private parties. And none of those efforts actually materialize anything. It's just a -- it's a tough environment to operate in the West Coast. And we just don't see the potential for that. So -- and the last thing I would just remind you is that the restart that refinery, you would have to reinventory it, you'd have to restaff it, you'd have to undertake a rather extensive turnaround. So it's not a simple process to restart it. So...

Lane Riggs

Yes. Theresa, this is Lane. I'll add to that. I think as you're thinking broadly, more broadly speaking, almost any refinery has been shut down will take a while to start out. So it would be very difficult for them to help the prompt situation. We haven't had a lot of inbounds from the administration with respect to starting up other refineries. But we've heard the same things you guys have. So I'm not saying that, that's not occurring. But I think the idea that it's going to -- there's the refineries that you can just sort of walk in and put the lights and they're going to start running is not exactly the case. But we'll just see what's happening with respect to on a longer-term basis with how this all plays out.

Operator

The next question is coming from Phillip Jungwirth of BMO Capital Markets.

Phillip Jungwirth

In third quarter, we saw a lot of Venezuela upstream investment plans announced in pretty ambitious production growth targets set. So -- just wondering where you are now on Venezuela throughput versus capacity? And just what would it take to have enough confidence to invest in increasing the ability to run more heavy crude?

Randy Hawkins

Yes. Phil, this is Randy. We continue to see pretty good availability of then crude in the Gulf Coast system. And as you mentioned, we're pretty encouraged by some of the new investments that's going on in the country to grow production moving forward. We've been for a long time, and we continue to be the largest consumer of Venezuelan crude. And in the U.S. Gulf Coast, we're the largest by far. In fact, in the third quarter, we saw the Venezuelan crude compete very favorably compared to other heavy sour alternatives. And as a result, we set a new processing record for Venezuelan barrels in the Valero system during the quarter.

As we move into the fourth quarter, we've seen the economic shift some. The higher freight market has especially impacted the heavy crude market. We've seen discounts for Canadian crude in the Gulf Coast widened to as high as $27 to $30 under Brent, making the Canadian barrel much more competitive versus the Latin barrel. As we kind of touched on before, our system is very flexible. So our ability to flex between different grades is a big competitive advantage. And as we move forward, we're going to continue to look at opportunities where we can further increase consumption of those barrels.

Lane Riggs

This is Lane, I'll add to that. I mean, definitely, one of the buckets that we look at in terms of our projects or even acquisitions with respect to the sort of heavy sour position, we feel pretty -- we feel like this is an area to help us with our feedstock optimization, and we're looking for debottlenecking opportunities and other opportunities in that space to increase our exposure to build to run heavy...

Phillip Jungwirth

Okay. Great. And then can you hit on the outlook for DGD margins and some of just the noise in 3Q, 2Q around capture anything one-off to keep in mind there? And how you see that metric trending into the fourth quarter?

Eric Fisher

Yes. Phillip, this is Eric. I think just as a quick refresher, 2Q had a lot of one-off onetime benefits like IEEPA recovery as well as a lot of modeling updates and year-to-date true-ups. And so you had kind of an unusually high second quarter because some of the onetime benefits. You also had the benefit, and we've talked about this on previous calls, there's a lag on how feedstocks price when they come into DGD. And you combine that with the volatility that we're all seeing creates a lot of noise in margin capture.

So if you look at 2Q, you had feedstocks that we had bought in 1Q that were still much cheaper than the margin indicator. So you have that advantage. And then you had -- if you recall, a lot of the comments about the conflict were kind of waning. And so as ULSD fell, even though that's the base commodity price for DGD, it did help with some of the volatility and the positions of how carbon were specifically pricing in that quarter.

3Q, you had the exact opposite. We had the impact -- obviously, we had the outage, we had the storm in DGD 3, which forced us to run a higher percentage of foreign feedstocks that were on the water. So foreign feedstocks don't capture PTC. So we had a lower PTC capture than the margin indicator.

And then you also had a lot of noise around the D4. And so with the conversation about SREs and whether or not they're going to be reallocated, we saw a pretty significant drop in the D4. And as those product -- as those product cargoes were pricing, we saw a lot of volatility impact hit that lag as well. So it's really all tied up in a lag in the volatility of both and the D4. If I think about 4Q, I mean you still have a structurally high D4 RIN. So we continue to see DGD very positive from a margin standpoint. We see positive cash flow. And I think the real strength of kind of like the refining segment where Gulf Coast is the most advantage from a feedstock availability standpoint, combined with Darling being the largest producer of domestic feedstock. PTC benefits domestic feedstock. So we are pivoting into as always, maximizing the feedstock from Darling, now maximizing vegetable oil runs really going into this D4 short that is going to continue into '27. So [indiscernible]

Operator

The next question is coming from John Royall of Piper Sandler.

John Royall

So my first question is a follow-up on the demand side. And I think you've mentioned that it's been relatively stable despite significantly higher prices on both gasoline and diesel. I was wondering if -- you guys are in this market every day. Are you surprised that we haven't seen more demand response? And maybe do you have a view on if there is a price level where maybe we'd start to see a little more elasticity?

