Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.30pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-0.10pp
Flat
Net-tone change vs last year's 10-K.
MD&A
-0.50pp
Lean -
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
litigation+5
incidents+3
adverse+2
expose+2
delay+2
Positive rising
able+2
enhance+2
opportunities+1
effective+1
greatly+1
Risk Factors (Item 1A)
9,827 words
ITEM 1A. RISK FACTORS
You should carefully consider the following risk factors in addition to the other information included in this report. Each of these risks could adversely affect our business, financial condition, results of operations, and/or liquidity, as well as, in certain cases, the value of an investment in our securities. Although the risks are organized by headings and each risk is discussed separately, many are interrelated.
BUSINESS, INDUSTRY, AND OPERATIONS RISKS
Our financial results are affected by volatile margins, which are dependent upon factors beyond our control, including the prices we pay to acquire feedstocks and the market prices at which we can sell our products.
Our financial results are affected by the margin (i.e., the difference) between our product prices and the prices for crude oil, corn, and other feedstocks that we purchase, which can vary greatly based on global and regional market conditions, as well as by type and class of product or feedstock. Historically, product margins have been volatile, and we believe they will continue to be volatile in the future. The prices we pay to acquire feedstocks and the market prices at which we can ultimately sell our products depend upon several factors, including global and regional supplies, inventory levels, and availability of and demand for feedstocks, liquid transportation fuels, and other products. These in turn depend on, among other things, global and regional production levels, or capacities of suppliers and competitors; operational costs and flexibility (including natural gas, electricity, and water availability and costs); transportation and logistics availability and costs; proximity and access to product and feedstock supplies and markets; economic activity and growth levels; U.S. and foreign relations (including tariffs, duties, sanctions, or other trade restrictions); political affairs; government regulations; and the events described in many of the other risk factors below. The ability of the members of the Organization of Petroleum Exporting Countries (OPEC) and other petroleum-producing nations that collectively make up OPEC+ to agree on and to maintain crude oil price and production controls has also had, and is likely to continue to have, a significant impact on the market prices of crude oil and certain of our products. Although several refinery have recently been announced or are in process and others are expected in the future, there have also been recent additions to global refining capacity, which create risks and uncertainties related to product margins, , and market perceptions of the refining industry. Regarding low-carbon fuels margins, see also, among other risk factors set forth below, “ The availability and prices of our feedstocks and other supplies us to risks, ” and “ We are subject to risks arising from the Renewable and Low-Carbon Fuel Programs, and other regulations, policies, international certifications, and standards impacting low-carbon fuels. ”
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
loss+23
impairment+15
liquidation+7
idle+4
cease+4
Positive rising
favorable+4
effective+4
strong+2
efficient+1
strength+1
MD&A (Item 7)
11,723 words
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is management’s perspective of our current financial condition and results of operations, and should be read in conjunction with “ITEM 1A. RISK FACTORS” and “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” included in this report. This discussion and analysis includes the years ended December 31, 2025 and 2024 and comparison between such years. The discussion for the year ended December 31, 2023 and comparison between the years ended December 31, 2024 and 2023 have been omitted from this annual report on Form 10-K for the year ended December 31, 2025, as such information can be found in “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” in our annual report on Form 10-K for the year ended December 31, 2024, which was filed on February 26, 2025.
CAUTIONARY STATEMENT FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report, including without limitation our disclosures below under “OVERVIEW AND OUTLOOK,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify our forward-looking statements by the words “anticipate,” “believe,” “expect,” “plan,” “intend,” “scheduled,” “estimate,” “project,” “projection,” “predict,” “budget,” “forecast,” “goal,” “guidance,” “target,” “could,” “would,” “should,” “may,” “strive,” “seek,” “pursue,” “potential,” “,” “aimed,” “considering,” “continue,” “evaluate,” and similar expressions.
Many of these factors are interrelated, beyond our control, can vary globally and regionally, and may change quickly, adding to market volatility, while others may have longer-term effects that are uncertain. We do not produce any of our primary feedstocks (other than DCOs produced by our ethanol plants), and must purchase nearly all of the feedstocks we process. We generally purchase our feedstocks long before we process them and sell the resulting products. Price level changes during the period between purchasing feedstocks and selling the resulting products have had, and could continue to have, a significant effect on our financial results. A decline in market prices for our products and feedstocks has also had, and could again have, a negative impact to the carrying value of our inventories. Factors outside of our control, such as economic, legal, regulatory, and political uncertainties; global geopolitical and other conflicts and tensions; inflation (and the potential for increased prices to reduce demand); prolonged periods of high interest rates; and public health crises (such as pandemics or epidemics) have negatively affected, and many such factors could continue to negatively affect, economic activity and growth levels of the U.S.
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and other countries. In turn, the demand for and consumption of our products, and also our revenues, margins, growth prospects, and capital allocation decisions have been and could again be negatively impacted.
A significant portion of our profitability is derived from the ability to purchase and process crude oil feedstocks that historically have been cheaper than benchmark crude oils. These crude oil feedstock differentials vary significantly depending on many factors, including global and regional economic conditions, trends and conditions within crude oil and refined petroleum products markets, and the events described above and in many of the other risk factors below . Previous declines in such differentials have had, and any future declines will likely again have, a negative impact on our results of operations.
We are subject to risks arising from the availability and prices of natural gas, electricity, and water.
Our operations depend on the reliable supply of natural gas, electricity, and water. We consume significant amounts of natural gas, electricity, and water to operate our refineries and plants, and the prices thereof can have a measurable effect on the total cost of our operations. Volatility in the prices for natural gas and electricity, in particular, is an ongoing risk to such costs. We also purchase other commodities whose prices may vary depending on the prices of natural gas, electricity, and water. The availability and prices of natural gas, electricity, and water have been, and could continue to be, affected by numerous events, such as (as applicable) government regulations or actions (including sanctions); rationing and curtailment; rate increases; weather (e.g., droughts, hurricanes, and periods of extreme heat or cold); logistics interruptions; electric grid outages; cybersecurity incidents; intermittent electricity generation (particularly from wind and solar); hostilities; terrorism; protests; human error; population and industry growth; infrastructure or supply mismanagement; and supply and demand imbalances.
For example, the real-time market structure of the largest grid operator in Texas exposes many of our refineries and operations located in Texas to “scarcity pricing” during periods of supply and demand imbalance. As electrification continues to grow, or if there are increased restrictions or costs imposed on the ability of utilities or power suppliers to utilize certain energy sources (such as through restrictions on, or other pressure not to use, fossil fuel or nuclear-generated electricity), there will likely be increased strains on and risks to the integrity, reliability, and resilience of electrical grids, and increased volatility and tightness in natural gas and electricity supplies across the world. These events could negatively affect the cost, reliability, and availability of our natural gas and electricity supplies and may cause sporadic outagesdisrupting our operations. Growing electrification and rapidly developing and increasing technology use (such as artificial intelligence (AI), computer processing, cryptocurrency mining, and cloud storage, as well as the data centers and power supplies required to support these activities) will also likely increase the intermittency and decrease the reliability of electricity supplies, particularly for grids highly dependent upon wind and solar power, which exacerbate the foregoing challenges, including by increasing costs. Government and private impediments and opposition to certain infrastructure projects (including pipelines) have also resulted in, and could continue to result in, the underinvestment in, or unavailability of, the infrastructure and logistics assets needed to transport and obtain natural gas, electricity, and water in a reliable and cost-efficient manner. We actively manage these risks through contracting and, in the case of natural gas and electricity, hedging, as appropriate, and by pursuing projects that reduce our reliance on third parties and fortify the resilience of our assets and supplies. However, increases in the prices for natural gas and electricity, and disruptions to our supplies thereof, have had, and could again have, a material adverse effect on our business, financial condition, results of operations, and liquidity. Certain of our refineries in Texas have also recently experienced various water supply challenges that remain ongoing to various degrees and in certain instances have resulted in, or are
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expected to result in, additional capital expenditures and/or ongoing costs. We could experience additional water supply challenges in the future.
The availability and prices of our feedstocks and other critical supplies expose us to risks.
We source our petroleum-based and low-carbon fuel feedstocks, as well as many other critical supplies, such as catalyst, chemicals, treating materials, and metal-based consumables, from suppliers throughout the world. We are, therefore, subject to the legal, political, geographic, and economic risks attendant to doing business with suppliers located in, and supplies originating from, different areas across the world. If one or more of our supply contracts were terminated, or if legal, government, political, or other developments (including global geopolitical and other conflicts and tensions) were to disrupt our traditional feedstock and other critical supplies, we believe that adequate alternative supplies would be available, but it is possible that we would be unable to obtain adequate or optimal alternative sources of supply, or would be able to do so only at unfavorable prices or costs. Our refineries and plants without access to waterborne deliveries or offtake must rely on rail, pipeline, or ground transportation and thus have been, and will likely continue to be, more susceptible to such risks. If we are unable to obtain adequate or optimal supplies, or are able to do so only at unfavorable prices or costs, our business, financial condition, results of operations, and liquidity could be materially and adversely affected, including from reduced product sales volumes, curtailed production, lower product margins, and higher operating costs. The U.S. and other governments can also prevent or restrict us from doing business involving other countries. U.S. and other government sanctions and actions by governments and private parties to refrain from purchasing or transporting crude oil and petroleum-based products from particular countries (such as Russia and Iran) have impacted, and may continue to impact, trade flows and our access to certain business opportunities. There is also ongoing uncertainty regarding the ultimate impacts of recent events involving Venezuela, including with respect to foreign trade and product margins, among others. Feedstock sourcing has also been the subject of scrutiny for certain crude oils we process, and shifting legislative, regulatory, and market sentiment regarding various sources of crude oil supply has previously resulted in adverse consequences with respect to our refineries, such as the denial or delay of permits to construct refinery projects that facilitate the processing of crude oil from particular sources. Similar events may occur in the future. Comparable scrutiny and shifting sentiment have occurred with respect to certain feedstocks for our low-carbon fuels business as described in the paragraph below and in the cross-reference therein.
The U.S. federal government under the current administration has also implemented and indicated the potential for new or revised tariffs, duties, sanctions, and other actions with respect to U.S. and foreign trade, manufacturing, and investment, and some foreign governments have in turn implemented or indicated the potential for similar responses impacting U.S. goods and/or foreign operations and business dealings of U.S. companies. While there continues to be a lack of certainty around the ongoing likelihood, timing, and details with respect to the continuation or future invalidation, expansion, revision, or implementation of such actions, as well as the impact of litigation and consequent court orders, such actions have in certain instances had, and could again have, an adverse effect on our ability to obtain optimal or adequate volumes of feedstocks and other critical supplies at favorable prices and costs. Our Refining and Ethanol segments have not been significantly impacted to date by recent U.S. tariffs and foreign duties. However, DGD’s foreign feedstock supplies have recently been impacted, and could continue to be impacted, by U.S. tariffs, as well as by many of the other developments discussed in “ We are subject to risks arising from the Renewable and Low-Carbon Fuel Programs, and other regulations, policies, international certifications, and standards impacting low-carbon fuels. ” The impacts thereof have been compounded by the fact that U.S.-produced renewable diesel and SAF have recently been subject to duties in several foreign jurisdictions, while similar duties have not been broadly applied to
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imports into the U.S. of foreign renewable diesel and SAF (as finished products), nor have foreign jurisdictions broadly levied tariffs similar to the U.S. on feedstocks that foreign renewable diesel and SAF producers may import and use to produce such products outside the U.S. These events have at times made DGD’s use of certain feedstocks (particularly foreign feedstocks) economically impractical, and resulted in reduced margins, curtailed production, and potentially reduced access to certain product markets due to competitive cost disadvantages, which have had, and could continue to have, an adverse impact on its and our business, financial condition, results of operations, and liquidity.
Our Ethanol segment relies on corn sourced from local farmers and commercial elevators in the Mid-Continent region of the U.S. and such supply is acutely exposed to the effects that weather and other environmental events in that region can have on the amount or timing of crop production. Crop production is also affected by government policies (such as farming subsidies and the Renewable and Low-Carbon Fuel Programs), and market events (such as changes in fertilizer prices and rail disruptions). Reductions or delays in crop production from these and other events could negatively impact the availability and price of corn for our Ethanol segment, and such events have occurred periodically.
We are subject to risks arising from our operations and business activities outside of the U.S.
We have operations and business activities, including marketing activities, outside of the U.S., particularly in Canada, the U.K., Ireland, Mexico, and Peru, and are subject to disruptions and developments in or otherwise affecting any of these markets, including due to actual or allegedviolations of laws or regulations (such as anti-bribery, anti-corruption, anti-money laundering, and foreign corrupt practices violations); expropriation or impoundment of assets; failure of foreign governments and state-owned entities to honor their contracts; differential treatment or goals of state-owned entities; property disputes; economic or political instability; currency exchange rates; restrictions on the transfer of funds; tariffs, duties, and sanctions; fees; taxes or penalties; transportation delays; import and export controls; price controls; labor unrest; security issues; government decisions (including designations with respect to terrorist organizations), orders, mandates, investigations, regulations, and issuances or revocations of permits and authorizations; global geopolitical and other conflicts and tensions; changing regulatory, judicial, and political environments (such as recent changes in Mexico’s federal judiciary, hydrocarbon laws and regulations, and procedures for challenging tax authority rulings); developments with respect to policies, standards, and incentives impacting low-carbon fuels; and other developments impacting foreign trade and related matters (including any de-globalized supply chains or the diversification of historic trade patterns). Such events could result in the halting, curtailing, or cessation of operations at impacted facilities; commercial restrictions; delay, denial, or cancellation of projects, permits, and authorizations; decreased access to important business foreign opportunities and more unreliable supply chains; and increased costs, liabilities, and burdens; among other adverse impacts, and could result in a material adverse effect on our business, financial condition, results of operations, and liquidity. Although we actively seek to manage these risks, we have experienced, and may again experience, certain of these events.
