John Royall

John Royall inquired about the rationale for the $125 million share buyback planned for fiscal 2026, its funding source, and whether the amount would flex based on EBITDA performance. He also asked about recent trends in diesel volume.

Answer

CFO Steve Bramlage explained the buyback reflects the company's capital allocation priorities after funding EBITDA-accretive growth and the dividend. With leverage below its target, returning excess operating cash flow to shareholders is the next step. The buyback will be funded with operating cash flow, not debt, and is intended to be non-dilutive. CEO Darren Rebelez added that diesel volumes were positive last quarter and, while a smaller part of the mix, contribute to incremental volume growth.

John Royall asked about the rationale behind the planned $125 million share buyback for FY26 and whether that amount could flex based on performance. He also inquired about recent trends in diesel fuel volumes.

Answer

CFO Steve Bramlage positioned the buyback as a return of excess operating cash flow after prioritizing growth investments, achieving target leverage, and raising the dividend. The buyback is not debt-funded and aims to offset dilution. President and CEO Darren Rebelez noted that diesel volumes were positive in the prior quarter, helping drive traffic from truckers, despite some weather-related softness in February.

John Royall asked about long-term growth strategy, questioning if Texas is now the primary growth opportunity and how the company balances new-to-industry (NTI) builds versus acquisitions.

Answer

CEO Darren Rebelez acknowledged the significant growth opportunity in Texas but also emphasized the large amount of whitespace remaining in eastern states like Michigan, Ohio, and Kentucky. He explained that the company's strategy aims for a 50/50 split between NTI and acquisition growth, though it has recently skewed toward acquisitions due to favorable deal flow. They maintain a land bank to support NTI growth flexibly.

John Royall asked about the outlook for U.S. refining capture rates in the second quarter and second half of the year, as well as the expected cadence of the share buyback program.

Answer

CEO Jon McKenzie stated that while the Toledo turnaround will impact Q2, he expects capture rates to be 'well above' Q1's 62% in the second half. CFO Kam Sandhar and McKenzie emphasized the buyback program will be flexible and value-focused, not necessarily ratable, and they are willing to use the balance sheet's strength to repurchase shares when opportunities arise, even if slightly above the net debt target.

John Royall asked if Cenovus would pull back on its 100% shareholder return policy to reduce net debt back to its target and inquired about the strategy driving production growth in the Conventional business for the upcoming year.

Answer

Executive Kam Sandhar explained that while the primary goal is the $4 billion net debt target, the company aims to resume aggressive buybacks as soon as possible, noting cash flow will improve in H2 2025. CEO Jon McKenzie stated the Conventional business growth is driven by a ~$400 million investment in high-return, liquids-rich gas opportunities after years of underinvestment.

John Royall from JPMorgan Chase & Co. asked about the mechanical approach to share buybacks now that the 100% return threshold is met and inquired about the supply-demand fundamentals in the Mid-Continent refining market.

Answer

Executive Kam Sandhar stated that with the net debt target achieved, 100% of excess free cash flow will be returned to shareholders, primarily through share buybacks given the current share price. Executive Jonathan McKenzie noted that Mid-Con refining has seen volatility driven by supply outages, but demand remains strong. He anticipates the upcoming fall turnaround season will tighten the supply-demand balance.

John Royall asked about the breakeven economics for conventional production, the price level that might slow activity, and the flexibility in the CapEx budget. He also inquired about the scope of maintenance at Horizon during its first year skipping a full turnaround.

Answer

Scott Stauth, President, responded that the company manages its portfolio holistically to maximize returns and can adjust capital programs quickly if market conditions change. Regarding Horizon, he explained that maintenance with no production impact can be performed on redundant secondary upgrading units. He also noted the 2026 turnaround is expected to have a normal duration of 30-35 days.

John Royall of JPMorgan Chase & Co. asked about the breakeven price for conventional production, the potential for slowing activity in a lower price environment, and the scope of maintenance at Horizon during its first year skipping a full turnaround.

Answer

President Scott Stauth explained that the company evaluates breakevens holistically and can adjust capital programs quickly as needed. Regarding Horizon, he clarified that non-production loss maintenance is being performed on secondary upgrading units, and the major 2026 turnaround is expected to have a normal duration of 30-35 days.

John Royall questioned whether the strong early 2025 production rates from the oil sands mines are sustainable and asked for more details on the cash tax impact from the Chevron acquisition's tax pools.