Gary Simmons

Yes. So I would say, especially with all the headlines about pricing, we have been surprised that you don't really see any demand response so far. In terms of price level where you would expect some kind of demand destruction, I don't really know where that is because most people would have predicted we would have already seen it.

John Royall

Yes. Fair enough. And then I guess Homer mentioned in his opener that you might be looking at some capacity growth in ethanol. I was hoping you could dig in a little on that in terms of timing and magnitude and any other color you could give there?

Eric Fisher

Sure. This is -- with the new PTC or benefit with the 45Z, it's encouraging really all ethanol producers to take a look at higher volumes. And so we are looking at mostly capacity creep. So it's not -- I mean, on a refinery scale, this is not significant capital, and it's very quick hitting capital. But it's small capacity creep. We're continuing to pursue our carbon sequestration projects at a couple of our sites. We are hoping those are hitting somewhere between late '27 to mid-'28. All of that will grow both ethanol volume as well as lower ethanol CI, which makes it more attractive for exports. So we continue to see pretty strong export demand for ethanol and our capacity is all pointed at growing exports.

Operator

The next question is coming from William Blair of Tudor, Pickering Holt.

Matthew Lovseth Blair

On the freight rates, you mentioned the benefits on the crude side in your Gulf Coast system. We have two follow-ups here. So one, are these higher freight rates, the headwind to your North Atlantic and West Coast refineries? Or are you able to use like substitute crude? And then two, what kind of impact are the freight rates having on your netbacks for your Gulf Coast product exports? Is the rate just passed through? Or is it point on the economics for U.S. product exports?

Gary Simmons

Yes. This is Gary. For the most part, the higher freight rates actually give us an advantage into the typical export markets into Latin America. You're largely competing with European barrels into those markets. And so we have a freight advantage there. The only place that it does tend to hurt us is the exports, the diesel exports go into Europe. And I would tell you what it causes is just a lot of volatility with the arbs going open and closed. Basically, Europe is short diesel and needs it. And so when the freight rates spike, their prices have to adjust to keep those arbs open and keep the barrels flowing.

Randy Hawkins

Yes. On the crude side, this is Randy. We do have some exposure to the higher freight at our Pembroke refinery into the West Coast. And to a smaller extent, into Quebec City, even though that refinery is mostly supplied via pipeline. The benefit of the Gulf Coast impact far outweighs that in addition, we do have a large fleet of time charter vessels, which tends to buffer some of the impact of the higher spot freight rates.

Matthew Lovseth Blair

Great. And then do you have any insights on the refining situation in Russia? Do you have any estimates on how much capacity is down? And how long it might take to bring that capacity up? And then what are you thinking on potentially Russia diesel exports picking up here?

Gary Simmons

Yes. This is Gary. I think the data we see shows that on a 3-month average basis compared to a 2024 equivalent period of time, there was about 1.4 million barrels a day of refining capacity off-line in Russia. So still significant. Most consultants estimate that it will take quite a long time to get that capacity back. I can't really give you a duration.

On the diesel exports, I think if you look at the volume that was announced, it kind of puts it at July levels of where Russian diesel exports would be, which is still 600,000 to 700,000 barrels a day below where Russia was last year at this time. So it's not a significant volume. And as we've always stated, really the sanctions or lifting of sanctions just result in change in trade flows, not really incremental supply coming on to or off of the market.

Operator

Our next question is coming from Joe Laetsch of Morgan Stanley.

Joseph Laetsch

So I wanted to just ask on St. Charles. So following the completion of the FCC work during the third quarter. Could you just talk about how that unit is performing relative to expectations? And then maybe what kind of improvement should we expect in product yields or capture rates as we move into the fourth quarter and beyond? And then maybe more broadly, beyond St. Charles, can you talk about where you're seeing the greatest signals and opportunities to deploy future growth CapEx?

Gary Simmons

Sure. I'll start with the St. Charles project. Yes, the project came online and despite the fact that it wasn't fully operational during the third quarter. The EBITDA generated in the third quarter actually exceeded our FID for the project. So it's performing very well. As Lane mentioned, a lot of the project is really to fully utilize the alkylation capacity that we have there. And so typically, you would see the greatest benefits from that during gasoline season. So we would expect more of a benefit in the second and third quarter than what you would see in the fourth quarter and first quarter.

Lane Riggs

Yes. And I'll add to it, this is Lane. I mean in terms of projects that we like, it really is feedstock flexibility. If you think pre- -- I'm going to say Ukraine and -- a lot of the to shore up the barrels that are required to fill out U.S. refining capacity with BGO and other intermediates coming from that part of the world. And so consequently, as we went through the summer, even though we had wide margins over time when you had to go out and buy spot in BGO, you're at to your SCC margins are low. So one of the buckets that we see opportunity in is to be a little more to make our system a little more resilient as not be quite so dependent on the VGO out there, so find ways to increase VGO production. And I said earlier, we're optimistic about Venezuela and the Canadian sort of build-out for heavy sour, so we'll look at ways to debottleneck our sort of our heavy sour capability.

