Greetings and welcome to Valero Energy Corp. First quarter 2026 earnings conference call. At this time, all participants are on a listen only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press Star0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brian Donovan, vp, Investor Relations. Thank you. You may begin.

Good morning everyone and welcome to Valero Energy Corporation's first quarter 2026 earnings conference call. I'm joined today by Lane Riggs, Chairman, CEO and President, Gary Simmons, Executive Vice President and COO Rich Walsh, Executive Vice President and General Counsel Homer Buller, Senior Vice President and CFO, as well as several other members of Valero's senior management team. If you have not yet received a copy of our earnings release, it is available on our [email protected] 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 questions after reviewing these materials, please feel free to reach out to our investor relations team. Before we begin, I'd 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.

Thank you, Brian and good morning everyone. I am pleased to report that Valero had an excellent first quarter, demonstrating our team's ability to optimize our refining system and deliver strong financial returns. In a period marked by considerable disruption in the commodity markets, our operations and commercial teams executed well early in the quarter. The availability of incremental Venezuelan supply resulted in wider crude differentials. Our advantage Gulf coast refining network was well positioned to benefit from the discounted heavy sour feedstocks. Market conditions shifted sharply in March as the global supply of crude and refined products tightened. Our operations team responded decisively, adjusting the product slate to reflect market signals, delivering a record monthly jet yield. At the same time, our commercial and financial teams proactively manage commodity risk to mitigate any adverse impacts of a highly dynamic pricing environment. Financially we maintained a strong balance sheet while continuing to honor our commitment to shareholder returns. On the strategic front, we continue to make progress on the FTC unit optimization project at our St. Charles refinery. This $230 million initiative will enhance our ability to produce high value products, including alkylate. We expect the project to begin operations in the third quarter of 2026. Looking ahead, constrained global refining capacity and low product inventories in key markets should continue to support refining fundamentals. Our concentration on high complexity complexity refineries provide significant feedstock flexibility and direct access to global markets which are especially beneficial in the current environment. Additionally, our disciplined financial strategy and capital allocation framework position us to perform well across market cycles. In closing, our strong performance in a volatile first quarter underscores Valero's operational, commercial and financial strength. Remain focused on things we can control, operational excellence, system wide optimization and disciplined financial decision making. Consistent execution across these priorities positions us to benefit from the current margin environment and will continue to differentiate Valero. With that, I'll turn the call over to Homer.