Answer

President Scott Stauth confirmed the strong rates are sustainable and not seasonal, resulting from successful optimization projects that are outperforming design. While some unplanned downtime is always budgeted, the underlying rate is higher than anticipated. CFO Mark Stainthorpe added that while they don't guide on tax pools, the Chevron acquisition generated them, allowing a full year of tax depreciation in Q4 2024, a benefit that will continue going forward.

John Royall asked if the company might return more than 100% of free cash flow in the second half, given that net debt is now significantly below the $10 billion target. He also inquired about the company's current stance on M&A, including both potential divestitures and acquisitions.

Answer

CFO Mark Stainthorpe confirmed that the company will stick to its framework of returning 100% of free cash flow to shareholders through the rest of 2024, noting that working capital can cause fluctuations around the $10 billion debt level. On M&A, he stated that activity is expected to be quiet, as the company is confident in its extensive internal opportunities and does not need to pursue acquisitions for growth.

John Royall requested more specific timing for the L.A. refinery project startup and confirmation that its 20% IRR is not exposed to commodity prices. He also asked a housekeeping question about whether the Q1 step-up in interest expense is a new run-rate.

Answer

CEO Maryann Mannen projected the L.A. project would be complete near the end of Q3 or early Q4 and confirmed the 20% return is driven by efficiency and cost savings, not commodity prices. CFO John Quaid explained the higher interest expense is the new run-rate, primarily due to lower interest income from a reduced cash balance, and not due to any one-time items.

John Royall asked for an explanation for why the 2024 MPC-level capital expenditures of $1.52 billion came in higher than the original $1.25 billion guidance. He also requested commentary on the outlook for Renewable Diesel margins amid the current regulatory uncertainty.

Answer

CFO John Quaid attributed the higher 2024 CapEx to the company taking advantage of strong, cash-flow-driving investment opportunities that arose during the year, particularly in the marketing business and across the refining base. On Renewable Diesel, executive Rick Hessling acknowledged the uncertainty but stated MPC expects continued EBITDA contribution from the Martinez facility. He emphasized the strategy to control what they can by procuring advantaged, low-carbon-intensity feedstocks and placing products in the highest-margin markets.

John Royall asked about the historical seasonality of capture rates, noting that Q4 is often strong, and whether the full year could average near 100%. He also inquired about the potential timing for refinancing the recently repaid debt and if the proceeds could be directed toward share buybacks.

Answer

CEO Maryann Mannen confirmed that historically, Q4 capture has been stronger than the preceding three quarters and that there is nothing to suggest this pattern would change in 2024. CFO John Quaid explained the debt repayment was a maturity and they are opportunistically waiting for the right time to refinance, possibly after the election, to secure optimal rates.

John Royall requested more detail on the expansion of the Pasadena refinery, its current operational status, and the benefits it provides to the overall Gulf Coast system, including synergies with the Pascagoula refinery.

Answer

CEO Mike Wirth reported that the project is complete and was running stably at about 110,000 barrels per day in Q1. The expansion allows Chevron to process more of its own Permian crude and better supply its Texas market. He highlighted significant synergies with Pascagoula, enabling the transfer of intermediate streams for upgrading and providing operational flexibility.

John Royall requested an operational update on the Eastern Mediterranean, including the current risk assessment given the regional situation and the progress of ongoing growth projects.

Answer

CEO Mike Wirth stated there is 'no real change' to plans, with projects at Tamar and Leviathan expected online by year-end or early 2026. A larger Leviathan expansion is in engineering design, targeting start-up toward the end of the decade, which would increase regional production by nearly 50% by 2030.

John Royall of JPMorgan Chase & Co. asked about Chevron's downstream position in California, including whether it has considered shutting capacity and how the market might be impacted by a competitor's recent closure announcement.

Answer

CEO Mike Wirth criticized California's policies, stating they constrain supply and lead to higher prices for consumers, making new investments difficult to justify. He affirmed that Chevron's two refineries there are competitive and part of strong integrated value chains. While all assets are continuously evaluated, the company will continue to compete and meet customer needs.

John Royall of JPMorgan Chase & Co. asked for an update on the progress of Pioneer integration synergies, particularly on production and recovery improvements, one year after the deal's closing.

Answer

Chairman and CEO Darren Woods reported that the integration is exceeding expectations, with anticipated annual synergies now tracking above the upgraded $3 billion target. He described the process as a 'best of both' approach, with teams from both companies finding more value than initially planned. He expects to provide a formal update on synergy values at the year-end corporate plan meeting.

John Royall asked for an update on ExxonMobil's expectations regarding potential North American tariffs and their impact on the company's integrated assets in the U.S. and Canada.