Joseph Laetsch

Great. That's helpful. And then just given the significant cash generation that we've seen in excess cash building on the balance sheet, can you just talk about how you're thinking about potential M&A opportunities here across refining, renewable fuels and ethanol?

Lane Riggs

I'll start. We always look at -- we've -- like every earnings call, we look at everything that comes on the market. We, in particular, like our Gulf Coast system. We've been unapologetic about that. We think it has the most flexibility. And we add the most value when we can actually optimize in our system. So we continue to look for opportunities in terms of on that. And we also like the ethanol business. We'll continue to look at the ethanol business. But again, we're going to be very, very right here to our disciplined approach to capital. You're not going to see us -- even though we're sitting on a lot of cash, we're not going to change our approach in terms of our hurdle rates and our return metrics and how we think about the capital allocation framework that we use that we've been using for the last 10 years.

Operator

Our next question is coming from Doug Leggate of Wolfe Research.

Douglas George Blyth Leggate

I got a couple of questions on reliability and the elevated refinery runs you guys have been able to deliver. Not just for Valero, but I guess for the industry. Clearly maximizing exposure to the current environment as your -- I guess, you're showing the market leading by example. What does this mean for the maintenance cycle, the reliability of your system and more importantly, the reliability of the industry's capacity to run at these elevated levels? Do you see any risk of unplanned downtime, I guess, as we think about 2027 going forward? I know it was a generic question, but I'm just curious on your views.

Gary Simmons

Yes. So as I mentioned, we haven't really changed anything in terms of our philosophy on maintenance and taking our turnaround. They're going as planned. And so I don't think you would expect to see anything different in terms of our reliability. If you do believe the consultant data that says 1.5 million barrels of refinery turnarounds were deferred, it does lead you to believe that there could be some reliability there and a heavier maintenance season next year.

Douglas George Blyth Leggate

I guess we're hearing a couple of worries emerging from Europe in particular, which is why I asked the question, but I appreciate your perspective. I guess my follow-up is, we've obviously got a massive reset and market expectations of mid-cycle. I'm curious if you can offer any thoughts on how this might impact your view on how you return cash to investors and thinking specifically about if we really are in a higher mid-cycle environment, how would your dividend policy shift relative to, let's say, your share buyback policy? And I'll leave it there.

Homer Bhullar

Doug, it's Homer. I mean, I think we look at both the dividend and share repurchases as a component of our total shareholder return. We do have a higher mid-cycle view for all the reasons that Gary, Randy and Lane mentioned, but we still operate in a cyclical industry you're asking about dividend. I think I'll add, like, in theory, you higher mid-cycle increases your debt capacity, too, but we're not obviously levering up. Much like our balance sheet, we want to make sure our dividend is durable, both in good times and bad.

And the dividend is obviously a permanent commitment we've made, which we will use and have used the balance sheet to defend as we did during the pandemic. That wasn't too long ago where our ability and willingness to pay the dividend was challenged. So the dividend is a one-way ratchet. We want to make sure we have some ratable element to dividend growth through cycle. And then also, we look at dividend yield in the context of our closest peers, and we're kind of right in between both. So with all this in mind, we're going to be more ratable on dividend growth, but obviously ensuring a predictable and attractive total return is a key aspect of our value proposition to our owners, and we'll continue to round out that total payout with share repurchases as a more efficient and flexible means on delivering on that promise over the long term.

Operator

Our next question is coming from Jason Gabelman of TD Cowen.

Jason Gabelman

I just wanted to go back and revisit the demand destruction -- discussion for a second because we have seen diesel prices in New York Harbor having a tough time really sustained over $5 a gallon or around $200 a barrel, as crude continues to trend higher. So it does seem like maybe at that level, there is some destruction or for whatever reason, it's difficult for diesel prices to move higher. And so as crude moves higher, there's potential for some compression in the diesel margin. Is that a risk you see going forward relative to where cracks are right now on the diesel side?

Gary Simmons

Yes, I think that's a fair characterization. We've always felt like one of the things that's benefited refiners during this conflict is the fact that crude really hasn't gotten very -- as expensive as what it could have gone. And so if for some reason, crude runs up, I do think that it could cause some compression of refinery cracks.

Jason Gabelman

Yes. My follow-up is just quickly on the M&A comment. You've obviously mentioned you'd want to grow in the Gulf Coast if an asset became available, which makes sense. But the North Atlantic Quebec market, there's a couple of private assets up there, those refining margins have been strong. There's probably some synergies within the business. Is that another region you would look to consolidate if there were assets that became available and made sense to you?

Lane Riggs

Yes. This is Lane. So as long -- it's another region that we like. So if something came available, and again, it met our investment criteria, which again, we're going to be disciplined, and we want to make sure the thing makes sense to the entire economic cycle and not just go to get romanced by the prompt situation. But it's a region that we feel like we have a really good position in. And if we could add to it and increase our flexibility and our ability to trade around it and create shareholder value, we'd certainly be interested in it.

Operator

Thank you. This brings us to the end of today's question-and-answer session. I would like to turn the floor back over to Mr. Donovan for closing comments.

Brian Donovan

Yes. We appreciate everyone joining us today. And as always, feel free to contact the Investor Relations team if you have any additional questions. Have a great 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.