Thank you, lane. For the first quarter of 2026, net income attributable to Valero stockholders was 1.3 billion, or $4.22 per share, compared to a net loss of 595 million, or $1.90 per share for the first quarter of 2025. Excluding the adjustment shown in the earnings release tables, adjusted net income attributable to Valero stockholders for the first quarter of 2025 was 282 million or $0.89 per share. The refining segment reported $1.8 billion of operating income for the first quarter of 2026, compared to an operating loss of 530 million for the first quarter of 2025. Adjusted operating income for the first quarter of 2025 was 605 million. Refining throughput volumes in the first quarter of 2026 averaged 2.9 million barrels per day. Refining cash operating expenses was $5.13 per barrel in the first quarter of 2026. The renewable diesel segment reported operating income of 139 million for the first quarter of 2026, compared to an operating loss of 141 million for the first quarter of 2025. Renewable diesel segment sales volumes averaged 3 million gallons per day in the first quarter of 2026. The ethanol segment reported 90 million of operating income for the first quarter Of 2026 compared to 20 million for the first quarter of 2025. Ethanol production volumes averaged 4.6 million gallons per day in the first Quarter of 2026. G&A expenses were 285 million for the first quarter of 2026. Depreciation and amortization expense was 840 million for the first quarter of 2023, which includes approximately 100 million of incremental depreciation expense related to ceasing refining operations at our Benicia refinery. Net interest expense was 140 million and income tax expense was 401 million for the first quarter of 2026. The effective tax rate was 23%. Net cash provided by operating activities was 1.4 billion in the first quarter of 2026. Included in this amount was a 303 million unfavorable impact from working capital and 102 million of adjusted net cash provided by operating activities associated with the other joint venture member's share of dgd. Excluding these items, adjusted net cash provided by operating activities was 1.6 billion in the first quarter of 2026. Regarding investing activities, we made 448 million of capital investments in the first quarter of 2026, of which 404 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance and the balance flows 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 430 million in the first quarter of 2026. Moving to financing activities, we remain committed to our disciplined capital allocation framework. Shareholder cash returns totaled 938 million in the first quarter of 2026, resulting in a payout ratio of 59% for the quarter. And on January 22nd our board approved a 6% increase to the quarterly cash dividend reflecting a strong financial position and our commitment to a growing dividend. Turning to the balance sheet in March, we opportunistically issued 850 million of 10 year notes at a 5.15% coupon to de risk upcoming debt maturities later this year. The notes priced at a refining sector record low 10 year spread of 102 basis points over treasuries. At quarter end we had 9.2 billion of total debt, 2.3 billion of total finance lease obligations and 5.7 billion of cash and cash equivalents. Our debt to capitalization ratio net of cash and cash equivalents was 18% as of March 31, 2026. Our cash balance was higher at quarter end reflecting the opportunistic timing of the March debt issuance and our decision to move towards the high end of our long term 4 to 5 billion cash target to preserve optionality in a volatile market environment. Overall, we ended the quarter well capitalized while still honoring our commitment to shareholder returns. Turning to Guidance as we operate the Port Arthur refinery at reduced rates, we continue to assess the full extent of the damages and develop a plan for repairs. We expect the incident to result in additional capital expenditures in 2026, which should be covered by insurance subject to our applicable insurance deductibles. We'll update our 2026 capital investment guidance when we are able to provide a definitive cost estimate and expected repair timeline outside of Port Arthur. Our previous guidance regarding capital investments for sustaining the business and growth projects remains unchanged. Our growth projects are focused primarily on shorter cycle optimization investments that enhance crude and product optionality across our refining system as well as efficiency and rate expansion projects within our ethanol plants. Collectively, these projects should strengthen the earnings capacity of our existing asset base. For modeling our second quarter operations, we expect refining throughput volumes to fall within the following ranges. Gulf coast at 1.69 to 1.74 million barrels per day, reflecting reduced rates at Port Arthur Mid Continent at 450 to 470,000 barrels per day West coast at 120,000 to 130,000 barrels per day, reflecting the idling of Benicia and North Atlantic at 480,000 to 500,000 barrels per day. We expect refining cash operating expenses in the second quarter to be approximately $4.85 per barre. For the renewable diesel segment, we expect sales volumes of approximately 320 million gallons in the second quarter. Operating expenses should be $0.46 per gallon, including $0.22 per gallon for non cash costs such as depreciation and amortization. Our ethanol segment is expected to produce 4.7 million gallons per day in the second quarter. Operating expenses should average $0.39 per gallon, which includes $0.04 per gallon for non cash costs such as depreciation and amortization. For the second quarter, net interest expense should be about 145 million. Total depreciation and amortization expense in the second quarter should be approximately 730 million, which includes approximately 33 million of incremental depreciation expense related to our plan to idle the processing units and cease refining operations at our Benicia refinery completed this month. We expect incremental depreciation related to the Benicia refinery to be included in DNA through April the second quarter. Earnings impact of this incremental depreciation is expected to be approximately $0.09 per share based on current shares outstanding for 2026. We expect GNA expenses to be approximately 960 million.

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 again, that is Star one to register a question at this time. Today's first question is coming from Manav Gupta of ubs. Please go ahead.