We are subject to risks arising from transportation and logistics disruptions and availability.
In addition to our own logistics assets, we use the services of third parties to transport feedstocks to our refineries and plants and to transport our products to market. If the ability of the logistics assets used to transport our feedstocks or products is disrupted, or there are increased prices or costs with respect thereto, whether because of labor issues; weather events; dock or port availability; water levels of key waterways for trade; pipeline, rail, trucking, or maritime disruptions; cybersecurity incidents; accidents; derailments; collisions; fires; explosions; natural catastrophes; spills; public health crises; terrorism; hostilities; rate increases; or other government or third-party actions (including protests and human error),
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it could have a material adverse effect on our business, financial condition, results of operations, and liquidity. Although we actively seek to manage these risks, we have experienced some of these events in the past and could experience additional events in the future.
Differences in competitors’ businesses or resources may at times provide them a competitive advantage.
The refining and marketing industry is highly competitive with respect to both feedstock supply and refined petroleum product markets. We compete with many companies for available supplies of crude oil and other feedstocks, as well as for third-party retail outlets for our petroleum-based products, and other customers. We do not produce any of our primary feedstocks (other than DCOs produced by our ethanol plants) and we do not have a company-owned retail network. Some of our competitors, however, obtain a significant portion of their feedstocks from company-owned crude oil production, have extensive networks of retail sites, have different revenue streams (such as from chemicals, midstream, or integrated operations), and operate in different regions. Such competitors are at times able to offset or avoid losses or decreased profitability from downstream operations, or in challenging regions, with such other operations, and may be better positioned to withstand periods of reduced product margins or feedstock disruptions. Some of our competitors also have materially greater financial and other resources than we have and may have a greater ability to respond to the inherent volatility of our industry.
We are subject to risks arising from an interruption in any of our refineries or plants.
Our refineries and plants are our principal operating assets and are subject to planned and unplanneddowntime and interruptions. Our operations could also be subject to significant interruption if any of our refineries or plants were to experience a major accident or mechanical failure; be damaged by severe weather and natural disasters/acts of nature (such as hurricanes, winter storms, and earthquakes); or man-made disruptions (such as cybersecurity incidents, terrorism, protests, or human error); or otherwise be forced to shut down or curtail operations. Any such interruption could materially and adversely affect our earnings (to the extent not recoverable through insurance) because of lost productivity and repair and other costs. Significant operational interruptions could also lead to increased volatility in the price of our feedstocks and many of our products. We have experienced some of these events in the past, and although we focus on maintaining safe, stable, and reliable operations, we may experience additional events in the future.
Our pursuit of capital and other strategic projects and actions exposes us to various risks.
We engage in capital and other strategic projects based on many factors, including the forecasted project economics; legal, regulatory, and political environments; the expected return on the capital to be deployed; and the anticipated impact to our future cash flows. Such projects can take many years to complete, during which time such environments or other market conditions may change from our forecast, as has recently occurred with certain low-carbon projects in our Renewable Diesel segment. Supply chain or other market or economic disruptions (including inflation) may also delay projects or increase the costs associated therewith. As a result, such projects may not be completed on schedule or budget, or at all, and may not achieve their expected returns, which could negatively impact our business, financial condition, results of operations, and liquidity.
In addition, challenges to or opposition of certain fossil fuel and infrastructure projects (including pipelines), as well as certain low-carbon projects (such as carbon sequestration and carbon capture and storage), continue to make the approval and completion of such projects more difficult and costly. Certain of these events have resulted in, and could again result in, the cancellation or restructuring of projects,
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costs and charges related thereto, a decreased market outlook, and/or impacts under our capital allocation framework.
We also regularly assess our facilities and operations in light of market dynamics and the regulatory environment and have taken, and may in the future take, strategic actions to optimize our portfolio of assets, including those described in Note 2 of Notes to Consolidated Financial Statements with respect to our operations in California. While we expect overall positive results from these strategic actions, there is no assurance that the anticipated benefits will materialize or continue. Unforeseendelays, costs, negative publicity, litigation, enforcement, and other difficulties may arise, including in adapting our other operations and fulfilling our contractual obligations, that negatively impact the actual results and execution of such strategic actions compared to our expectations. Such events could result in changes in our financial and accounting estimates and assumptions and adversely affect our business, financial condition, results of operations, and liquidity.
Our investments in joint ventures and other entities limit our ability to manage risk.
We conduct some of our operations through joint ventures in which we share control over certain economic, legal, and business interests with other joint venture members. We also conduct some of our operations through entities in which we have a minority or no equity ownership interest, such as the variable interest entities (VIEs) described in Note 12 of Notes to Consolidated Financial Statements. The other joint venture members and the third-party equity holders of the VIEs have certain economic, business, or legal interests, opportunities, or goals that are inconsistent with or different from our own, have different liquidity needs or financial condition characteristics than our own, are subject to different legal or contractual obligations than we are, and may be unable to meet their obligations, each of which exposes us to risks. For example, while we operate the DGD Plants and perform certain day-to-day operating and management functions for DGD, we do not have full control of every aspect of DGD’s business and certain significant decisions concerning DGD require approval from the other joint venture member, including acquiring or disposing of assets above a certain dollar threshold, making certain changes to its business plan, raising debt or equity capital, altering its distribution policy, and certain other transactions. While we consolidate certain VIEs, we do not have full control of every aspect of these VIEs, their debt or financing decisions that are reflected in our consolidated financial statements, or the actions taken by their third-party equity holders, some of which have affected, and could continue to affect, our business, legal position, financial condition, results of operations, and liquidity. Failure by us, an entity in which we have a joint venture interest, or the VIEs to adequately manage the risks associated with such entities, and any differences in views among us and such third parties, could prevent or delay actions we prefer to take; expose us to legal, regulatory, and reputational risks; and have a material adverse effect on our business, financial condition, results of operations, and liquidity.
Industry, market, and other developments could decrease the demand for our products.
A reduction in the demand for our products could result from events and trends such as increases in fuel efficiency, decreases in travel or fuel consumption levels, and a transition by consumers to alternative fuel vehicles, such as electric vehicles and hybrid vehicles, in each case, whether as a result of government mandates, incentives, or actions (including foreign dumping), industry developments, societal changes, or sentiment or perception with respect to our products, or fossil fuels and GHG emissions generally. New developments may alter consumer fuel or energy preferences or make alternative fuel vehicles more affordable or desirable, including improvements in battery and storage technology, increases in driving ranges, increased availability of charging stations and other infrastructure, expanded and more reliable supply chains, autonomous driving capabilities, improvements in hydrogen fuel cell technology, and other technological changes. Any such developments could increase consumer acceptance and result in greater
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market penetration of alternative fuel vehicles or otherwise decrease the demand for our products. There may also be new entrants into the low-carbon fuels industry or developments by current competitors that could meet the market’s demands in a more efficient or less costly manner than our technologies and products. Competition within the global ethanol industry also continues to grow. The demand for many of our low-carbon fuels may significantly decline without sufficient and continued government support and incentives therefor, and if our competitors are able to capture the benefits from such government support and incentives to a greater degree than we are it may place us at a competitive disadvantage. While we cannot currently predict the ultimate form, timing, or extent of these developments, any such event could materially and adversely affect our margins and sales volumes, and in turn our business, financial condition, results of operations, and liquidity.
We are subject to risks arising from climate- and other sustainability-related advocacy and pressure.
In recent years, a number of climate- and other sustainability-related advocacy groups, both in the U.S. and internationally, have campaigned for government and private action to promote various climate- and other sustainability-related disclosure frameworks, actions, and initiatives. As a result, we have faced, and may continue to face, pressure regarding our efforts and disclosures related to such matters (e.g., GHG emissions reductions/displacements and our methodologies and timelines with respect thereto), including through requests by potential counterparties for certain written declarations or representations, negative publicity, special-interest driven stockholder requests and voting, prescriptive proxy advisory firm and scoring agency expectations and policies, and demands for engagement.
The methodologies, standards, and requirements for tracking and reporting many climate- and other sustainability-related matters, such as GHG emissions, have not been standardized or harmonized, and many continue to evolve. Our interpretations of various reporting standards may also differ from those of others. As a result, our metrics, targets, and other disclosures with respect to such matters may not necessarily be calculated or presented in the same manner or be comparable to similarly titled measures presented by us in other contexts, or to disclosures by others. We believe that our disclosures and methodologies related to such matters reflect our business strategy and are reasonable at the time made or used. However, as our business, strategy, low-carbon projects, market and financial conditions, and/or applicable methodologies, standards, or requirements continue to develop and evolve, we may revise or cease reporting or using any or all such disclosures and methodologies if we determine that they are no longer appropriate, or we are otherwise required to do so. We may also be pressured or compelled to disclose information that may not be feasible or obtainable. Any actual or perceived failure by us with respect to our disclosures and actions on such matters, including a revision thereto, could cause reputational and commercial harm, and expose us to litigation or enforcement, among other negative impacts.
We may incur losses and additional costs as a result of our hedging transactions.
We currently use derivative instruments as described in Note 19 of Notes to Consolidated Financial Statements, and we expect to continue their use in the future. If the instruments we use to hedge our exposure to various risks are not effective or expose us to other unexpected events, we may incur losses or charges, and we have experienced such events in the past. We also have incurred, and may again incur, additional costs or charges related to changes in applicable regulations on such instruments.
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LEGAL, GOVERNMENT, AND REGULATORY RISKS
We are subject to risks arising from legal, regulatory, and political developments regarding climate- and environmental-related matters, or that are adverse to or restrict refining and marketing operations.
Certain government authorities across the world have, in recent years, imposed, announced, or considered various laws, regulations, policies, and actions designed to facilitate less petroleum-dependent modes of transportation, which could reduce demand for our petroleum-based products and/or all liquid transportation fuels. Such laws, regulations, policies, and actions have in certain instances included increases in fuel economy or efficiency standards; stricter tailpipe emissions standards; low-carbon fuel standards; restrictions and bans on vehicles using internal combustion engines; limitations on using certain petroleum-based products and biofuel feedstocks; and tariffs, duties, and incentives. Under the current administration in the U.S., a number of legal, regulatory, and political actions have been taken or proposed that have resulted in, or may result in, many of these laws, regulations, policies, and actions being modified, rescinded, invalidated, revoked, or eliminated, and others have been delayed or relaxed across the world. However, the ultimate timing and outcome of many such actions are currently unknown and are subject to uncertainty due to pending or future legal, regulatory, and political actions.
Certain U.S. state and local governments, foreign governments, and private parties across the world continue to pursue various efforts designed to either directly or indirectly facilitate less petroleum-dependent modes of transportation, or that are otherwise adverse to our industry, including actions and incentives to conserve energy or use renewable energy, as well as those efforts discussed in “ We are subject to risks arising from litigation, government action, and mandatory disclosure rules related to climate- and other sustainability-related matters, or aimed at the fossil fuel industry. ” Government authorities across the world have announced, imposed, or are considering (as applicable) taxes or penalties on fossil fuel companies for profits, windfalls, margins, or prices above a certain level, carbon border adjustments, fees, and other regulations that are adverse to or restrict refining and marketing operations, could increase costs, and limit profitability. For example, California’s Senate Bill No. 2 (such statute, together with any regulations contemplated or issued thereunder, SBx 1-2) and Assembly Bill No. 1 continue to present considerable uncertainty and risks for us. Mexico has also implemented an informal, nationwide retail price cap on regular gasoline that could be expanded to other fuels, or could become legally binding. These legal, regulatory, and political developments, as well as other similarly focused laws and regulations, such as the California, Quebec and other cap-and-trade programs; the U.K. Emissions Trading Scheme; the Renewable and Low-Carbon Fuel Programs; the South Coast Air Quality Management District’s Rule 1109.1 – Emissions of Oxides of Nitrogen from Petroleum Refineries and Related Operations; CARB’s Control Measure for Ocean-Going Vessels At Berth Rule and its Airborne Toxic Control Measure for Commercial Harbor Craft; reductions in the National Ambient Air Quality Standards; bans or restrictions on certain chemicals, feedstocks, products, or processes (such as hydrofluoric acid alkylation); and other laws and regulations concerning climate- and environmental-related matters (including GHG emissions), as well as health- and safety-related matters (such as industrial safety ordinances), have in certain instances resulted in, and are expected to continue to result in, increased costs and capital expenditures that impact our ability to effectively and profitably operate and maintain our facilities. These include things such as (i) restrictions on certain refinery operations, (ii) requirements to modify our operations or install new emissions controls or other equipment, and (iii) costs to administer our obligations under the Renewable and Low-Carbon Fuel Programs. Such risks remain particularly acute in California.
