What earnings season signals for 2026 upstream ambitions, refining resilience

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Jeff Mower:

Hello and welcome to the Oil Markets Podcast by S&P Global Energy. In today's episode, we are going to explore the takeaways from fourth quarter earnings season. I am Jeff Mower, director of America's Oil News, and I'm joined today by Senior Refining editor Janet McGurty and senior upstream editor Ashok Dutta. I welcome both. So oil refiners and producers have highlighted operational efficiencies and are keeping an eye on opportunities and risks stemming from the ousting of Nicolas Maduro in Venezuela. What's the outlook for refiners and producer for 2026 and what efficiency gains are they citing? Let's just dig in. Janet, let's start with you on this. On the Venezuela front, what are refiners saying? It sounds like that Venezuela is a bit of an opportunity for some of the refiners.

Janet McGurty:

Well, it certainly is for the Gulf Coast refiners, because you have to remember, there're refineries that are built along the Gulf Coast, like PBF Chalmette, that was a joint venture between Exxon and PDVSA. So a lot of the refineries there, which all have heavy, they're very sophisticated and they have a lot of coking capacity to run the heavy crude, and a lot of them were built to run Venezuelan crude. So they're very happy about, for two reasons, mostly. Well, they're happy to have more Venezuelan crude, because it's pretty local. It doesn't take long to get from Venezuela to the Gulf Coast. So they like that. Also, they are rising tide lifts all ships. So more heavy crude coming from Venezuela, again, widens the differential and makes heavy crude much more economic. US Gulf Coast cokers have not been running at full for a while now.

So this is being seen as an opportunity to run more efficiently and improved refinery economics there. So Venezuela was a real hot topic during the calls, as you can imagine. And so, we've already had five of the five biggest refiners report their earnings so far this quarter, and they're about half the refining capacity in the US. Now, with Venezuela, what everyone had a measured response to it, saying, "We have to see the economics." And the economics that they're looking at is they're saying, "What is Venezuelan crude vis-a-vis Maya from Mexico? What's the value of Venezuelan vis-a-vis WCS? Which has been Western Canada Select, which has been really kind of the mainstay. So, "Is it economic?" Is what they're saying.

So I looked at this and like Marathon for example, the biggest refiner in the US has run Venezuelan crude at its Garyville refinery in Louisiana, and they're said that on the call they're bringing in two more cargoes this month. But in January, so Mary, which is a Venezuelan crude, held a $2 and 33 cents premium to WCS in Nederland, Texas and an 81 cent discount to Maya. Now so far in February that has changed. Mary is holding an 84 cent premium to WCS and 61 cent discount to Maya. So what that means is that refiners were looking, they're looking at the difference. So if WCS is cheaper then they're going to run WCS, but now as it seems to be getting more normalized and we're seeing more flows coming out of Venezuela, again Venezuelan crude is seeing popular. Valero runs the most in its St. Charles refinery in New Orleans, but Chevron also runs a lot in its Pascagoula, Mississippi refinery and Chevron being the exporter of record for many years.

Jeff Mower:

Yeah, I noticed when we look at the Maya's at sea shipping data we saw in January, it wasn't necessarily more Venezuelan crude on the market, it was more Venezuelan crude for US, for the US, right? Like exports, China went to zero. It used to be the main buyer, main importer of Venezuelan crude, and then all of a sudden you see more showing up in the US. And that's what I think's really interesting about the heavy market, is how it only takes a couple million barrels, like you mentioned, that refiners haven't been running their cokers at capacity, and it really doesn't take much to widen the discounts of some of these heavy crudes.

It's like we saw, I think it was yesterday where Napo crude, the discount just plunged the past couple days. Again, Napo is from Ecuador, and there are limitations to Napo crude, I understand. But as far as getting it out and production, and so on and so forth, but just that bit of competition for Napo, it just seems to really put it in favor. Oh, I'm sorry. Refiners seem to be really in a good spot, as you mentioned. Yeah, really important.

Janet McGurty:

For the Midwest, like Phillips 66, they do bring in Venezuelan crude into Sweeney, which is in Texas, but they have, and so does Marathon, huge operations in the Mid-Con, and they're the biggest importers of WCS into the Mid-Con. So more crude means wider differentials and a better economics for refiners, right? Especially ones who run WCS, like Phillips. So they were very happy about that. And Mark Lashier, CEO of Phillips said, and has said in the past, "We can run more of Venezuelan crude in our refinery."