Yeah, Manav, this is Gary. You know, despite the fact as you alluded to, that prices for transportation fuels are moving higher, it appears especially domestic demand appears to be very resilient. If you look at our wholesale volumes year over year, we do show a reduction in sales volumes in our system. However, this isn't really a reflection of demand, but it's a result of idling the Benicia refinery. And then we exited a position in the Boston market. So when we look at sales, we would say US Demand for gasoline is flat to slightly up. Diesel demand is up a little. And that seems to be consistent with what you're seeing in the DOE's data as well. With the DOE's data reflecting really increases in demand, both gasoline, diesel and jet. Really the big change in demand year over year is the pull into the export market. Since the conflict in Ukraine started, the recent DOE data shows Exports from the US are up 470,000 barrels a day, year over year. The pull into the export market is causing inventory to draw in the U.S. so relative to the five year average, total light product inventories in the U.S. have drawn 30 million barrels since January. Distilled inventory is at five year lows. Domestic demand remains strong for diesel with good agricultural demand as we started planting season. And then the freight indices are beginning to improve a little. And then the export demand for distillate especially jet, has been very strong with interest for us Gulf coast barrels from all over the world. As we approach driving season, Gasoline inventory now at the bottom of the five year average range. The transatlantic ARB to ship to PAD one from Europe is closed. Closed. Both domestic and export demand remain strong. The Jones act waiver is allowing US to supply PADD 1 and PADD 5 more efficiently from the US Gulf Coast. And I think as we approach driving season, VGO availability will start to become an issue. It doesn't appear there's sufficient VGO to fill both FCC and hydro cracking capacity. Current economics would favor hydro cracking which could reduce gasoline production moving forward. I think you have read a lot about global demand destruction since the straits have been closed. It really appears to us that this isn't really demand destruction. It's more insufficient supply to meet demand. Our expectations coming into the year was that new capacity additions along with more biorenewable fuels on the market would be sufficient to meet incremental demand. We thought supply demand balances would be similar to last year and then you start to see a tightening at the end of this year. But the conflict in Iran has really created a market with demand significantly outpacing supply. We had very little excess refining capacity globally, so it's going to be difficult to restock inventories even when the conflict is resolved.

Perfect. You kind of alluded to it, so I just want to confirm this. So look, as you look into the next at least six or nine months, you have some refiners like Valero can run as they wish and then there are some refiners, they may have a good kit somewhere globally, but they can't run because they don't have enough crude. I'm just trying to understand within your refining system, sir, are you able to source any crude that you're looking for and run all out if you want to?

Yeah. Manob, this is Randy and I think the short answer is yes. I mean most of our system is located kind of in the Mid continent and Gulf Coast. So you know, crude availability is really, really not much of an issue. I think as we've seen in the stats this week, the US has become a major exporter of crude and it's been amplified by the SPR release. So any exports out of the US have to overcome high freight and pretty steep backwardation. So I mean we're always kind of optimizing our crude slate in the Gulf coast and you know, this time kind of no different, just the volatility on price and freight have been more extreme than normal. You know, with the high freight costs, we have made some changes in our system by cutting back waterborne crudes running more pipeline. In addition more SPR volume that's on the market. We purchased more of that grade, just kind of optimizing against other crudes. And then since the start of January with the Venezuela sanctions removed, heavy discounts were already very advantage for our system. And we were already kind of pointing our refining system to run maximum heavy sour crude. You know, since the Iranian event started, you know, those trends have only continued. You know, Canadian heavy crude today is trading like a $16 discount versus TI in the Gulf. So, you know, the location of our system, you know, in the Gulf coast makes it a pretty advantaged backdrop there.

Yeah, thanks so much team. And again, really solid results. Not to focus too much on quarter to quarter stuff, but when you think about the second quarter indicators, they're already showing $30 on the Gulf coast versus Q1 levels which were $18. And it really harkens back to the second quarter of 2022 when and at that point your share count was kind of closer to $400 million. Today it's closer to $300 million. So maybe this is a question for Homer, but as we start thinking about modeling out Q2 here, any pluses and minuses that we should sort of be thinking about and anchoring to and anything about March profitability that can give us a sense of what Q2 could shape up like?