Many of these matters and developments are subject to considerable uncertainty due to a number of factors, including technological and economic feasibility, legal challenges, and changes in law,
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regulation, or policy, as noted above, and it is not currently possible to predict the ultimate effects thereof on us. However, such events could adversely restrict or affect our refining and marketing operations and limit our profitability; cause us to make changes to our business, strategy, operations, and assets, as well as our current financial and accounting estimates and assumptions; cause a reduction in demand for our products; and result in negative publicity, litigation, and enforcement, each of which could materially and adversely affect our business, financial condition, results of operations, and liquidity. See also Note 2 of Notes to Consolidated Financial Statements.
We are subject to risks arising from the Renewable and Low-Carbon Fuel Programs, and other regulations, policies, international certifications, and standards impacting low-carbon fuels.
As described under “ITEMS 1. and 2. BUSINESS AND PROPERTIES—OUR COMPREHENSIVE LIQUID FUELS STRATEGY— Regulations, Policies, and Standards Driving Low-Carbon Fuel Demand ,” we strategically market our low-carbon fuels based on regional policies, regulations, standards, feedstock preferences, CI scores, and our ability to obtain fuel pathways, credits, certifications, and incentives. A significant portion of our low-carbon fuels are sold in California, Canada, the U.K., and the European Union (EU).
Regarding the RFS, in June 2025, the EPA announced proposed rules (RFS Set II) that would, among other things, impose increased RVOs for 2026 and 2027, particularly with respect to biomass-based diesel, while also proposing to (i) reduce by 50 percent the number of RINs that may be generated for U.S. domestically produced renewable fuels made from foreign feedstocks, as well as for imports into the U.S. of finished renewable fuel; (ii) reduce the equivalency values for biomass-based diesel and renewable diesel produced through hydrogenation, which is used by DGD for renewable diesel and SAF production, resulting in fewer RINs generated for each gallon produced; and (iii) partially waive cellulosic biofuel volumes for 2025. In 2025, the EPA also issued decisions on hundreds of small refinery exemption (SRE) petitions that were pending, and granted full or partial exemptions on a majority of such petitions spanning RFS compliance years 2016-2024, which remain subject to ongoing litigation. As part of this action, the EPA also outlined a process for refineries granted SREs that had already retired RINs for compliance to have their RINs un-retired and returned. While RINs for compliance years prior to 2023 have expired and are expected to have little to no value, RINs for compliance years 2023 and thereafter can be used by small refineries granted SREs to update previous compliance filings, which is expected to allow up to approximately 20 percent per compliance year of a particular refinery’s RINs to be carried forward into subsequent years. In September 2025, the EPA also issued a supplemental notice of proposed rulemaking for the proposed 2026 and 2027 RFS Set II rules that co-proposes to reallocate to RFS obligated parties (such as us) either 100 percent or 50 percent of the SRE exempted volumes that were granted for 2023 and 2024, as well as those projected to be granted for 2025 as part of the ongoing RFS Set II rulemaking (which would increase our 2026-2027 RVO obligations even further). While the final RFS Set II rules have not been finalized, the EPA’s proposals present considerable risks that the final RFS Set II rules could require RVOs for 2026-2027 that are infeasible, significantly impact RIN prices and availability, and adversely impact both our Refining and Renewable Diesel segments. The EPA has indicated it intends to finalize these rules in the first quarter of 2026, but this may be further delayed and subject to litigation, which could also delay the 2025 RFS compliance deadlines and result in additional risks and uncertainty.
The risks and uncertainties with respect to the final RFS Set II rules are also interrelated with and compounded by U.S. tariffs impacting DGD’s foreign feedstock supplies and several other low-carbon fuels policies, standards, and incentives; and vice versa. For example, for fuel produced on or after January 1, 2026, the OBBB restricts eligibility for the clean fuel production credit to fuels that are derived
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exclusively from feedstock that was produced or grown in the U.S., Mexico, or Canada, and important guidance with respect to certain aspects of such credits has yet to be finalized. Additionally, in June 2025, California’s Office of Administrative Law approved an amendment to the LCFS that seeks to reduce the CI of California’s transportation fuel pool by 30 percent by 2030 and by 90 percent by 2045 and imposes a cap on the issuance of credits for biomass-based diesel produced from soybean, canola, or sunflower oil, limiting it to 20 percent of the total credits per producer or importer, updated the model used to calculate CI, and introduced more onerous sustainability criteria for crop-based biofuels. Certain Canadian provinces have also recently imposed requirements under their low-carbon fuels standards or programs that limit the amount of imported ethanol and renewable diesel that can be claimed under the programs, and similar protectionist measures are being considered at the federal level in Canada. Further, effective January 1, 2025, the U.K. imposed additional feedstock and reporting requirements impacting SAF compared to the “Refuel EU” requirements under the EU Renewable Energy Directive. The combined effects of each of the foregoing present considerable risks and uncertainties.
We are also exposed to the volatility in the market price of RINs, LCFS credits, and other credits, as described in Note 20 of Notes to Consolidated Financial Statements. We cannot predict the future prices of such credits, which depend upon numerous factors, including (as applicable) EPA and U.S. state regulations; other U.S. and foreign laws and regulations; the events discussed above with respect to DGD’s foreign feedstock supplies; the availability of such credits for purchase; transportation fuel production levels (which can vary significantly each quarter); approved CI pathways; and CI scores. The final RFS Set II rules, the ability to sell “E15” fuel year-round, and additional actions related to SREs will likely affect RIN prices, as discussed above. For example, if the RVOs for cellulosic biofuel are high relative to D3 RIN generation, RIN prices may rise, and the EPA may or may not issue cellulosic waiver credits in time to moderate price spikes, if at all. Future RVOs for biomass-based diesel also may not reflect the ongoing impacts of U.S. tariffs, the OBBB, the LCFS, and other low-carbon fuels policies, standards, and incentives on D4 RIN generation. If an insufficient number of RINs, LCFS credits, or other credits are available for purchase (or available only at unfavorable prices), or if we are otherwise unable to meet our obligations under the Renewable and Low-Carbon Fuel Programs , our business, financial condition, results of operations, and liquidity could be adversely affected. Similar events have occurred in the past and may occur again in the future.
The Renewable and Low-Carbon Fuel Programs and the U.S. federal tax incentives related to low-carbon fuels (such as the OBBB) are complex, can be subject to interpretative uncertainty, often have different or conflicting requirements or methodologies, and are frequently evolving, requiring us to periodically update our systems and controls for compliance, and imposing strains on company resources. In addition to regulation, many customers demand or prefer that the low-carbon fuels they purchase be certified through various voluntary certification bodies such as the International Sustainability and Carbon Certification system. While such certifications present business opportunities and can enhance product marketability, they also entail additional strains on company resources and risks from the loss or interruption of such certification, including decreased marketability of such products, as well as litigation and enforcement. These regulations, policies, and standards have a significant impact on the m arket prices of low-carbon fuel feedstocks and products, and in turn the margins on our low-carbon fuels. Our low-carbon fuels businesses could be materially and adversely affected if (i) such regulations, policies, and standards are adversely changed or interpreted, unavailable, or discontinued, including due to adverse changes in perceptions or sentiments regarding low-carbon fuels or the feedstocks used to produce them (e.g., “food vs. fuel” and concerns regarding international supply chains perceived as vulnerable to fraud); (ii) any of our low-carbon fuels products, or the feedstocks used in their production, do not comply therewith, or would result in reduced benefits or incentives thereunder, or (iii) we or an entity in our supply chain are unable to satisfy or maintain the conditions of any approved pathways or certifications
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thereunder, or under voluntary certifications. Such changes or developments could also negatively impact our low-carbon projects. Certain such events have occurred and may continue.
Applicable environmental, health, and safety laws and regulations expose us to various other risks.
Our operations are also subject to other extensive environmental, health, and safety laws and regulations by various levels of government authorities where we operate or have operated, including those relating to the release or discharge of materials into the environment, waste management, pollution prevention, air emissions, and characteristics and composition of fuels. Certain of these laws and regulations have in the past imposed, and could again impose, obligations on us to conduct assessment or remediation efforts at our current or formerly owned facilities or third-party sites where we have taken wastes for disposal or where our wastes may have migrated. The principal environmental risks associated with our operations are air emissions, waste handling, and releases into the soil, surface water, or groundwater. Such laws and regulations have also imposed, and may again impose, liability on us for our acts or omissions, or those of others, without regard to noncompliance, causation, contribution, negligence, or fault.
Because environmental, health, and safety laws and regulations have become more complex and stringent and new or revised laws and regulations are continuously being enacted or proposed, and are being interpreted and applied in evolving ways, the level of costs required for such matters has increased and may continue to increase. Additionally, many U.S. state and local regulatory agencies have been aggressive in the scope and frequency of, and the magnitude and type of the relief sought by, the enforcement and investigative actions they have pursued under applicable environmental, hea lth, and safety laws and regulations, particularly with respect to fossil fuel companies. This has been especially acute in California. Such enforcement and investigative actions, as well as threats thereof, have resulted in, and could continue to result in, increased costs, expenses, and negative publicity. In addition to U.S. regulations, there continue to be citizen suits seeking to enforce such laws and regulations and various U.S. state and local governments continue to focus on enforcement thereof. Despite our efforts to maintain safe and environmentally responsible operations, in certain instances we have faced, and may continue to face, changing regulatory interpretations, costs, and liability for personal injury, property, and natural resource damage; community impacts; and assessment and remediation costs due to actual or allegednoncompliance, emissions, pollution, discharges, and/or contamination. We are also exposed to potential liability and costs related to regulated chemicals and other regulat ed materials, such as various perfluorinated compounds, per- and polyfluoroalkyl substances, benzene, and petroleum hydrocarbons, at or from our current and formerly owned facilities, and new regulations with respect to certain such materials have recently been adopted or proposed by the EPA and certain U.S. states, and other laws and regulations may continue to arise. Such liabilities and costs could materially and adversely affect our business, financial condition, results of operations, and liquidity.
We are subject to risks arising from litigation, government action, and mandatory disclosure rules related to climate- and other sustainability-related matters, or aimed at the fossil fuel industry.
We could face increased climate‐related litigation with respect to our operations, disclosures, or products. Governments, non-governmental organizations, and private parties across the world have filed lawsuits or initiated regulatory action against fossil fuel companies. Such lawsuits and actions often allegenoncompliance with applicable laws or regulations, or personal injury or damages they attribute to perceived climate-related harms, and seek damages and/or abatement under various tort and other theories, including under consumer protection, human rights, or constitutional provisions. We have been named as a co-defendant in a lawsuit in state court by a county in Oregon seeking significant damages and abatement under various tort theories (including deceptive disclosures). We have also been named as a co-defendant in a federal class-action lawsuit in California allegingantitrust and consumer protection
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claims related to costs of complying with the LCFS. While we intend to vigorously defendagainst the allegations in those pending actions, the ultimate outcomes and impacts to us cannot be predicted with certainty at this time, we could incur substantial legal costs and reputational damage associated with defending such matters, and an adverse ruling could require us to pay significant damages. From time to time, we have also been subject to, and expect to continue to be subject to, other litigation related to environmental, health, and safety incidents or other accidents arising in the normal course of our operations. Our industry in particular has been subject to a rising number of lawsuits seeking substantial damage awards in such matters, which have been exacerbated by recent legal, judicial, and jury-related trends in certain jurisdictions where we operate. We have faced, and expect to continue to face, increased risks related to such matters and the outcome of pending or future claims for such matters could have a material adverse effect on our business, financial condition, results of operations, and liquidity. Governments and private parties are also increasingly filing lawsuits or initiating regulatory action based on allegations that certain public statements and disclosures by companies regarding climate- and other sustainability-related matters are false or misleading “greenwashing” that violatedeceptive trade practices, consumer protection statutes, or other similar laws and regulations, or are fraudulent or misleading under certain corporate or securities laws and regulations.
The states of New York and Vermont have also enacted legislation establishing various cost recovery programs designed to upgrade infrastructure and fund community initiatives they designate as purported climate mitigation investments, under which “responsible parties,” which the programs have deemed to include refiners and other fossil fuel companies, bear the costs on a strict liability basis, and other U.S. states have proposed or are considering similar legislation. Certain governmental authorities have also sought to attribute blame for certain perceived climate-related matters primarily to fossil fuel companies, and some are considering legislation that would create private causes of action making them strictly liable for damages incurred in certain natural catastrophes and weather events. These matters present a high degree of uncertainty, including due to legal viability, regarding the extent to which fossil fuel companies face an increased risk of liability and reputational damage stemming from alleged climate- and other sustainability-related matters. Various U.S. state and local governments have also proposed or are considering imposing taxes, fees, assessments, or tax abatement limitations on fossil fuel companies.
