Valero Energy (VLO)

The Merchant-Refining Benchmark

Valero is the cleanest read on refining economics among the US large caps. There is no midstream parent stake and no chemicals arm to dilute what the refineries themselves earn, so the margin line is close to the whole story. Nothing similar is true of Phillips 66, where most of the earnings sit outside the refining segment.

One number in the box above is worked out rather than filed. Valero publishes utilisation by quarter but no full-year percentage, so the ~93% is 2,988 mb/d of throughput over the ~3.2 million b/d the system can take.

Business Overview

Valero ran 15 refineries across the US, Canada and the UK in 2025, making gasoline and distillate for domestic and export markets. The weighting is heavily Gulf Coast: that region took 1,806 of the 2,988 mb/d the system ran, with the rest split between the Mid-Continent, the West Coast and the North Atlantic. That is what decides which benchmark to judge the company against. Valero's realised margin tracks Gulf Coast cracks far more closely than the Rockies benchmarks an inland refiner like HF Sinclair prices off.

California is going the other way. In March 2025 Valero decided to stop refining at Benicia, a 170,000 b/d plant on San Francisco Bay, by the end of April 2026, and wrote $1.1 billion off the carrying value of Benicia and Wilmington in the same year. The reason is in the segment numbers: the West Coast lost money in 2025 while every other region made it. Once Benicia is out, system capacity falls to roughly 3.0 million b/d, so use that rather than the 3.2 figure when you extend anything past 2025.

The balance sheet is the other half of the case. At the end of 2025 Valero carried $8.3 billion of debt and $2.4 billion of finance lease obligations against $4.7 billion of cash, so net debt was about $6.0 billion. Set that beside $5,273 million of adjusted Refining operating income earned in a single year and the debt is barely an obstacle, which is unusual in a business this cyclical.

How the Economics Work

A refiner's earnings are margin per barrel times throughput, less what the plants cost to run. Valero made $12.29/bbl of refining margin in 2025, spent $4.93/bbl operating the refineries and charged $2.53/bbl of depreciation, leaving $4.83/bbl. On 2,988 mb/d, about 1.09 billion barrels across the year, that is the $5,273 million of adjusted Refining operating income it reported. Normalising that figure through the cycle is the subject of the mid-cycle EBITDA guide.

Alongside Brent and WTI, Valero publishes the market cost of a refiner's Renewable Volume Obligation: $5.85/bbl across 2025, against $3.75/bbl in 2024. Read that as what the credits cost in the market, not as Valero's own bill. Merchant refiners with no blending assets buy separated D6 RINs to meet the obligation, but Valero owns 12 ethanol plants and half of Diamond Green Diesel, so it generates a large share of the credits it has to surrender. The figure is the scale anchor in our RIN costs guide. It is also already inside the $12.29/bbl above, because a refining margin is revenue less the cost of materials and RINs bought are part of that cost. Subtracting it again counts it twice.

Valero publishes no capture rate and no internal margin indicator, so its $12.29/bbl cannot be ranked against Marathon Petroleum's filed 105% capture. That 105% is struck against Marathon's own benchmark, which averaged around $16/bbl in 2025, nowhere near a national crack spread. Compare filed $/bbl margins with each other, or divide every one of them by a single common indicator and accept that the answers all land near half. What you cannot do is put a margin and a ratio side by side.

Valuation Framework

Value a refiner on mid-cycle earnings, never on the last twelve months, because the last twelve months are whatever the crack happened to do. Our planning deck holds the Gulf Coast 3-2-1 crack at $25/bbl. Refiners keep roughly half of a national crack once their own slate, location and product mix are accounted for, so that implies a realised margin near $12.50/bbl. Take off the $4.93/bbl the refineries cost to run, then run the post-Benicia system of about 3.0 million b/d at 92% utilisation, the US average, and mid-cycle refining EBITDA comes out around $7.7 billion. The 5–7× EV/EBITDA band goes on that number, not on a peak year's.

Net debt of about $6.0 billion is therefore under a single turn of mid-cycle EBITDA. That is the conservative end of the merchant-refiner screen, which treats 1.5–2.5× as ordinary and above 2.5× as a problem in a bad year. It is the main structural difference between Valero and a name like PBF Energy, whose $1,620 million of net debt is small in absolute terms but sits against a far thinner and more volatile earnings base.

What to Watch in the Financials

Refining margin per barrel. The filed $12.29/bbl is the headline earnings engine. Track it against regional indicator cracks, not a single national benchmark.

RVO cost per barrel. The market cost of the obligation averaged $5.85/bbl in 2025 against $3.75/bbl in 2024, a rise of more than half in a year. RIN prices are set by rulemaking rather than by barrels, so they move on their own schedule and never show up in the 3-2-1 crack spread, which carries no compliance cost at all.

Adjusted Refining operating income. Valero files no consolidated adjusted EBITDA, so the segment line is the anchor. Do not build one and call it filed.

Throughput against capacity. 2,988 mb/d on a ~3.2 mb/d system is a hard-run year. Quarterly peaks are not run-rates, so do not take the 97% Valero managed in the third quarter of 2025 as a full-year assumption. And when throughput drops for more than a quarter, read the turnaround schedule and outage disclosures before concluding demand has weakened.

Net debt trajectory. About $6 billion of net debt is what lets Valero pay dividends and buy back stock through a weak crack instead of pausing. Watch whether capex or shareholder returns push it past 1.5× mid-cycle EBITDA, which is where the balance sheet stops being an advantage.

Peer Context

Marathon Petroleum ran almost exactly the same volume in 2025, 2,989 mb/d, and reported $16.87/bbl. Part of that gap is a different measure rather than a better refinery: Marathon's line covers refining and marketing together, so the two margins are not struck on the same thing. Phillips 66 reported $10.88/bbl, but refining is not where its money is made, with $2,338 million of segment EBITDA against $3,773 million from midstream. PBF Energy earned $7.72/bbl on 832.9 mb/d, $8.77/bbl before special items in a year disrupted by a fire at its Martinez refinery, which is what the bottom of the ladder looks like when a single asset goes down.

Key Risks

Compliance cost, and who carries it. RIN prices can rise while crack spreads do nothing, and at Valero's scale the obligation is material every year. There is a policy risk on top of the price risk. The EPA granted small-refinery exemptions across compliance years 2016 to 2024, handing several small inland refiners a windfall, and has proposed reallocating half or all of those exempted volumes to large obligated parties like Valero for 2026 and 2027. The same rule that pays a small refiner bills a big one.

Nothing to fall back on when cracks compress. Unlike Phillips 66, Valero has no large midstream or chemicals earnings to carry it through a bad refining year. The renewable diesel and ethanol businesses are too small to do that job, and renewable diesel swung from $507 million of operating income in 2024 to a $156 million loss in 2025.

Export and Gulf Coast exposure. A coastal system runs on global distillate balances, not just American ones. New refining capacity in Asia can narrow Gulf Coast cracks while US demand holds up perfectly well.

Regulatory cost in a single state. Benicia shows what happens when the rules in one jurisdiction outrun what a refinery can earn there. Wilmington, the other California plant, was written down alongside it, and Valero told investors it had considered strategic alternatives for what remains of its California operations.