Yeah, Neil, I think if you look to the second quarter, definitely some headwinds and tailwinds. Certainly the steep backwardation in the crude market is a headwind in addition to the backwardation. When you see the physical markets disconnect from the futures, it's also difficult to see. It becomes very complex to look at what that's going to do to capture rates. But in terms of tailwinds, certainly the heavy sour discounts our system be able to maximize. Heavy sour crude is a tailwind. The premium regrade for jet fuel is a tailwind as well as premiums for secondary products. So a lot of pluses and minuses as we move into the second quarter.

Yeah. So to start with, I would say they are founded. JET is incredibly short. We've been trying to maximize JET in our system. Typically, if you look at JET as a percentage of total distillates, that's a number that averages about 26% in our system. In March, we got that up to over 30%. GATT is a percent of total distillates. In addition to that, we have a couple refineries that don't make jet Today that we're moving into jet production mode to try to increase jet yields even further as we go forward.

This quarter has highlighted the earnings volatility that refiners have faced. And the range of outcomes have been wide, in part due to different commercial and financial strategies. But despite operating in the same macro environment, your results appear to have been less volatile. And from your perspective, I'm curious as to what you think has enabled that. Does it reflect differences in crude sourcing, product placement or hedging strategies or something else structural in the business? And relatedly, this environment is also stress testing the balance sheets and leverage thresholds across the sector. You've chosen to maintain a relatively elevated cash position. To Homer's earlier point in the prepared remarks, how are you thinking about that capital strategy today, particularly as a buffer against the volatility?

Yeah, hey Theresa, it's Homer. I mean, let me start on the risk side and hedging specifically, you know, under normal market conditions, our approach can be more formulaic and process driven where we basically manage our exposure above or below LIFO with derivatives positions. But when we started seeing higher volatility in both crude and product markets, our team met frequently daily to review our positions. And we were just more proactive in managing our exposure. For example, we maintained our inventory positions much closer to lifo, so that reduced our overall exposure to derivatives and associated price swings. Right. And then in, in addition to that, that also ensures that you don't have a significant draw on cash for margin calls. And you can see that we had minimal impact on that through working capital. To your second point around cash, we did move our overall base cash position towards the high end of the 4 to 5 billion dollars minimum cash balance that we talked about. This is why we moved to a higher cash balance, really, after the pandemic, to ensure that our liquidity never ever comes into question. And while we didn't have a huge cash flow draw, hopefully this quarter highlights the value of a higher cash balance. So our cash balance coupled with our bank facilities, we ended the quarter with almost $11 billion of total liquidity. So we're really well positioned for whatever the rest of the year brings. The last thing I'll mention is you. You know, separately, we were also proactive, as I mentioned in the opening remarks, and we opportunistically pre financed our upcoming maturities for the balance of the year. So we saw an attractive window to derisk that part of the balance sheet. And we were able to do that at a record low spread. So, you know, we just try to be proactive on every financial aspect of our business, whether that's risk or balance sheet or shareholder returns.

Yeah, this is. Eric Homer did a great job explaining the risk management structure for DGD is a little bit different. And so the mark to market that we have on our forward feedstock positions will be a little bit of a headwind if we see the underlying commodities continue to rise like we did for the last month or so. So that being said, the RVO is a pretty strong tailwind. We see a lot of higher margins, certainly higher in 2Q than in 1Q and overall a better 26 versus 25.

Yeah, so I don't know that, you know, it'll change our approach to mid cycle margins. You know, we take a fairly conservative approach because of our distant approach around capital investment. We like to take a conservative mid cycle because we use it to justify the capital. But certainly it'll create a market that's very tight. I think even before the conflict started, our view was starting at the end of this year, global demand would outpace new refining capacity additions and we'd have several years of tightness that has brought that all forward. You know, with the situation that's happened. In our view, if you look at the lost total light product production that's happened since the Straits have closed, you know, it takes a minimum of at least three days to rebuild stock for every day that the Straits have been closed. So, you know, at this stage, you know, it's at least six months to a year to start restocking inventories back to where they were. There's just not a lot of excess refining capacity out there. And then as we move forward and global demand continues to grow, it makes that situation even tighter.