Answer

CEO Darren Woods explained that the company's strategy is to focus on operational efficiency and maintain a position on the low end of the cost of supply curve. He asserted that this approach ensures resilience and competitive outperformance regardless of market shifts or policy changes like tariffs, which he categorized as noise and speculation.

John Royall asked for an update on the potential impact of North American tariffs on ExxonMobil's overall business, given its upstream and downstream assets in both the U.S. and Canada.

Answer

CEO Darren Woods explained that the company's core strategy is to be a highly effective and efficient operator, positioning its production at the low end of the cost of supply curve. He asserted that this approach ensures the company remains cost-competitive and will continue to outperform competitors, regardless of how tariffs might shift market dynamics.

John Royall of JPMorgan Chase & Co. questioned the progress on building a customer base for the Coffeyville jet fuel expansion and asked what specific "further assurance" CVR needs to make a positive investment decision on new renewables projects.

Answer

CEO David Lamp expressed confidence in securing jet fuel customers, citing upcoming contract renewals with major airlines and the ability to ship fuel by rail to the West Coast. Regarding renewables, Mr. Lamp stated that the company has learned not to rely on government credits due to political and policy volatility. He explained that for a major project like Sustainable Aviation Fuel (SAF), CVR would require a partner willing to assume the credit risk, as CVR itself is unwilling to invest significant capital based on unstable government support.

John Royall asked about the tax implications of the Midway pipeline sale, the potential for future asset sales, and requested more detail on the catalyst limitations that are impacting the company's renewable diesel capacity.

Answer

CFO Dane Neumann clarified that the tax basis on the $90 million Midway sale was approximately $15 million, with the tax to be paid in early 2025. CEO David Lamp revised the potential EBITDA from remaining logistics assets down to about $20 million. Regarding renewable diesel, Mr. Lamp explained that the unit, a converted hydrocracker, is 'woefully short of catalyst,' which results in short run lengths and yield degradation at higher rates, necessitating the downgrade of its effective capacity. He noted that adding another catalyst bed would resolve the issue but is contingent on the uncertain economics of government subsidies.

John Royall asked for an update on CVR Energy's acquisition strategy, particularly with the Citgo asset now off the market, and whether the current need to preserve liquidity would put inorganic growth on hold. He also asked a housekeeping question about the Q4 hedging program.

Answer

CEO David Lamp stated that the company will not turn down accretive deals and continues to look for opportunities to diversify its portfolio, asserting that the current liquidity situation does not preclude them from pursuing M&A. CFO Dane Neumann clarified that the crack swap hedges were largely closed out in Q2 and will roll off through Q4 2024 and 2025, with no other significant hedging planned.

John Royall asked about the company's plan to reduce its leverage to its 30% target and whether this would involve moderating share buybacks. He also inquired about the financial outlook for the renewables business following the transition to Production Tax Credits (PTC).

Answer

Kevin Mitchell, CFO, clarified that the primary focus is on reducing absolute debt to a $17 billion target, which he hopes to achieve by year-end through asset sale proceeds and improved operating cash flow. He reaffirmed the commitment to return over 50% of operating cash flow to shareholders. Regarding renewables, Mitchell explained that the Q1 loss was amplified by the BTC-to-PTC transition, a $60 million LIFO inventory impact, and non-ratable recognition of UK credits. Brian Mandell, EVP of Marketing and Commercial, added that the renewables outlook remains challenged by policy uncertainty, but noted some tailwinds from competitor plant closures and seasonal demand.

John Royall asked about the mid-cycle outlook for the Refining business, questioning if the $5 billion EBITDA target could move higher given ongoing initiatives around market capture rates, reliability, and operational expenses.

Answer

Rich Harbison (Refining) highlighted eight consecutive quarters of above-industry average utilization and record clean product yields, stating these improvements and cost reductions make the $5 billion mid-cycle EBITDA target very achievable. He emphasized that the journey of improving reliability and efficiency is continuous. CEO Mark Lashier added that the focus is now extending from crude units to all downstream units.

John Royall of JPMorgan Chase & Co. inquired about the rationale for shuttering the Los Angeles refinery and the outlook for the company's balance sheet and leverage.

Answer

Chairman and CEO Mark Lashier explained the refinery closure was a long-term strategic decision driven by market pressures and California's energy policies, not a knee-jerk reaction. CFO Kevin Mitchell added that while most asset sale proceeds will arrive in 2025, he expects a stronger year-end debt position and reiterated the company's commitment to its capital allocation priorities, including debt reduction.