In addition to voluntary disclosures in response to investor and stakeholder requests discussed above, many governments have also proposed or adopted regulations that impose disclosure obligations with respect to various climate-related matters and other sustainability-related matters. In October 2023, California adopted a host of broad and far-reaching climate-related disclosure obligations, including with respect to GHG emissions, climate-related financial-risk reporting, and statements regarding GHG emissions reductions; and carbon offsets, certain of which are currently subject to ongoing litigation and potential delays, creating substantial uncertainty. New York also recently adopted certain GHG reporting requirements that are even broader in scope than California’s and require extremely burdensome (perhaps even infeasible) and detailed disclosures, including with respect to the quantity and type of fuel and feedstock related to such emissions. Other U.S. states have proposed or announced disclosure obligations with respect to climate-related matters. The U.K. has adopted and the EU has provisionally adopted certain burdensome disclosures related to various environmental, climate, social, supply chain, human rights, and other sustainability-related matters. In the EU, these include its Corporate Sustainability Reporting Directive (CSRD) and its Corporate Sustainability Due Diligence Directive (CSDDD), which also provides a private cause of action. Although the scope of CSRD and CSDDD have been simplified with provisional agreements by applicable governance bodies within the EU, endorsement and formal adoption are still pending. Further, the scope and extent to which the CSRD and the CSDDD will require any extraterritorial disclosure obligations on non-EU parent companies remains unknown and presents considerable uncertainty for many companies, including us. Some governments have also adopted laws
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and regulations, or have launched investigations and requested information, based on pricing practices in the fossil fuel industry, which we have been and may again be subject to. For example, California’s Oil Refinery Cost Disclosure Act (SB 1322) requires refineries in California to report monthly on the volume and cost of the crude oil they buy, the quantity and price of the wholesale gasoline they sell, and the gross gasoline margin per barrel, among other information. Some governments and other third parties we do business with have also begun requesting product-specific climate-related disclosures from us in connection with their own reporting. At the same time, in September 2025, the EPA proposed to effectively cease its Greenhouse Gas Reporting Program, which presents uncertainties with respect to future climate-related reporting methodologies that are utilized. Our efforts to comply with these laws, regulations, and requests impose a strain on company resources and expose us to risk by requiring disclosure of information that (i) may be protected trade secrets and/or competitively sensitive; (ii) exposes us to litigation and enforcement; (iii) may be inconsistent with other standards or requirements that are subject to ongoing change and uncertainty, or our current practices that may utilize different methodologies or standards; (iv) is subject to many assumptions and inherent calculation difficulties, such as accuracy, completeness, and dependence on third parties; (v) may be perceived in ways that adversely impact our business relationships, credibility, and reputation; and (vi) may be infeasible to obtain or report. The costs, burdens, and risks imposed by the foregoing may cause us to alter our business and operations in certain locations.
We are subject to risks arising from compliance with and changes in tax laws.
We are subject to extensive tax liabilities imposed by multiple jurisdictions, including income taxes; indirect taxes (e.g., excise, duty, sales, use, gross receipts, and value-added taxes); and payroll, franchise, withholding, and ad valorem taxes. New and revised tax laws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities in the future. For example, the OBBB contains significant changes to U.S. tax law. Many of these tax liabilities are subject to periodic audits by the respective taxing authorities. Although we believe we have used reasonable interpretations and assumptions in calculating our tax liabilities, the final determination of these tax audits and any related proceedings cannot be predicted with certainty. Any adverse outcome of any of such tax audits or related proceedings could result in unforeseen tax-related liabilities that may, individually or in the aggregate, materially affect our cash tax liabilities, or create issues with respect to certain of our business permits, authorizations, and registrations, and, as a result, our business, financial condition, results of operations, and liquidity. Tax rates in the various jurisdictions in which we operate may change significantly as a result of political or economic factors beyond our control. It is also possible that future changes to tax laws or tax treaties (including the global minimum tax), or interpretations thereof, could impact our ability to realize the tax savings recorded to date and adversely affect our future effective tax rates. See also Note 15 of Notes to Consolidated Financial Statements.
CYBERSECURITY AND PRIVACY RELATED RISKS
We are subject to risks arising from a significant breach of our information systems.
Our information systems and network infrastructure have been and continue to be subject to frequent unauthorized access attempts and other cyber attacks, including ransom-related incidents, which could result in increased costs to detect, prevent, respond to, and mitigate these threats. Such efforts include, among others, deploying additional personnel and protection technologies, training employees, and engaging third-party experts and consultants. These attacks could also result in (i) a loss of intellectual property, proprietary information, or employee, customer, vendor, or supplier data; (ii) public disclosure of sensitive information; (iii) systems interruption; (iv) disruption of our business operations; (v) remediation costs and repairs of system damage; (vi) reputational damage that adversely affects
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customer, supplier, or investor confidence; and (vii) damage to our business and competitiveness. AI may also be leveraged by threat actors to enhance the volume and sophistication of their attacks. A breach could also originate from or compromise our customers’, vendors’, suppliers’, or other third-party networks outside of our control that could impact our business and operations, as occurred with the Colonial Pipeline cybersecurity incident in May 2021. Our vendors and suppliers are also increasingly using and offering platforms powered by AI. Although we implement internal controls on the connectivity of third parties to our systems that attempt to prevent or mitigate the impact from incidents affecting third-party systems, we have limited control over ensuring that third parties themselves are consistently enforcing strong controls over their systems. Increased risks of such attacks and disruptions also exist because of global geopolitical and other conflicts and tensions. A breach may also result in legal claims or proceedings against us by our stockholders, employees, customers, vendors, suppliers, and government authorities. There can be no assurance that our current or future infrastructure protection technologies and disaster recovery plans can prevent or mitigate such breaches, cyber- and ransom-related incidents, or systems failures, any of which could have a material adverse effect on our business, financial condition, results of operations, and liquidity. The continuing and evolving threat of cybersecurity incidents (including through AI) has resulted in increased regulatory focus on prevention and disclosure, such as the directive issued by the U.S. Transportation Security Administration following the Colonial Pipeline cybersecurity incident, the obligations imposed by the U.S. Cyber Incident Reporting for Critical Infrastructure Act . We have been, and may continue to be, required to expend significant resources to comply with such laws and regulations, and otherwise be exposed to litigation and enforcement related thereto. See “ ITEM 1C. CYBERSECURITY ” for additional information on such matters.
Data privacy and security issues expose us to increased liability and operational changes and costs.
Along with our own data and information in the normal course of our business, we collect and retain certain data that is subject to specific laws and regulations. The compliant processing of this data domestically and transferring of this data across international borders continue to increase in complexity, which has, and will likely continue, to impose increased efforts and costs on company resources for compliance functions related thereto. This data is subject to regulation at various levels of government in many areas of our business and in jurisdictions across the world, including data privacy and security laws such as the EU General Data Protection Regulation, the U.K. Data Protection Act 2018, Quebec’s Bill 64, the California Consumer Privacy Act, as amended by the California Privacy Rights Act, and various other comprehensive privacy laws passed by other U.S. states. We also operate in other jurisdictions with comprehensive data privacy laws and regulations (such as Mexico and Peru), and other jurisdictions are considering issuing similar laws and regulations. The U.S. Federal Trade Commission has also adopted rules requiring the reporting of certain data breaches. As the implementation, interpretation, and enforcement of such laws continues to progress and evolve, there may also be developments that amplify such risks. Any failure by us to comply with these laws and regulations could expose us to litigation and enforcement. The growing sophistication and implementation of advanced AI technologies also increases the risks we face related to data privacy and security.
GENERAL RISK FACTORS
Uncertainty and illiquidity in financial markets, or changes in our credit profile or ratings, can adversely affect our ability to obtain credit and capital, increase our costs, and limit our flexibility.
Our ability to obtain credit and capital depends in large measure on capital markets and liquidity factors that we do not control. Our ability to access credit and capital markets may be restricted at a time when we would like, or need, to access those markets, which could have an impact on our flexibility to react to changing economic and business conditions. In addition, the cost and availability of debt and equity
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financing or commercial arrangements may be adversely impacted by prolonged periods of high interest rates, inflation, unstable or illiquid financial market conditions, or adverse changes in our credit profile or to our credit ratings. These factors could adversely impact and limit our ability to obtain favorable credit and financing, raise our cost of capital, or require us to provide collateral or other forms of security, which would increase our costs and restrict our operational and financial flexibility. Unstable or illiquid financial market conditions and periods of prolonged high interest rates could also negatively impact our pension plans’ assets and funding requirements. From time to time, we may also need to supplement our cash generated from operations with proceeds from financing activities or obtain letters of credit in certain transactions. In addition, we rely on the counterparties to our commercial agreements and commodity hedging and derivative instruments to fulfill their obligations thereunder. Uncertainty and illiquidity in financial markets and periods of prolonged high interest rates could have an adverse impact on the costs or availability of the financial and commercial arrangements provided by such parties, which could have a material adverse effect on our business, financial condition, results of operations, and liquidity.
We do not maintain insurance coverage that fully protects against all potential losses and liabilities.
We are subject to various hazards and other incidents common to the industry, including explosions, fires, toxic emissions, transportation hazards, severe weather events, and natural disasters/acts of nature (including, in certain locations, earthquakes), among others. While we maintain insurance coverage in amounts and types that we believe are prudent, such coverage protects against some, but not all, potential losses and liabilities arising from such hazards and incidents, and we have experienced, and may again experience, certain uninsured or self-insured events related thereto. Market, industry, and other developments have also caused, and may again cause, adverse changes in the costs, terms, and availability of certain amounts or types of coverage. If we incur a significant loss or liability that is not adequately insured, it could have a material adverse effect on our business, financial condition, results of operations, and liquidity.
We are exposed to risks arising from various labor-related matters.
Certain employees at five of our U.S. refineries, our Canada and U.K. refineries, and our terminal in Montreal, are covered by collective bargaining or similar agreements, which generally have unique and independent expiration dates. Workers at any of our facilities that are not currently represented by a union or covered by similar agreements could vote for such representation or coverage in the future. To the extent we are in negotiations for labor agreements at any time, there is no assurance an agreement will be reached without a strike, lockout, work stoppage, or other labor action or disruption, and such events have occurred for certain periods in the past, and may occur again in the future. Any such prolonged event at our facilities or otherwise impacting our operations could have an adverse effect on our business, financial condition, results of operations, and liquidity. Labor-related laws and regulations have in certain instances also resulted in, and may again result in, reduced labor availability and higher costs. Our business could also be negatively impacted if we are unable to recruit, train, and retain adequate personnel, including those with key skills or knowledge. Inflation has also caused, and may in the future cause, increases in employee-related costs.
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opportunity
These forward-looking statements include, among other things, statements regarding:
• the effect, impact, potential duration or timing, or other implications of global geopolitical and other conflicts and tensions, and government and other responses thereto;
• future Refining segment margins, including gasoline and distillate margins, and differentials;
• future Renewable Diesel segment margins;
• future Ethanol segment margins;
• expectations regarding feedstock costs, including crude oil differentials, product prices for each of our segments, transportation costs, and operating expenses (including natural gas, electricity, and water availability and prices);
• anticipated levels of crude oil and liquid transportation fuel inventories, storage capacity, and production;
• expectations with respect to third-party refining, logistics, and low-carbon fuels projects and operations, and the effect and implications thereof on industry and market dynamics;
• expectations regarding the levels of, and costs and timing with respect to, the production and operations at our existing refineries and plants, projects under evaluation, construction, or development, and former projects;
• our plans, actions, assets, and operations in California and expected timing and cost of obligations and other financial statement impacts;
• our anticipated level of capital investments, including deferred turnaround and catalyst cost expenditures, our expected allocation between, and/or within, growth capital expenditures and sustaining capital expenditures, capital expenditures for environmental and other purposes, and
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joint venture investments, the expected costs and timing applicable to such capital investments and any related projects, and the effect of those capital investments on our business, financial condition, results of operations, and liquidity;
• our anticipated level of cash distributions or contributions, such as our dividend payment rate and contributions to our pension plans and other postretirement benefit plans;
• our ability to meet future cash and credit requirements, whether from funds generated from our operations or our ability to access financial markets effectively, and expectations regarding our liquidity;
• our evaluation of, and expectations regarding, any future activity under our share purchase program or transactions involving our debt securities;
• anticipated trends in the supply of, and demand for, crude oil and other feedstocks, refined petroleum products, renewable diesel, SAF, ethanol, and corn-related co-products in the regions where we operate, as well as globally;
• expectations regarding environmental, tax, and other regulatory matters, including the matters discussed in Notes 2 and 15 of Notes to Consolidated Financial Statements and under “ITEM 3. LEGAL PROCEEDINGS,” the anticipated amounts and timing of payment with respect to our deferred tax liabilities, unrecognized tax benefits, matters impacting our ability to repatriate cash held by our foreign subsidiaries, and the anticipated or potential effects thereof on our business, financial condition, results of operations, and liquidity;
• the effect of general economic and other conditions, including inflation and economic activity levels, on refining, renewable diesel, SAF, and ethanol industry fundamentals, as well as our capital allocation;
• expectations regarding our risk management activities, including the anticipated effects of our hedge transactions;
• expectations regarding our counterparties and VIEs, including our ability to pass on increased compliance costs and timely collect receivables, and the credit risk within our accounts receivable or accounts payable;
• expectations regarding adoptions of new, or changes to existing, low-carbon fuel regulations, policies, and standards issued by governments across the world to address GHG emissions and the percentage of low-carbon fuels in the transportation fuel mix, including, but not limited to, the Renewable and Low-Carbon Fuel Programs, blending and tax credits, efficiency standards, or other benefits or incentives that impact the demand for low-carbon fuels; and
• expectations regarding our low-carbon fuels strategy, publicly disclosed GHG emissions reductions/displacements target, and our current, former, and any future low-carbon projects.