Yeah, so on March 23rd, we had a fire in the diesel hydrotreater at Port Arthur. The entire refinery was shut down as a precaution. All employees were accounted for. No refinery reportable injuries as a result of the incident. The investigation into the cause is ongoing, so I can't share too much around that. But our operations team did an excellent job getting the smaller crude units train back up early April along with a coker hydro crackers and the reformer and distillate hydrotreater. We're currently starting up the larger crude unit as we speak along with the FCC and Alki. So we would expect by May 1st that throughput looks fairly normalized. At the Port Arthur refinery. The diesel hydrotreater that experienced the fire along with an adjacent kerosene hydrotreater do remain down, which could negatively impact capture rates some in the second quarter. We expect to get the kerosene hydrotreater back by the third quarter. The diesel hydrotreater did sustain extensive damage. We don't have a timeline for the rebuild yet on that, but as Homer mentioned, the throughput guidance, all of that is reflected in our throughput guidance for the quarter.

Hi everyone. I think you might have just answered part of my question there. Thanks for having me on. I'm trying to understand what's going on with physical crude impact on capture rates. And if I can kind of walk through the thought process here. We saw Maya, we saw Pemex cut their K factor in half. We're seeing Dated Brent, obviously at big premiums. And now apparently a flotilla of tankers coming to The US Gulf coast, perhaps putting a bid under ti. So I'm just curious, when you look at your slate, how is the physical side of the crude market impacting the capture rate? And if I may, my follow up is specifically for Homer. You've got, Homer, you've got probably one of the best balance sheets, if not the best balance sheet in the sector, which means you don't have a lot of options for your surplus cash. My question is that your valuation today, if you sort of look at the implied free cash flow forever, not the windfall we have now, is north of $7 billion at a 10% discount rate. How do you think about your valuation in the context of what you do with that cash as it relates specifically to share buybacks?

Doug, I'll start on the crude side. I mean, for the most part, as Gary mentioned before, you know, part of the headwind on capture is on the backwardation it is in the market. You know, that steep backwardation. I mean it hit some highs last month at 11 to 14. It's into the $6 range now and has moved higher over the last couple days as a look kind of in the capture. I mean some of the grades are already included in the captured calculation. So it's already reflecting some of that movement in the capture calculation. But outside of that, I mean there's things that we're doing that's not captured in it. It's, you know, Venezuelan purchases since the January sanctions removal. We've meaningful ramped up Venezuela runs in our systems and all that done at better economics than our alternative on heavy tower. And as we touched on before, the heavy grades in the Gulf coast continue to look very, very attractive for our system.

Doug, hey, this is Homer. Thanks for comment on the balance sheet. But you know, I think your comment on annuitizing current margins, there's no doubt current margins are good, but as you can tell by our results, we put ourselves in a really good position to take advantage of that. Right. And we're not hanging our strategy on just the current margin environment. Obviously we continue to optimize and grow the business, but we're doing that with discipline around minimal return thresholds and we're using a longer mid cycle price set. As Gary highlighted earlier. We also continue to work hard to manage our costs and all this puts us in a great position for shareholder returns. And with respect to buybacks, I think you have to start by understanding that share repurchases are really an efficient and flexible means of returning excess cash to shareholders in the broader context of capital Allocation. Right. When you look at other uses of cash in our balance sheet and as you touched on, our balance sheet and cash position are in the best position that they've been for a very, very long time. And so you know, what we will do is our underlying commitments around balance sheet minimum cash and shareholders returns will not change. But we may move within the bounds we've laid out depending on the environment that we're in. And we clearly did that with respect to cash during the first quarter. You know, outside of that, our net debt to cap is still below our long term range, 20 to 30%. Right. And we've got plenty of coverage of other uses of cash. And so I think you'll continue to see us return excess free cash flow to shareholders through share reposition purchases. And you know, this approach has reduced our overall share count by 42% since 2014. And for what it's worth Doug, our return on buybacks is close to 20% over that time period. So buybacks do create perpetual value by reducing the share count. So I think you should expect us to continue to operate in that mode.