John Royall requested details on the first-quarter restructuring actions, including the expected savings and potential for future charges, and also asked about the current M&A pipeline and the company's acquisition strategy in the current environment.

Answer

EVP and CFO Ira Birns explained the $15 million restructuring charge was almost entirely related to headcount reductions, primarily in corporate and land functions, which are expected to yield about $30 million in annualized cost savings. On M&A, Birns described the pipeline as stable with more sensible seller expectations. He noted that while the interest rate environment and some deteriorating target financials have paused certain deals, the company could execute on an acquisition within the next 12 months.

John Royall asked about the sustainability of the high free cash flow payout ratio for shareholder returns, questioning if the ~72% level could be maintained while also preserving capital for potential acquisitions. He also requested a breakdown of the drivers behind the expected year-over-year gross profit growth in the Land segment for Q1.

Answer

EVP and CFO Ira Birns clarified that while the 72% payout ratio was high for 2024, enabled by strong cash flow and limited M&A, it is not a guaranteed ongoing rate. He referenced the longer-term target of around 40% shared at Investor Day, suggesting future payouts will vary based on market opportunities. For the Land segment's Q1 growth, Birns stated the expected improvement is modest and will come from core North American cardlock and retail businesses, along with some improvement on the natural gas side.

John Royall inquired about the specific path to achieving the 30% operating margin target in the land segment and asked for clarification on the sizable working capital headwind experienced in the third quarter.

Answer

Executive Ira Birns detailed that the path to the 30% land operating margin involves normalizing market conditions, strategic decisions to exit underperforming businesses, and targeted M&A in high-margin areas. Executive Michael J. Kasbar added that consolidating onto the Flyers platform will be a key transformative step. Regarding working capital, Birns attributed the negative cash flow to seasonal increases in aviation business activity and price-related timing differences, stating they aim for a positive cash flow quarter in Q4.

John Royall from JPMorgan asked if the Q2 throughput guidance was fixed or subject to economic adjustments and whether the decision to close the Benicia refinery was final.

Answer

An executive named Greg and CEO Lane Riggs confirmed the Q2 guidance is driven by maintenance, not a weak demand outlook. Rich Walsh, EVP and General Counsel, clarified that while the current intent is to close the Benicia refinery, Valero is in discussions with California state leadership who are interested in avoiding the closure.

John Royall asked if the Q2 throughput guidance was fixed or if it could be adjusted based on economic conditions, and questioned whether the decision to close the Benicia refinery was definitive or if there was room for negotiation with the state of California.

Answer

An executive named Greg stated the Q2 guidance reflects the current plan based on maintenance and that an economic-based reduction is unlikely given the strong market fundamentals. Richard Walsh, EVP and General Counsel, clarified that while the current intent is to close the Benicia refinery, Valero is in discussions with state leadership who have expressed interest in avoiding the closure, though the regulatory challenges remain significant.

John Royall inquired about the supply-demand balance for refined products and the outlook for crack spreads in 2025, and also asked about Valero's capital allocation strategy and payout ratio in a potentially lower-margin environment.

Answer

Gary Simmons, EVP and COO, stated that while early in the year, product demand looks good with inventories below last year's levels, suggesting a gradual tightening of supply-demand balances. Homer Bhullar, an executive, explained that Valero's earnings capacity allows it to honor its minimum 40-50% payout commitment even in low-margin environments without stressing the balance sheet, as demonstrated in Q4.

John Royall of JPMorgan Chase & Co. asked about Valero's capital allocation strategy in a lower margin environment and for an update on its California operations amid new legislative pressures.

Answer

Homer Bhullar, an executive, affirmed that the 40-50% payout ratio is a minimum and that the company's strong balance sheet allows it to maintain an aggressive buyback posture, returning all excess free cash flow to shareholders. Regarding California, Richard Walsh, an executive, noted the uncertainty of proposed policies, while CEO Lane Riggs stated that while their strategy has been to minimize capital in the state, increasing regulatory pressure means 'all options are on the table.'

John Royall of JPMorgan Chase & Co. asked if the unscheduled outage at the Wyoming refinery presents an opportunity to advance some of the turnaround work planned for 2026. He also requested more detail on the operational ramp-up from 50% capacity in April to full rates in May. His follow-up question concerned the potential monetization of the Laramie gas asset amid a more favorable market.