We based our forward-looking statements on our current expectations, estimates, and projections about ourselves, current and potential counterparties, our industry, and the global economy and financial markets generally. We caution that these statements are not guarantees of future performance or results and involve known and unknown risks and uncertainties, the ultimate outcomes of which we cannot predict with certainty. In addition, we based many of these forward-looking statements on assumptions about future events, the ultimate outcomes of which we cannot predict with certainty and which may prove to be inaccurate. Accordingly, actual performance or results may differ materially from the future performance or results that we have expressed, suggested, or forecast in the forward-looking statements. Differences between actual performance or results and any future performance or results expressed, suggested, or forecast in these forward-looking statements could result from a variety of factors, including the following:
• the effects arising out of global geopolitical and other conflicts and tensions, including with respect to changes in trade flows and impacts to crude oil and other markets;
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• demand for, and supplies of, refined petroleum products (such as gasoline, diesel, jet fuel, and petrochemicals), renewable diesel, SAF, ethanol, and corn-related co-products;
• demand for, and supplies of, crude oil and other feedstocks, as well as other critical materials and supplies;
• the effects of public health threats, pandemics, and epidemics, governmental and societal responses thereto, and the adverse impacts of the foregoing on our business, financial condition, results of operations, and liquidity, and the global economy and financial markets generally;
• acts of terrorism or other third-party actions affecting either our refineries and plants or third-party facilities that could impair our ability to produce or transport refined petroleum products, renewable diesel, SAF, ethanol, or corn-related co-products, to receive feedstocks, or otherwise operate efficiently;
• the effects of war or hostilities, and political and economic conditions, in countries that produce crude oil or other feedstocks or consume refined petroleum products, renewable diesel, SAF, ethanol, or corn-related co-products;
• the ability of the members of OPEC, and other petroleum-producing nations that collectively make up OPEC+ , to agree on and to maintain crude oil price and production controls;
• the level of consumer demand, consumption, and overall economic activity, including the effects from seasonal fluctuations and market prices;
• refinery, renewable diesel plant, or ethanol plant overcapacity or undercapacity;
• the risk that any transactions or capital decisions may not provide the anticipated benefits or may result in unforeseendetriments;
• the actions taken by competitors, including both pricing and adjustments to refining capacity or low-carbon fuels production, as well as changes in the geographic markets where they operate, in response to market conditions;
• the level of competitors’ imports into markets that we supply;
• accidents, unscheduledshutdowns, weather events, civil unrest, expropriation of assets, and other economic, diplomatic, legislative, societal, or political events or developments, terrorism, cyberattacks, or other catastrophes or disruptions affecting our operations, production facilities, machinery, pipelines and other logistics assets, equipment, or information systems, or any of the foregoing of our suppliers, customers, or third-party service providers;
• changes in the cost or availability of transportation or storage capacity for feedstocks and our products;
• pressure and influence of environmental groups and other stakeholders upon policies and decisions related to the production, transportation, storage, refining, processing, marketing, and sales of crude oil or other feedstocks, refined petroleum products, renewable diesel, SAF, ethanol, or corn-related co-products;
• the price, availability, technology related to, and acceptance of alternative fuels and alternative-fuel vehicles, as well as sentiment and perceptions with respect to low-carbon projects and GHG emissions more generally;
• the levels of government subsidies for, and executive orders, mandates, or other policies with respect to, alternative fuels, alternative-fuel vehicles, and other low-carbon technologies or initiatives, including those related to carbon sequestration, carbon capture and storage, and low-carbon fuels, or affecting the price of natural gas, electricity, and/or water;
• the volatility in the market price of compliance credits (primarily RINs needed to comply with the RFS) under the Renewable and Low-Carbon Fuel Programs;
• delay of, cancellation of, or failure to implement planned capital or other strategic projects and realize the various assumptions and benefits projected for such projects or cost overruns in executing such planned projects;
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• natural disasters/acts of nature and severe weather events, such as earthquakes, storms, hurricanes, droughts, floods, wildfires, and other similar events, which can unforeseeably affect the price or availability of electricity, natural gas, crude oil, waste and renewable feedstocks, corn, and other feedstocks, critical supplies, refined petroleum products, renewable diesel, SAF, ethanol, and corn-related co-products;
• rulings, judgments, or settlements in litigation or other legal or regulatory matters, such as unexpected environmental remediation or enforcement costs, including those in excess of any reserves or insurance coverage;
• legislative or regulatory action, including the introduction or enactment of legislation or rulemakings by government authorities, environmental regulations, changes to income tax rates, profits, procedures, windfall, margin, or other taxes or penalties, tax changes or restrictions impacting the foreign repatriation of cash, actions implemented under SBx 1-2 and related regulation, actions implemented under the Renewable and Low-Carbon Fuel Programs, including changes to volume requirements or other obligations or exemptions under the RFS, and actions arising from the EPA’s or other government agencies’ regulations, policies, or initiatives concerning GHGs, including mandates for or bans of specific technology, which may adversely affect our business, financial condition, results of operations, and liquidity;
• changing economic, regulatory, and political environments and related events in the various countries in which we operate or otherwise do business, including tariffs, duties, and other trade restrictions, de-globalized supply chains or the diversification of historic trade patterns, expropriation or impoundment of assets, failure of foreign governments and state-owned entities to honor their contracts, property disputes, economic instability, restrictions on the transfer of funds, duties and tariffs and their effects on trading relationships, transportation delays, import and export controls, labor unrest, security issues involving key personnel, and decisions, investigations, regulations, issuances or revocations of permits and other authorizations, government shutdowns, and other actions, policies, and initiatives by federal, state, local, and other jurisdictions applicable to us;
• changes in the credit ratings assigned to our debt securities and trade credit;
• the operating, financing, and distribution decisions of our joint ventures, other joint venture members, and other consolidated VIEs that we do not control;
• changes in currency exchange rates, including the value of the Canadian dollar, the pound sterling, the euro, the Mexican peso, and the Peruvian sol relative to the U.S. dollar;
• the adequacy of capital resources and liquidity, including availability, timing, and amounts of cash flow or our ability to borrow or access financial markets;
• the costs, disruption, and diversion of resources associated with lawsuits, proceedings, demands, or investigations, or campaigns and negative publicity commenced by government authorities, investors, stakeholders, or other interested parties;
• overall economic conditions, including the stability and liquidity of financial markets, and the effect thereof on consumer demand; and
• other factors generally described in the “RISK FACTORS” section included in “ITEM 1A. RISK FACTORS” in this report.
Any one of these factors, or a combination of these factors, could materially affect our future business, financial condition, results of operations, and liquidity and whether any forward-looking statements ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and actual results and future performance may differ materially from those expressed, suggested, or forecast in any forward-looking statements. Such forward-looking statements speak only as of the date of this annual report on Form 10-K and we do not intend to update these statements unless we are required by applicable securities laws to do so.
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All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing, as it may be updated or modified by our future filings with the SEC. We undertake no obligation to publicly release any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events unless we are required by applicable securities laws to do so.
NON-GAAP FINANCIAL MEASURES
The following discussions in “OVERVIEW AND OUTLOOK,” “RESULTS OF OPERATIONS,” and “LIQUIDITY AND CAPITAL RESOURCES” include references to financial measures that are not defined under U.S. generally accepted accounting principles (GAAP). These non-GAAP financial measures include Refining, Renewable Diesel, and Ethanol segment margin; adjusted operating income (including adjusted operating income for each of our reportable segments, as applicable); Refining segment adjusted operating expenses (excluding depreciation and amortization expense); and capital investments attributable to Valero. We have included these non-GAAP financial measures to help facilitate the comparison of operating results between years, to help assess our cash flows, and because we believe they provide useful information as discussed further below. Refer to the tables in note (f), beginning on page 53 , for the reconciliations of Refining, Renewable Diesel, and Ethanol segment margin; adjusted operating income (including adjusted operating income for each of our reportable segments, as applicable); and adjusted Refining operating expenses (excluding depreciation and amortization expense) to their most directly comparable GAAP financial measures. Also in note (f), we disclose the reasons why we believe our use of such non-GAAP financial measures provides useful information. See the table on page 61 for a reconciliation of capital investments attributable to Valero to its most directly comparable GAAP financial measure, and also on page 61 , we disclose the reasons why we believe our use of this non-GAAP financial measure provides useful information.
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OVERVIEW AND OUTLOOK
Overview
Business Operations Update
Our results for the year ended December 31, 2025 were supported by strong worldwide demand for petroleum-based transportation fuels, while worldwide supply of those products remained constrained. However, our results were also impacted by the asset impairmentloss of $1.1 billion ($877 million after taxes) associated with our operations in California, as described in Note 2 of Notes to Consolidated Financial Statements.
Our results, particularly for our Renewable Diesel segment, were also negatively impacted by trade and other policy changes during 2025. For instance, the U.S. federal government implemented new or revised tariffs, duties, and other actions with respect to U.S. and foreign trade, manufacturing, and investment that impacted our business operations during 2025. Although energy commodities, including crude oil and refined petroleum products, are generally exempt from the recently effective U.S. tariffs, our Renewable Diesel segment was subject to new tariffs on renewable feedstocks imported into the U.S. These tariffs have at times made the use of certain feedstocks, particularly foreign-sourced feedstocks, economically impractical and resulted in reduced margins. We have taken actions to mitigate the impact of tariffs and duties on our business, including utilizing established free-trade zones, adjusting our feedstock slates, and optimizing our supply chain. Also, a significant portion of the new tariffs and existing duties we incurred are eligible for recovery through duty drawbackclaims, and we have implemented processes that allow us to file such claims in an efficient and timely manner.
In addition, effective January 1, 2025, the blender’s tax credit, which offered a tax incentive of $1.00 per gallon to blenders of certain renewable fuels, was replaced by the clean fuel production credit. The clean fuel production credit is a tax credit available for qualifying sales of certain low-carbon transportation fuels produced in the U.S. and the value of the credit is dependent on the CI of the fuel, among other factors. The transition to the clean fuel production credit has resulted in fewer volumes being eligible for a tax credit as well as lower credit values for fuels that were previously incentivized under the blender’s tax credit, which had a negative impact on our Renewable Diesel segment margins.
For a discussion on the risks and uncertainties with respect to trade and other policy matters discussed above, see “ITEM 1A. RISK FACTORS—BUSINESS, INDUSTRY, AND OPERATIONS RISKS— The availability and prices of our feedstocks and other critical supplies expose us to risks .”
For the year ended December 31, 2025, we reported $2.3 billion of net income attributable to Valero stockholders driven by strong demand for our products and continued strength in refining margins. Our operating results for 2025, including operating results by segment, are described in the summary on the following page, and detailed descriptions can be found under “RESULTS OF OPERATIONS” beginning on page 46 .
Our operations generated $5.8 billion of cash in 2025. Also, we issued $650 million of 5.150 percent Senior Notes due February 15, 2030 during 2025, as described in Note 9 of Notes to Consolidated Financial Statements. The cash generated by our operations, along with the net proceeds from our debt issuance, was used to make $1.9 billion of capital investments in our business, return $4.0 billion to our stockholders through purchases of common stock for treasury and dividend payments, and repay $440 million of our public debt that matured in 2025. As a result of this and other activity during the year, our cash, cash equivalents, and restricted cash increased by $36 million to $4.9 billion as of December 31, 2025. We had $9.8 billion in liquidity as of December 31, 2025. The components of our liquidity and
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descriptions of our cash flows, capital investments, and other matters impacting our liquidity and capital resources can be found under “LIQUIDITY AND CAPITAL RESOURCES” beginning on page 57 .
Results for the Year Ended December 31, 2025
For 2025, we reported net income attributable to Valero stockholders of $2.3 billion compared to $2.8 billion for 2024. The decrease of $422 million was primarily due to decreases in operating income of $574 million and “other income, net” of $119 million, partially offset by a decrease in net income attributable to noncontrolling interests of $338 million. The details of our operating income (loss) and adjusted operating income, where applicable, by segment and in total are reflected below (in millions). Adjusted operating income excludes the adjustments reflected in the tables in note (f) beginning on page 53 .
Year Ended December 31,
Change
Refining segment:
Operating income
Adjusted operating income
Renewable Diesel segment:
Operating income (loss)
Ethanol segment:
Operating income
Adjusted operating income
Total company:
Operating income
Adjusted operating income
While our operating income decreased by $574 million in 2025 compared to 2024, adjusted operating income increased by $615 million primarily due to the following:
• Refining segment . Refining segment adjusted operating income increased by $1.3 billion primarily due to higher gasoline, distillate (primarily diesel), and other product margins and an increase in throughput volumes, partially offset by a decline in crude oil and other feedstock differentials and increases in adjusted operating expenses (excluding depreciation and amortization expense) and depreciation and amortization expense.
• Renewable Diesel segment . Renewable Diesel segment operating income decreased by $663 million primarily due to higher feedstock costs and a decline in the value of low-carbon fuel tax incentives, partially offset by higher product prices (primarily renewable diesel) and a decrease in operating expenses (excluding depreciation and amortization expense).
• Ethanol segment . Ethanol segment adjusted operating income increased by $59 million primarily due to higher ethanol prices and an increase in production volumes, partially offset by higher corn prices and an increase in operating expenses (excluding depreciation and amortization expense).