Thanks. Good morning. You mentioned earlier making some adjustments in the Gulf coast on the feedstock sourcing side and was just wondering if you could talk about any changes you've made specific to the North Atlantic region. You've dated Brent in the indicator, but I assume you can do a bit better here, especially at Quebec City and maybe also just touch on the export side too and how you're optimizing given market volatility and global demand for products.

Yeah, sure. Philip, this is Randy for Quebec. I mean it's mostly 100% North America crude slate. So it's taking barrels from Western Canada and from from the Gulf coast that tend to avoid some of the spikes that we saw in dated Brent kind of earlier in the month for Pembroke. I mean obviously we do have some volatility that we saw in the prompt dated that seems to have lined out as some of the initial panic buying was happening in the market and even got to the point where some people were reportedly cutting runs as dated spiked higher. You know, fortunately we've kind of avoided some of the peak numbers on some of the crude purchases. So you know, looking ahead it looks like, you know, our margin environment for Pembroke still looks favorable as we, as we move forward.

Yeah, this. Rich Walsh, you know what, what I would say is, you know, we've. We've had. There's been lots of conversations with the administration, and they're, you know, keenly, keenly aware of, you know, what they, you know, watching the, the prices out there. And they've already taken actions. You know, the. They gave a Jones act waiver real early on. That really helped out. And, you know, the reality is, you know, any kind of export ban actually just makes the situation way worse. And they're keenly aware of that already. You know, the US is, you know, long crude and long refining production. And so, you know, we are tethered to the world market. So it's important, you know, to make sure that we get optimized and provide. And this is a huge competitive advantage for the US as well. So I think the administration fully understands that. They're looking at all the options and tools that are out there, but we're not positioned like some other countries where they just don't have. They just don't have the resources that we have. And so I don't think those kinds of strategies really make sense for us. I think the administration is well aware of that, and I don't think there's any real meaningful potential for that to happen.

Yeah, hey, thanks for taking my questions. The first conflict at all, and really two conflicts that have resulted in pretty massive dislocations in the market change your way. You think about investment opportunities and how you run the business in the medium term. I know, for example, you talked about VGO shortage in the country, if that's an area that you could figure out some investment in to help close your own shortage or other opportunities such as that.

Hey, Jason, it's Elaine. You know, I think it is a good point. How I think about it, and of course we think about it, is the Ukrainian, Iran conflicts have really demonstrated, I would say, the resilience of North America, and largely due to just the fact that we have such a robust and oil and gas industry. It's really helped position us for the two conflicts that have occurred. And of course, we sit here in the Gulf coast, we have the most flexibility on crude feedstocks we can export anywhere in the world. So in terms of how we sort of think about our projects, we like to bucket them, right. And so the way I'm going to characterize it is we like projects that increase our commercial leverage. So if you think about your VGO question, that's a position that we want to get through our gating system to maybe position ourselves not to be so lenient or so dependent upon BGO imports. And so doesn't mean we're going to lose our discipline, but it means that we see that there's an issue that has been really pointed out with respect to these projects, this issue, the conflicts. And then we also obviously like reliability projects. The key to this is to be able to run through all these, you know, be able to move your assets around and run reliably through it. And then finally yields, you know, better yields, which is essentially the FCC project, we can upgrade to what we're making. We like that ethanol, which isn't, obviously you wouldn't think of it as being directly tied to this, but what you are seeing in the world is people are looking at, hey, can I blend more ethanol in the fuel mix? And so we have a positive view of the ethanol business. And so we, we have been investing in ethanol, same things, incremental growth and how, you know, how much we make yield improvements to increase the amount of ethanol. And again, there's this backdrop of improving carbon intensity and the renewable diesel. I don't know that it's so much dependent on what we've seen in the world. But obviously we have the SAF project hanging out there. We just want to see policy. Everything that happens in that space is very dependent on how policy works out and how it can sort of survive from administration to administration.