Answer

EVP of Refining and Logistics, Richard Creamer, stated that while they are evaluating pulling some 2026 work forward, catalyst life issues will likely still necessitate a 2026 outage. He clarified the ramp-up involves running the crude unit and other process units at reduced rates while the main heater is rebuilt, allowing a return to full capacity by late May. President and CEO William Monteleone added that while the Laramie asset remains noncore, they are seeing increased interest and are working with partners to maximize its value.

John Royall requested a reconciliation for the higher Q1 operating expense guidance compared to Q4, and asked for a bridge to understand the significant increase in the 2025 Delek Logistics (DKL) EBITDA guidance.

Answer

Mohit Bhardwaj explained the Q1 OpEx guidance increase reflects the consolidation of Gravity Water Midstream, higher refinery throughput, increased natural gas costs, and planned maintenance at Big Spring. Regarding the DKL EBITDA guidance, Avigal Soreq, President and CEO, highlighted DKL's strong growth story, and Mohit Bhardwaj offered to provide a detailed model walkthrough offline.

John Royall of JPMorgan Chase & Co. questioned if the flat 2025 production guidance implies a conservative assumption on operational reliability compared to 2024's stellar performance. He also asked for details on the drivers of Firebag's significant production increase and its future growth potential.

Answer

CEO Richard Kruger confirmed the major unknown in 2025 is the significant planned maintenance, particularly the coke drum replacement, and that successful execution would likely place them toward the high end of guidance. Regarding Firebag, former asset lead Adam Albeldawi explained that the team constantly removes constraints, citing specific examples like resolving water and PSV bottlenecks, and expressed confidence in a long list of further opportunities. Kruger called Firebag the company's "single most valuable asset."

John Royall asked about the company's view on refining M&A in the current market and whether it was a good time to be active. He also questioned the potential impact of a new refined products pipeline into the Denver area on HF Sinclair's Rockies operations.

Answer

CEO Timothy Go stated that the company's main priority is organic growth by unlocking the 'hidden refinery' within its existing portfolio. While open to countercyclical M&A, any deal must be the right asset at the right price. Regarding the new pipeline, EVP, Commercial Steven Ledbetter and CEO Timothy Go expressed confidence that their low-cost position, market flexibility, and growing branded footprint will allow them to compete effectively.

John Royall from JPMorgan Chase & Co. asked for color on Q4 cash flow from operations, which seemed low relative to earnings, and inquired about the expected phasing of the $200 million in savings from the new business improvement plan.

Answer

CFO Karen Davis explained that Q4 cash flow was impacted by a decline in net payables and a $130 million TRA payment made in January. Regarding the savings plan, President and CEO Matthew Lucey and SVP Michael Bukowski clarified that the $200 million is a run-rate target for the start of 2026, with savings accruing through 2025 but not fully realized until then.

John Royall followed up on balance sheet strategy, asking if PBF is comfortable with leverage ticking up from its near-zero net debt position during a downcycle. He also requested an operational update on West Coast feedstock, specifically the volume of TMX barrels being processed.

Answer

President and CEO Matthew Lucey affirmed that having a strong balance sheet is for navigating cycles, and the company is comfortable leaning on its very conservative balance sheet during difficult periods, given its confidence in the long-term business outlook. Regarding TMX, Lucey and executive Paul Davis stated that while they have the capability to run up to 50,000 bpd, actual volumes are driven by economics. They ran 20,000 bpd in Q3 and expect less in Q4 as Asian markets have bid those barrels up aggressively.

John Royall of JPMorgan Chase & Co. asked about the company's commitment to its share buyback pace, particularly its willingness to increase balance sheet leverage in a potential downside scenario. He also questioned why 2024 and 2025 CapEx came in lower than previously suggested.

Answer

CEO Andrew Clyde reaffirmed a strong commitment to the balanced capital allocation strategy, noting that the business is built to perform in all cycles and has low leverage below 2x, providing flexibility. CFO Galagher Jeff clarified the CapEx figures, explaining that the 2024 number landed at the low end of the revised range due to the timing of store openings shifting into 2025. He added that the similar total spend for 2025 reflects a strategic shift toward more new store openings and fewer raze-and-rebuild projects.

John Royall asked for an update on the expected profitability uplift from SAF versus RD and inquired about the impact of fat imports on pricing, questioning if it was a transitory issue.

Answer

CFO Brad Phillips stated that SAF margins exceed the original project economics but declined to provide specific figures. An executive clarified that biofuel imports have had a larger impact on fat prices than fat imports themselves and that these biofuel imports are expected to decrease significantly in 2025 under the new producer tax credit.