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Outlook
Many uncertainties remain with respect to the supply and demand balances in petroleum-based product markets worldwide. While it is difficult to predict future worldwide economic activity and its resulting impact on product supply and demand, including the effects of tariffs thereon, we have noted several factors below that have impacted or may impact our results of operations during the first quarter of 2026.
• Global demand for gasoline, diesel, and jet fuel continues to rise, with growth in demand for jet fuel outpacing growth of other primary petroleum-based transportation fuels. In addition, colder temperatures across the North Atlantic and moderation in biofuel consumption growth are expected to support petroleum-based diesel demand.
• Expected reductions in refining capacity in the U.S. and Europe, unplannedoutages at Russian refineries due to the Russia-Ukraine conflict, and a prolonged ramp-up of new capacity in emerging markets continue to support utilization of remaining global refining capacity.
• Crude oil differentials are expected to widen as a result of an increase in sour crude oil production from OPEC+ suppliers and recent developments involving the Venezuelan government and associated sanctions. However, potential sanction adjustments related to Iran and Russia, ongoing uncertainty in Venezuela, and the continued Russia-Ukraine conflict could result in increased volatility in the crude oil market and potentially impact crude oil differentials.
• Renewable diesel demand is expected to remain consistent with current levels.
• Ethanol demand is expected to follow typical seasonal patterns.
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RESULTS OF OPERATIONS
The following tables, including the reconciliations of non-GAAP financial measures to their most directly comparable GAAP financial measures in note (f) beginning on page 53 , highlight our results of operations, our operating performance, and market reference prices that directly impact our operations. Note references in this section can be found on pages 53 through 56 .
Financial Highlights by Segment and Total Company
(millions of dollars)
Year Ended December 31, 2025
Refining
Renewable
Diesel
Ethanol
Corporate
and
Eliminations
Total
Revenues:
Revenues from external customers
Intersegment revenues
Total revenues
Cost of sales:
Cost of materials and other (a)
Taxes other than income taxes (b)
Operating expenses (excluding depreciation and
amortization expense reflected below) (c)
Depreciation and amortization expense
Total cost of sales
Asset impairmentloss (d)
Other operating expenses
General and administrative expenses (excluding
depreciation and amortization expense reflected
below)
Depreciation and amortization expense
Operating income (loss) by segment
Other income, net
Interest and debt expense, net of capitalized
interest
Income before income tax expense
Income tax expense
Net income
Less: Net loss attributable to noncontrolling
interests
Net income attributable to
Valero Energy Corporation stockholders
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Financial Highlights by Segment and Total Company (continued)
(millions of dollars)
Year Ended December 31, 2024
Refining
Renewable
Diesel
Ethanol
Corporate
and
Eliminations
Total
Revenues:
Revenues from external customers
Intersegment revenues
Total revenues
Cost of sales:
Cost of materials and other
Taxes other than income taxes (b)
Operating expenses (excluding depreciation and
amortization expense reflected below)
Depreciation and amortization expense
Total cost of sales
Other operating expenses
General and administrative expenses (excluding
depreciation and amortization expense reflected
below)
Depreciation and amortization expense
Operating income by segment
Other income, net
Interest and debt expense, net of capitalized
interest
Income before income tax expense
Income tax expense (e)
Net income
Less: Net income attributable to noncontrolling
interests
Net income attributable to
Valero Energy Corporation stockholders
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Average Market Reference Prices and Differentials
Year Ended December 31,
Refining
Feedstocks (dollars per barrel)
Brent crude oil
Brent less West Texas Intermediate (WTI) crude oil
Brent less WTI Houston crude oil
Brent less Dated Brent crude oil
Brent less Argus Sour Crude Index crude oil
Brent less Maya crude oil
Brent less Western Canadian Select Houston crude oil
WTI crude oil
Natural gas (dollars per million British thermal units)
Polymer Grade Propylene less Brent (not RVO adjusted)
U.S. Mid-Continent:
CBOB gasoline less WTI
ULS diesel less WTI
North Atlantic:
CBOB gasoline less Brent
ULS diesel less Brent
U.S. West Coast:
CARBOB 87 gasoline less Brent
CARB diesel less Brent
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Average Market Reference Prices and Differentials (continued)
Year Ended December 31,
Renewable Diesel
New York Mercantile Exchange ULS diesel
(dollars per gallon)
Biodiesel RIN (dollars per RIN)
California LCFS (dollars per metric ton)
U.S. Gulf Coast (USGC) used cooking oil (dollars per pound)
USGC DCO (dollars per pound)
USGC fancy bleachable tallow (dollars per pound)
Ethanol
Chicago Board of Trade corn (dollars per bushel)
New York Harbor ethanol (dollars per gallon)
2025 Compared to 2024
Total Company, Corporate, and Other
The following table includes selected financial data for the total company, corporate, and other for 2025 and 2024. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.
Year Ended December 31,
Change
Revenues
Cost of sales (see notes (a) and (c))
Asset impairmentloss (see note (d))
Operating income
Adjusted operating income (see note (f))
Other income, net
Net income (loss) attributable to noncontrolling interests
Revenues decreased by $7.2 billion in 2025 compared to 2024 primarily due to decreases in product prices for the petroleum-based transportation fuels associated with sales made by our Refining segment. This decrease in revenues, along with the effect of an asset impairmentloss of $1.1 billion in 2025 (see note (d)), was partially offset by a decrease in cost of sales of $7.8 billion primarily due to decreases in crude oil and other feedstock costs.
Operating income decreased by $574 million in 2025; however, adjusted operating income, which excludes the adjustments in the table in note (f), increased by $615 million, from $3.8 billion in 2024 to $4.4 billion in 2025. The components of this $615 million increase in adjusted operating income are discussed by segment in the segment analyses that follow.
“Other income, net” decreased by $119 million in 2025 compared to 2024 primarily due to lower interest income on cash driven by a decrease in interest rates in 2025.
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Net income attributable to noncontrolling interests decreased by $338 million in 2025 compared to 2024 primarily due to lower earnings associated with DGD, whose operations compose our Renewable Diesel segment. See Note 12 of Notes to Consolidated Financial Statements regarding our accounting for DGD and the Renewable Diesel segment analysis beginning on page 51 .
Refining Segment Results
The following table includes selected financial and operating data of our Refining segment for 2025 and 2024. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.
Year Ended December 31,
Change
Operating income
Adjusted operating income (see note (f))
Refining margin (see note (f))
Operating expenses (excluding depreciation and amortization
expense reflected below)
Adjusted operating expenses (excluding depreciation and
amortization expense reflected below) (see note (f))
Depreciation and amortization expense
Asset impairmentloss (see note (d))
Throughput volumes (thousand BPD) (see note (h))
Refining segment operating income increased by $69 million in 2025 compared to 2024; however, Refining segment adjusted operating income, which excludes the adjustments in the table in note (f), increased by $1.3 billion in 2025 compared to 2024. The components of this increase in the adjusted results, along with the reasons for the changes in those components, are outlined below.
• Refining segment margin increased by $2.1 billion in 2025 compared to 2024.
Refining segment margin is primarily affected by the prices for the petroleum-based transportation fuels that we sell and the cost of crude oil and other feedstocks that we process. The table on page 48 reflects market reference prices and differentials that we believe impacted our Refining segment margin in 2025 compared to 2024.
The increase in Refining segment margin was primarily due to the following:
◦ An increase in distillate (primarily diesel) margins had a favorable impact of approximately $1.8 billion.
◦ An increase in margins for products other than gasoline and distillates had a favorable impact of approximately $940 million.
◦ An increase in gasoline margins had a favorable impact of approximately $650 million.
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◦ An increase in throughput volumes of 76,000 barrels per day had a favorable impact of approximately $340 million.
◦ A decline in crude oil differentials had an unfavorable impact of approximately $1.1 billion.
◦ A decline in differentials for other feedstocks had an unfavorable impact of approximately $600 million.
• Refining segment adjusted operating expenses (excluding depreciation and amortization expense), which excludes the adjustment in the table in note (f), increased by $430 million primarily due to increases in energy costs of $197 million, certain employee compensation expenses of $84 million, and maintenance expenses of $69 million.
• Refining segment depreciation and amortization expense increased by $363 million primarily due to incremental depreciation expense of approximately $300 million related to our plan to idle the processing units and cease refining operations at our Benicia Refinery by the end of April 2026, as described in Note 2 of Notes to Consolidated Financial Statements.
Renewable Diesel Segment Results
The following table includes selected financial and operating data of our Renewable Diesel segment for 2025 and 2024. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.
Year Ended December 31,
Change
Operating income (loss)
Renewable Diesel margin (see note (f))
Operating expenses (excluding depreciation and amortization
expense reflected below)
Depreciation and amortization expense
Sales volumes (thousand gallons per day) (see note (h))
Renewable Diesel segment operating income decreased by $663 million in 2025 compared to 2024. The components of this decrease, along with the reasons for the changes in those components, are outlined below.
• Renewable Diesel segment margin decreased by $703 million in 2025 compared to 2024.
Renewable Diesel segment margin is primarily affected by the price for the low-carbon fuels that we sell, the value of the related low-carbon fuel tax credits, and the cost of the feedstocks that we process. The table on page 49 reflects market reference prices that we believe impacted our Renewable Diesel segment margin in 2025 compared to 2024.
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The decrease in Renewable Diesel segment margin was primarily due to the following:
◦ An increase in the cost of the feedstocks processed during the period had an unfavorable impact of approximately $940 million. During 2025, we became subject to newly imposed tariffs on certain foreign-sourced renewable feedstocks, resulting in higher costs for those feedstocks. Furthermore, these tariffs resulted in increased demand for qualifying domestic feedstocks and, consequently, higher market prices for domestic-sourced feedstocks. See “OVERVIEW AND OUTLOOK— Overview— Business Operations Update” beginning on page 43 for additional discussion.
◦ A decline in the value of tax incentives for low-carbon fuels had an unfavorable impact of approximately $675 million. Effective January 1, 2025, the blender’s tax credit was replaced by the clean fuel production credit. This transition resulted in a reduction in the volumes of fuel eligible for a tax credit, as well as lower credit values for certain fuels that were previously incentivized under the blender’s tax credit regime. See “OVERVIEW AND OUTLOOK— Overview— Business Operations Update” beginning on page 43 for additional discussion.
◦ An increase in product prices, primarily renewable diesel, had a favorable impact of approximately $880 million.
• Renewable Diesel segment operating expenses (excluding depreciation and amortization expense) decreased by $42 million primarily due to decreases in outside services of $22 million and chemicals and catalysts costs of $19 million.
Ethanol Segment Results
The following table includes selected financial and operating data of our Ethanol segment for 2025 and 2024. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.
Year Ended December 31,
Change
Operating income
Adjusted operating income (see note (f))
Ethanol margin (see note (f))
Operating expenses (excluding depreciation and amortization
expense reflected below)
Depreciation and amortization expense
Production volumes (thousand gallons per day) (see note (h))
Ethanol segment operating income increased by $86 million in 2025 compared to 2024; however, Ethanol segment adjusted operating income, which excludes the adjustment in the table in note (f), increased by $59 million in 2025 compared to 2024. The components of this increase in the adjusted results, along with the reasons for the changes in those components, are outlined below.
• Ethanol segment margin increased by $136 million in 2025 compared to 2024.
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Ethanol segment margin is primarily affected by prices for the ethanol and corn-related co-products that we sell and the cost of corn that we process. The table on page 49 reflects market reference prices that we believe impacted our Ethanol segment margin in 2025 compared to 2024.
The increase in Ethanol segment margin was primarily due to the following:
◦ An increase in ethanol prices had a favorable impact of approximately $150 million.
◦ An increase in production volumes of 73,000 gallons per day had a favorable impact of approximately $30 million.
◦ An increase in corn prices had an unfavorable impact of approximately $50 million.
• Ethanol segment operating expenses (excluding depreciation and amortization expense) increased by $75 million primarily due to increases in energy costs of $55 million and certain employee compensation expenses of $12 million.
The following notes relate to references on pages 46 through 52 .
(a) Cost of materials and other for the year ended December 31, 2025 includes a charge of $37 million related to the liquidation of certain LIFO inventory layers attributable to our Refining segment. Inventory levels for our West Coast refining operations decreased during the year ended December 31, 2025 in connection with our plan to idle the processing units and cease refining operations at the Benicia Refinery by the end of April 2026.
(b) Taxes other than income taxes includes excise taxes on sales by certain of our foreign operations.
(c) Operating expenses (excluding depreciation and amortization expense) for the year ended December 31, 2025 includes employee retention and separation costs of $50 million related to the Benicia Refinery. In connection with our plan to idle the processing units and cease refining operations at the Benicia Refinery, we implemented a transition plan for eligible employees, which includes retention incentive payments and separation benefits.
(d) In March 2025, we approved a plan with respect to the operations at our Benicia Refinery and currently intend to idle the processing units and cease refining operations by the end of April 2026. In addition, we considered strategic alternatives for our remaining operations in California. As a result, we evaluated the assets of the Benicia and Wilmington refineries for impairment as of March 31, 2025 and concluded that the carrying values of these assets were not recoverable. Therefore, we reduced the carrying values of the Benicia and Wilmington refineries to their estimated fair values and recognized a combined asset impairmentloss of $1.1 billion in the year ended December 31, 2025.