Great. That's a really helpful framework. Thanks. My follow up is just on the futures curves and specifically on futures cracks. And you know, I think the market broadly uses that to help price the refining stocks. But the reality is, based on conversations we've had, it seems like there's not so much liquidity on the back end of those curves. And thinking about your comment that it could take six to 12 months if Hormuz was open to today inventories, how do you think about where cracks are on futures in the second half of the year? Do you think we see a similar dynamic as during the Russia Ukraine war, where, you know, Cracks kind of in the back end trend higher through the year and end up higher than what was represented early in the year. Just any color around futures cracks will be helpful.

Yeah, so that is our view is we think the back end of the curve is undervalued. And I think, you know, a lot of it is. It's somewhat hindering trade flows that need to happen. The high freight rates along with steep backwardation are making markets that are really short and need product today. Looking to the future and thinking they're going to be able to buy that product at lower values in the future. And in reality, you know, the curve is just rolling up and we expect that to continue.

Thank you. Yeah, this is Eric. You know, Lane alluded to what we're seeing in ethanol demand globally. So as one of the largest exporters of ethanol, you're seeing a pull on ethanol. And so the underlying value is really, as the hydrocarbon prices have increased, so has the value of octane. And ethanol being an octane component, has now become the cheapest form of octane in the world. And so that is why you're seeing a lot of interest and you can use ethanol as a supplement just like it has in the US you see a lot of countries going from E0 to E10. Brazil is going from E30 to E32, India's going to E20 and talking about going higher than that. Everyone sees that ethanol is a cheaper form of liquid fuel. So you're seeing demand in ethanol. As far as PTC, what we booked in the first quarter was $0.10 a gallon on 10 of our plants, using the original definition of qualified sales. And so what we'll Ultimately, see, once the guidance is published, which hopefully is the end of this year, but it may not be until next year, is you'll get the next 10 to 20 cents across all our plants, across all our sales.

I don't know of any, but yeah, obviously, BGO is an issue. This is. Lane. I mean, we. If you think about how trade flow worked before all this started, Net VGO flowed from essentially Europe and the Middle east into the US to sort of satisfy the complexity. The FTCs and the hydro crackers here. I don't know that we see, you know, besides the jet, where it's just. Everybody knows about jet. We're talking about all these other intermediates. I don't know that at least in the United States, we see any other sort of structural issues in terms of intermediates.

Okay, that's great. And secondly, Lane, you've talked about in the past, I remember Joe certainly saying this, that when you look at your inventories over time, you kind of don't play inventories. It's almost more that you're just working operationally to optimize your performance. I had a question. Firstly, I assume that you're still doing that. And secondly, how do you see a situation where inventories deplete? I assume that the industry won't go to zero inventories. Right. So I was thinking, as we get these draws, when is the point at which I guess prices go a ton higher is the best guess.

Thanks. Hey, Paul. I'll tackle the first thing. So the answer is yes. I mean, I think it was. Homer earlier alluded to the fact we. We could see all this volatility in the commodity market. We were keenly aware that the tendency would be, for us, say, you have a refinery incident and crude oil inventories start creeping up above what we would consider to be our working inventories. We can get into where it puts a short paper. And so we worked very hard just to avoid the derivative volatility and work hard to make sure that we were operating around our working inventory, which is equals our LIFO inventories. In terms of the latter part of that question, yeah, it's very difficult for us to tell. I do think, as I alluded to before, with the steep backwardation that you see in the market, a lot of markets that are short product today are basically trying to live hand to mouth thinking that they'll be able to buy replacement barrels in the future at cheaper values. At some point in time they'll realize that they need the volume and I think you'll see a reaction in price, but at what inventory level that occurs, I don't really have any insight.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.