(e) In December 2024, the Internal Revenue Service (IRS) approved our application for registration as a producer of second-generation biofuels with respect to the cellulosic ethanol produced at our ethanol plants. As a result, we recognized a current income tax benefit of $79 million in December 2024 for the tax credit attributable to volumes of cellulosic ethanol produced and sold by us in the U.S. from 2020 through 2024.
(f) We use certain financial measures (as noted below) that are not defined under GAAP and are considered to be non-GAAP measures.
We have defined these non-GAAP measures and believe they are useful to the external users of our financial statements, including industry analysts, investors, lenders, and rating agencies. We believe these measures are useful to assess our ongoing financial performance because, when reconciled to their most comparable GAAP measures, they provide improved comparability between periods after adjusting for certain items that we believe are not indicative of our core operating performance and that may obscure our underlying business results and
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trends. These non-GAAP measures should not be considered as alternatives to their most comparable GAAP measures nor should they be considered in isolation or as a substitute for an analysis of our results of operations as reported under GAAP. In addition, these non-GAAP measures may not be comparable to similarly titled measures used by other companies because we may define them differently, which diminishes their utility.
Non-GAAP financial measures are as follows (in millions):
• Refining margin is defined as Refining segment operating income excluding the LIFO liquidation adjustment, operating expenses (excluding depreciation and amortization expense), depreciation and amortization expense, the asset impairmentloss, and other operating expenses, as reflected in the table below.
Year Ended December 31,
Reconciliation of Refining operating income
to Refining margin
Refining operating income
Adjustments:
LIFO liquidation adjustment (see note (a))
Operating expenses (excluding depreciation and
amortization expense) (see note (c))
Depreciation and amortization expense
Asset impairmentloss (see note (d))
Other operating expenses
Refining margin
• Renewable Diesel margin is defined as Renewable Diesel segment operating income (loss) excluding operating expenses (excluding depreciation and amortization expense) and depreciation and amortization expense, as reflected in the table below.
Year Ended December 31,
Reconciliation of Renewable Diesel operating
income (loss) to Renewable Diesel margin
Renewable Diesel operating income (loss)
Adjustments:
Operating expenses (excluding depreciation and
amortization expense)
Depreciation and amortization expense
Renewable Diesel margin
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• Ethanol margin is defined as Ethanol segment operating income excluding operating expenses (excluding depreciation and amortization expense), depreciation and amortization expense, and other operating expenses, as reflected in the table below.
Year Ended December 31,
Reconciliation of Ethanol operating income
to Ethanol margin
Ethanol operating income
Adjustments:
Operating expenses (excluding depreciation and
amortization expense)
Depreciation and amortization expense
Other operating expenses
Ethanol margin
• Adjusted Refining operating income is defined as Refining segment operating income excluding the LIFO liquidation adjustment, employee retention and separation costs, the asset impairmentloss, and other operating expenses, as reflected in the table below.
Year Ended December 31,
Reconciliation of Refining operating income
to adjusted Refining operating income
Refining operating income
Adjustments:
LIFO liquidation adjustment (see note (a))
Employee retention and separation costs (see note (c))
Asset impairmentloss (see note (d))
Other operating expenses
Adjusted Refining operating income
• Adjusted Ethanol operating income is defined as Ethanol segment operating income excluding other operating expenses, as reflected in the table below.
Year Ended December 31,
Reconciliation of Ethanol operating income
to adjusted Ethanol operating income
Ethanol operating income
Adjustment: Other operating expenses
Adjusted Ethanol operating income
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• Adjusted operating income is defined as total company operating income excluding the LIFO liquidation adjustment, employee retention and separation costs, the asset impairmentloss, and other operating expenses, as reflected in the table below.
Year Ended December 31,
Reconciliation of total company operating income
to adjusted operating income
Total company operating income
Adjustments:
LIFO liquidation adjustment (see note (a))
Employee retention and separation costs (see note (c))
Asset impairmentloss (see note (d))
Other operating expenses
Adjusted operating income
• Adjusted Refining operating expenses (excluding depreciation and amortization expense) is defined as Refining segment operating expenses (excluding depreciation and amortization expense) excluding employee retention and separation costs, as reflected in the table below.
Year Ended December 31,
Reconciliation of Refining operating expenses (excluding
depreciation and amortization expense) to adjusted
Operating expenses (excluding depreciation and amortization
expense)
Adjustment: Employee retention and separation costs (see
note (c))
Adjusted Refining operating expenses (excluding
depreciation and amortization expense)
(g) The RVO cost represents the average market cost on a per barrel basis to comply with the RFS program. The RVO cost is calculated by multiplying (i) the average market price during the applicable period for the RINs associated with each class of renewable fuel (i.e., biomass-based diesel, cellulosic biofuel, advanced biofuel, and total renewable fuel) by (ii) the quotas for the volume of each class of renewable fuel that must be blended into petroleum-based transportation fuels consumed in the U.S., as set or proposed by the EPA, on a percentage basis for each class of renewable fuel and adding together the results of each calculation.
(h) We use throughput volumes, sales volumes, and production volumes for the Refining segment, Renewable Diesel segment, and Ethanol segment, respectively, due to their general use by others who operate facilities similar to those included in our segments.
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LIQUIDITY AND CAPITAL RESOURCES
Our Liquidity
Our liquidity consisted of the following as of December 31, 2025 (in millions):
Available capacity from our committed facilities (a):
Valero Revolver
Accounts receivable sales facility
Total available capacity
Cash and cash equivalents (b)
Total liquidity
(a) Excludes the committed facilities of the consolidated VIEs.
(b) Excludes $228 million of cash and cash equivalents related to the consolidated VIEs that is for their use only.
Information about our outstanding borrowings, letters of credit issued, and availability under our credit facilities is reflected in Note 9 of Notes to Consolidated Financial Statements.
Our debt and financing agreements do not have rating agency triggers that would automatically require us to post additional collateral. However, in the event of certain downgrades of our senior unsecured debt by the ratings agencies, the cost of borrowings under some of our bank credit facilities and other arrangements may increase. As of December 31, 2025, all of our ratings on our senior unsecured debt, including debt guaranteed by us, were at or above investment grade level as follows:
Rating Agency
Rating
Moody’s Investors Service
Baa2 (stable outlook)
Standard & Poor’s Ratings Services
BBB (stable outlook)
Fitch Ratings
BBB (stable outlook)
We cannot provide assurance that these ratings will remain in effect for any given period of time or that one or more of these ratings will not be lowered or withdrawn entirely by a rating agency. We note that these credit ratings are not recommendations to buy, sell, or hold our securities. Each rating should be evaluated independently of any other rating. Any future reduction below investment grade or withdrawal of one or more of our credit ratings could have a material adverse impact on our ability to obtain short- and long-term financing and the cost of such financings.
We believe we have sufficient funds from operations and from available capacity under our credit facilities to fund our ongoing operating requirements and other commitments over the next 12 months and thereafter for the foreseeable future. We expect that, to the extent necessary, we can raise additional cash through equity or debt financings in the public and private capital markets or the arrangement of additional credit facilities. However, there can be no assurances regarding the availability of any future financings or additional credit facilities or whether such financings or additional credit facilities can be made available on terms that are acceptable to us.
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Cash Flows
Components of our cash flows are set forth below (in millions):
Year Ended December 31,
Cash flows provided by (used in):
Operating activities
Investing activities
Financing activities:
Debt issuance and borrowings
Repayments of debt and finance lease obligations
Return to stockholders:
Purchases of common stock for treasury
Common stock dividend payments
Return to stockholders
Other financing activities
Financing activities
Effect of foreign exchange rate changes on cash
Net increase (decrease) in cash, cash equivalents, and restricted cash
Cash Flows for the Year Ended December 31, 2025
In 2025, we used the $5.8 billion of cash generated by our operations and the $7.6 billion from our debt issuance and borrowings to make $1.8 billion of investments in our business, repay $7.7 billion of debt and finance lease obligations, return $4.0 billion to our stockholders through purchases of our common stock for treasury and dividend payments, and increase our available cash on hand by $36 million. The debt issuance, borrowings, and repayments are described in Note 9 of Notes to Consolidated Financial Statements.
As previously noted, our operations generated $5.8 billion of cash in 2025, resulting from net income of $2.2 billion and noncash charges of $3.8 billion, partially offset by a negative change in working capital of $192 million. Noncash charges primarily included a $1.1 billion asset impairmentloss associated with our operations in California, as described in Note 2 of Notes to Consolidated Financial Statements, and $3.2 billion of depreciation and amortization expense, partially offset by a $197 million deferred income tax benefit. Details regarding the components of the change in working capital, along with the reasons for the changes in those components, are described in Note 18 of Notes to Consolidated Financial Statements. In addition, see “RESULTS OF OPERATIONS” for an analysis of the significant components of our net income.
Our investing activities of $1.8 billion primarily consisted of $1.9 billion in capital investments, as defined on the following page under “Capital Investments,” of which $170 million related to capital investments made by DGD.
Cash Flows for the Year Ended December 31, 2024
In 2024, we used the $6.7 billion of cash generated by our operations, $7.1 billion in debt borrowings, and $595 million of cash on hand to make $2.0 billion of investments in our business, repay $7.8 billion of debt and finance lease obligations, and return $4.3 billion to our stockholders through purchases of our common stock for treasury and dividend payments. The debt borrowings and repayments are described in Note 9 of Notes to Consolidated Financial Statements.
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As previously noted, our operations generated $6.7 billion of cash in 2024, driven by net income of $3.0 billion, noncash charges of $2.9 billion, and a positive change in working capital of $795 million. Noncash charges primarily included $2.8 billion of depreciation and amortization expense. Details regarding the components of the change in working capital, along with the reasons for the changes in those components, are described in Note 18 of Notes to Consolidated Financial Statements. In addition, see “RESULTS OF OPERATIONS” for an analysis of the significant components of our net income.
Our investing activities of $2.0 billion primarily consisted of $2.1 billion in capital investments, of which $321 million related to capital investments made by DGD.
Our Capital Resources
Our material cash requirements as of December 31, 2025 primarily consisted of working capital requirements, capital investments, contractual obligations, and other matters, as described below. Our operations have historically generated positive cash flows to fulfill our working capital requirements and other uses of cash as discussed below.
Capital Investments
Capital investments consist of our capital expenditures, deferred turnaround and catalyst cost expenditures, and investments in nonconsolidated joint ventures, as reflected in our statements of cash flows as shown on page 78 . Capital investments exclude acquisitions, if any.
We also identify our capital investments by the nature of the project with which the expenditure is associated as follows:
• Sustaining capital investments are generally associated with projects that are expected to extend the lives of our property assets, sustain their operating capabilities and safety (including deferred turnaround and catalyst cost expenditures), or comply with regulatory requirements. Regulatory compliance capital investments are generally associated with projects that are incurred to comply with government regulatory requirements, such as requirements to reduce emissions and prohibited elements from our products.
• Growth capital investments , including low-carbon growth capital investments that support the development and growth of our low-carbon fuels businesses, are generally associated with projects for the construction of new property assets that are expected to enhance our profitability and cash-generating capabilities, including investments in nonconsolidated joint ventures.
We have developed an extensive multi-year capital investment program, which we update and revise based on changing internal and external factors. Our capital investment program aims to manage our capital investments on average over a multi-year period given the year-to-year variability with respect to timing, costs, and other aspects of capital projects, particularly growth capital projects. Capital projects may be accelerated, deferred, or canceled based on costs, market and economic conditions, regulatory approvals, project execution, competing uses of capital, and other variables, and capital investments and costs may particularly increase or decrease at the beginning and ending of a project. The variability in our year-to-year growth capital investments primarily reflects shifts in expected timing and costs of capital projects rather than a change in our capital allocation strategy. See also “ITEM 1A. RISK FACTORS—BUSINESS, INDUSTRY, AND OPERATIONS RISKS— Our pursuit of capital and other strategic projects and actions exposes us to various risks ” regarding other considerations with respect to our capital investments.
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The following table reflects our expected capital investments for the year ending December 31, 2026 by nature of the project and segment, along with historical amounts for the years ended December 31, 2025 and 2024 (in millions). The following table also reflects capital investments attributable to Valero, which is a non-GAAP measure that we define and reconcile to capital investments below under “Capital Investments Attributable to Valero.”
Year Ending
December 31,
Year Ended
December 31,
Capital investments by nature of the project (b):
Sustaining capital investments
Growth capital investments
Total capital investments
Capital investments by segment:
Refining
Renewable Diesel
Ethanol
Corporate
Total capital investments
Adjustments:
Renewable Diesel capital investments attributable
to the other joint venture member in DGD
Capital expenditures of other VIEs
Capital investments attributable to Valero
(a) All expected amounts for the year ending December 31, 2026 exclude capital expenditures that the consolidated VIEs (other than DGD) may incur because we do not operate those VIEs.
(b) Capital investments attributable to Valero by nature of the project are as follows (in millions):
Year Ending
December 31,
Year Ended
December 31,
Sustaining capital investments
Growth capital investments
Capital investments attributable to Valero
We have a publicly disclosed GHG emissions reductions/displacements target and our capital investments in future years are expected to include investments associated with certain low-carbon projects currently at various stages of progress, evaluation, or approval in line therewith. Certain low-carbon projects and the associated capital investments are also included in our expected capital investments for 2026.
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Capital Investments Attributable to Valero
Capital investments attributable to Valero is a non-GAAP financial measure that reflects our net share of capital investments and is defined as all capital expenditures, deferred turnaround and catalyst cost expenditures, and investments in nonconsolidated joint ventures, excluding the portion of DGD’s capital investments attributable to the other joint venture member and all of the capital expenditures of other consolidated VIEs.
We are a 50 percent joint venture member in DGD and consolidate its financial statements, and DGD’s operations compose our Renewable Diesel segment. As a result, all of DGD’s net cash provided by operating activities (or operating cash flow) is included in our consolidated net cash provided by operating activities. In general, DGD’s members use DGD’s operating cash flow (excluding changes in its current assets and current liabilities) to fund its capital investments rather than distribute all of that cash to themselves. Because DGD’s operating cash flow is effectively attributable to each member, only 50 percent of DGD’s capital investments should be attributed to our net share of capital investments. We also exclude all of the capital expenditures of other VIEs that we consolidate because we do not operate those VIEs. See Note 12 of Notes to Consolidated Financial Statements for more information about the VIEs that we consolidate. We believe capital investments attributable to Valero is an important measure because it more accurately reflects our capital investments.
Capital investments attributable to Valero should not be considered as an alternative to capital investments, which is the most comparable GAAP measure, nor should it be considered in isolation or as a substitute for an analysis of our cash flows as reported under GAAP. In addition, this non-GAAP measure may not be comparable to similarly titled measures used by other companies because we may define it differently, which may diminish its utility.
The following table (in millions) reconciles our capital investments to capital investments attributable to Valero for the years ended December 31, 2025 and 2024.
Year Ended December 31,
Reconciliation of capital investments
to capital investments attributable to Valero
Capital expenditures (excluding VIEs)
Capital expenditures of VIEs:
DGD
Other VIEs
Deferred turnaround and catalyst cost expenditures
(excluding VIEs)
Deferred turnaround and catalyst cost expenditures
of DGD
Investments in nonconsolidated joint ventures
Capital investments
Adjustments:
DGD’s capital investments attributable to the other joint
venture member
Capital expenditures of other VIEs
Capital investments attributable to Valero
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Contractual Obligations
Below is a summary of our contractual obligations (in millions) as of December 31, 2025 that are expected to be paid within the next year and thereafter. These obligations are reflected in our balance sheets, except (i) the interest payments related to debt obligations, operating lease liabilities, and finance lease obligations and (ii) purchase obligations.
Payments Due by Period
Short-Term
Long-Term
Total
Debt obligations (a)
Interest payments related to debt obligations (b)
Operating lease liabilities (c)
Finance lease obligations (c)
Other long-term liabilities (d)
Purchase obligations (e)
(a) Debt obligations and a maturity analysis of our debt are described in Note 9 of Notes to Consolidated Financial Statements. Debt obligations exclude amounts related to net unamortized debt issuance costs and other.
(b) Interest payments related to debt obligations are the expected payments based on information available as of December 31, 2025.
(c) Operating lease liabilities, finance lease obligations, and maturity analyses of remaining minimum lease payments are described in Note 5 of Notes to Consolidated Financial Statements. Operating lease liabilities and finance lease obligations reflected in this table include related interest expense.
(d) Other long-term liabilities are described in Note 8 of Notes to Consolidated Financial Statements. Other long-term liabilities exclude amounts related to the long-term portion of operating lease liabilities that are separately presented above.
(e) Purchase obligations are described in Note 10 of Notes to Consolidated Financial Statements. Purchase obligations are based on (i) fixed or minimum quantities to be purchased and (ii) fixed or estimated prices to be paid based on current market conditions.
In 2025, we issued $650 million of public debt and used a portion of the net proceeds to repay $440 million of our public debt that matured in 2025, as described in Note 9 of Notes to Consolidated Financial Statements.
The amount outstanding associated with the IEnova Revolver, as defined and described in Note 9 of Notes to Consolidated Financial Statements, is reflected in current portion of debt and finance lease obligations in our balance sheet as of December 31, 2025, and also included in the table above in debt obligations – short-term. The IEnova Revolver is subject to repayment on demand; however, we do not expect the lender to demand repayment during the next 12 months. Thus, the final cash flows for this instrument cannot be predicted with certainty at this time.
We have not entered into any transactions, agreements, or other contractual arrangements that would result in off-balance sheet liabilities.
Other Matters Impacting Liquidity and Capital Resources
Stock Purchase Programs
During the year ended December 31, 2025, we purchased for treasury 16,659,800 of our shares for a total cost of $2.6 billion. See Note 11 of Notes to Consolidated Financial Statements for additional information related to our stock purchase programs. As of December 31, 2025, we had $1.7 billion remaining available for purchase under the September 2024 Program. On February 25, 2026, our Board authorized us to purchase shares of our outstanding common stock for a total cost of up to $2.5 billion with no
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expiration date, which is in addition to the amount remaining under the September 2024 Program. We will continue to evaluate the timing of purchases when appropriate. We have no obligation to make purchases under these programs.
Pension Plan Funding
During 2026, we plan to contribute approximately $70 million and $20 million to our pension plans and other postretirement benefit plans, respectively. See Note 13 of Notes to Consolidated Financial Statements for a discussion of our employee benefit plans.
Tax Matters
The OBBB
On July 4, 2025, the OBBB was enacted, which resulted in a broad range of changes to the Code, as more fully described in Note 15 of Notes to Consolidated Financial Statements. These changes and other provisions of this legislation did not have a material effect on our financial condition, results of operations, and liquidity in 2025. However, certain provisions of this legislation become effective over time and may require further clarification through regulations and other guidance issued by the U.S. Department of the Treasury and the IRS. We will continue to evaluate the effects of the OBBB on our financial condition, results of operations, and liquidity in the future.
Pillar Two
The Organisation for Economic Co-operation and Development (OECD) has introduced a framework that provides for a 15 percent global minimum effective tax rate for large multinational corporations on the income arising in each jurisdiction where they operate, known as Pillar Two. While all OECD countries and jurisdictions have agreed to Pillar Two, the related rules are being implemented on a country-by-country basis. Certain countries in which we operate, such as Canada, the U.K., and Ireland, have enacted tax legislation to implement Pillar Two with effective dates beginning in 2024, and we are subject to the tax laws of those countries. The Pillar Two rules did not have a material effect on our financial condition, results of operations, or liquidity in 2025. On January 5, 2026, the OECD released an administrative guidance package, including a “Side-by-Side System” designed to prevent other jurisdictions from imposing tax on U.S. profits of U.S. companies. We will continue to monitor U.S. and international legislative developments to assess the potential impacts of these rules. We currently do not expect that compliance with these rules will have a material effect on our financial condition, results of operations, or liquidity in the future.
Cash Held by Our Foreign Subsidiaries
As of December 31, 2025, $4.1 billion of our cash and cash equivalents was held by our foreign subsidiaries. Cash held by our foreign subsidiaries can be repatriated to us through dividends without any U.S. federal income tax consequences, but certain other taxes may apply, including, but not limited to, withholding taxes imposed by certain foreign jurisdictions, U.S. state income taxes, and U.S. federal income tax on foreign exchange gains. Therefore, there is a cost to repatriate cash held by certain of our foreign subsidiaries to us.
Asset Retirement Obligations
See Notes 2 and 8 of Notes to Consolidated Financial Statements for information regarding our expected asset retirement obligations.
Environmental Matters
Our operations are subject to extensive environmental regulations by government authorities relating to, among other matters, the release or discharge of materials into the environment, climate, waste
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management, pollution prevention measures, GHG and other emissions, our facilities and operations, and characteristics and composition of many of our products. Because environmental laws and regulations have become more complex and stringent and new or revised environmental laws and regulations are continuously being enacted or proposed, the level of future costs and expenditures required for environmental matters could increase. See Note 1 of Notes to Consolidated Financial Statements regarding our accounting for our environmental liabilities under “Environmental Matters” and see Note 8 of Notes to Consolidated Financial Statements for disclosure of these liabilities. See also “ITEMS 1. and 2. BUSINESS AND PROPERTIES—GOVERNMENT REGULATIONS” and the items incorporated by reference therein.
Concentration of Customers
Our operations have a concentration of customers in the refining industry and customers who are refined petroleum product wholesalers and retailers. These concentrations of customers may impact our overall exposure to credit risk, either positively or negatively, in that these customers may be similarly affected by changes in economic or other conditions, including the uncertainties concerning worldwide events causing volatility in the global crude oil markets. However, we believe that our portfolio of accounts receivable is sufficiently diversified to the extent necessary to minimize potential credit risk. Historically, we have not had any significant problems collecting our accounts receivable. See also “ITEM 1A. RISK FACTORS—LEGAL, GOVERNMENT, AND REGULATORY RISKS— We are subject to risks arising from legal, regulatory, and political developments regarding climate- and environmental-related matters, or that are adverse to or restrict refining and marketing operations .”
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions, which we believe to be reasonable, that affect the amounts reported in our financial statements and accompanying notes. However, actual results could differ from those estimates and assumptions. The following summary provides further information about our critical accounting policies that involve critical accounting estimates, and should be read in conjunction with Note 1 of Notes to Consolidated Financial Statements, which summarizes our significant accounting policies. The following accounting policies involve estimates that are considered critical due to the level of subjectivity and judgment involved, as well as the impact on our financial position and results of operations. Unless otherwise noted, estimates of the sensitivity to earnings that would result from changes in the assumptions used in determining our estimates are not practicable due to the number of assumptions and contingencies involved, and the wide range of possible outcomes.
Unrecognized Tax Benefits
We take tax positions in our tax returns from time to time that ultimately may not be allowed by the relevant taxing authorities. When we take such positions, we evaluate the likelihood of sustaining those positions and determine the amount of tax benefit arising from such positions, if any, that should be recognized in our financial statements. Tax benefits not recognized by us are recorded as a liability for unrecognized tax benefits, which represents our potential future obligation to various taxing authorities if the tax positions are not sustained.
The evaluation of tax positions and the determination of the benefit arising from such positions that are recognized in our financial statements requires us to make significant judgments and estimates based on an analysis of complex tax laws and regulations and related interpretations. These judgments and estimates are subject to change due to many factors, including the progress of ongoing tax audits, case law, and changes in legislation.
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Details of our changes in unrecognized tax benefits, along with other information about our unrecognized tax benefits, are included in Note 15 of Notes to Consolidated Financial Statements.
Fair Value Measurements
Fair value represents the amount that we expect to receive or pay in an orderly transaction with a market participant at the measurement date. There are three generally accepted valuation approaches for measuring the fair value of assets and liabilities: the market approach, the income approach, and the cost approach. We primarily use the market approach for fair value measurements, which is based on observable information available as of the measurement date, such as quoted prices and other relevant market data for identical or comparable assets or liabilities. The income approach estimates fair value by discounting expected future amounts into a single present value that reflects current market expectations. Fair value under the cost approach reflects the amount that would currently be required to replace the service capacity of the asset and is often referred to as current replacement cost. Regardless of the valuation approach or combination thereof utilized, fair value estimates require us to apply considerable judgment in selecting inputs, which may be observable or unobservable, and significant assumptions based on historical and industry trends and other market conditions.
As discussed in Note 2 of Notes to Consolidated Financial Statements, we concluded that the carrying values of the Benicia and Wilmington refineries were impaired as of March 31, 2025, and as a result, reduced the carrying values of these assets to their estimated fair values. These nonrecurring fair value measurements were determined using a market approach based on the best information available. See Note 19 of Notes to Consolidated Financial Statements for further details on our fair value measurements.
Impairment of Long-Lived Assets
Long-lived assets (primarily property, plant, and equipment) are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. A long-lived asset is not recoverable if its carrying amount exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. If a long-lived asset is not recoverable, an impairmentloss is recognized for the amount by which the carrying amount of the long-lived asset exceeds its fair value, with fair value determined based on the most appropriate valuation approach or combination thereof.
In order to test for recoverability, we must make estimates of projected cash flows related to the asset being evaluated. Such estimates include, but are not limited to, assumptions about future sales volumes, commodity prices, operating costs, margins, the use or disposition of the asset, the asset’s estimated remaining useful life, and future expenditures necessary to maintain the asset’s existing service potential in light of existing and expected regulations. Due to the significant subjectivity of the assumptions used to test for recoverability, changes in market and economic conditions could result in significant impairment charges in the future, thus affecting our earnings.
New environmental and tax laws and regulations, as well as changes to existing laws and regulations, are continuously being enacted or proposed. The implementation of future legislative and regulatory initiatives (such as those discussed in ITEM 1A. RISK FACTORS) that may adversely affect our operations could indicate that the carrying value of an asset may not be recoverable and result in an impairmentloss that could be material. If the circumstances that trigger an impairment also result in a reduction in the estimated useful life of the asset, then we may also be required to recognize an asset retirement obligation for that asset.
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Details of the asset impairmentloss and associated expected asset retirement obligations recognized during the year ended December 31, 2025 related to our Benicia and Wilmington refineries are included in Notes 2 and 8 of Notes to Consolidated Financial Statements.