So refiners are looking at that like ExxonMobil, Darren Woods, who initially Exxon is very, very strictly disciplined when it comes to capital spending and what they do. And when he said initially on January 9th when he was meeting with President Trump and the rest of the oil people, he said, "We have to look at it," because they look at economics. Well, on the call he said, he explained himself, "No, I'm not against Venezuela. Do the economics work?"

So that's really what it comes down to when you're an oil refinery, and I think it was Marathon said, "We look at it, we look at prices every day."

Jeff Mower:

Yeah, and that's what we're there for. So Ashok, the Venezuelan story is something different for producers, especially Canadian producers, obviously. We're talking about deeper discounts. What are producers saying so far about the Canadian crude? I guess you could go from US producers, I know you were covering the earnings of Exxon and Chevron, but also some Canadian producers.

Ashok Dutta:

Sure, sure. Jeff, let me just very quickly ask you, you asked about the Canadian producers and the impact of WCS, and how much of a pushback it'll likely to have. Obviously the verdict is still out, but ConocoPhillips feels that Canadian crude will still have a predominance, as Janet pointed out, in the Midwest. So that battle will continue and Canadian crude will still be coming to the Gulf, as she said, depending on pricing. It's the whole pricing. But the fascinating thing is coming out of the White House meeting on January 9th, bulk of the upstream focus for the likes of Conoco, Exxon, Chevron is, and as well as service companies like Halliburton, is that they are holding their horses and waiting for signposts in Venezuela, as well as in DC, like regulatory and fiscal certainty. They are studying the new hydrocarbons law that was passed late January by the Venezuelan government. But companies are not willing to bet anything at this point of time, but also keep a sharp eye on their recovery.

Jeff Mower:

Hard to imagine growth there without some debt, right? I mean, I know Chevron pays for its own oil revenues, but...

Ashok Dutta:

Chevron has existing operations, so it has to invest. But take a company like Conoco, they told us that they estimate their outstanding amount to be 12 billion, including interests. So clearly their focus would be on getting the house in order in terms of the framework for investment and recovering their monies.

Jeff Mower:

What was it estimated at, I was reading the other day, 180 billion total to... And again, I'm not sure about these estimates, but it's a lot of money, a hundred billion to turn it around in Venezuela at least. You're talking about how much would say Exxon be willing to spend on that, right? It's really unclear, considering the focus that they already have on producing in Guyana or the Permian Basin.

Ashok Dutta:

Yes, Jeff. But I mean, once again, that doesn't preclude investment in Venezuela. On the earnings call CEO of ExxonMobil, Darren Woods said, "We have the technology." And he drew an analogy to what's going on in Canada, and he said that, "The heavy barrels that we produce in Canada can be brought to bear. The technology and the learnings can be brought to bear in Venezuela."

Mind you, and their last earnings call Imperial, an ExxonMobil subsidiary or majority owned by Exxon, they reported 22, Canadian dollar 22, so that should be about roughly 19 or a little shy of $19 a barrel as cash operating cost. That's what they're looking at. They say, "We have the expertise, that's the price, which is about roughly 19, and we can bring that to bear in Venezuela."

Jeff Mower:

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Janet McGurty:

They all are. They say there's a structural demand growth across refined products and coupled with a slower start up of some refineries that have been announced, like Dos Bocas. And there's some of them from the Middle East, I think too. So they see that as a really positive thing. But so, what they've done, and they've been doing this for a while, but a couple of years ago, every refiner came out with a self-help program and they named it whatever it was, but so Phillips 66 on their call said that they are expanding capacity at four US refineries by a combined 45,000 barrels per day or 2% of their refining capacity.

And Billings, Montana is one, Ponca City, Oklahoma. So those are both Mid-Con. Bayway, which is East Coast and Sweeney, which is where they take all the Venezuelan crude now. So I mean they've kind of spent money doing, and it all comes down to reliability work that they've done. And every one of them, they seem to go more grassroots and ask the actual operators, "Hey, what can we do to make this better?" And then incorporate those suggestions in their operating processes. And they've been very successful. Marathon the same way. They're increasing capacity. I think Garyville. At El Paso, Texas. Now, El Paso, Texas is 133,000 barrel-per-day refinery in the panhandle of Texas, but it serves Arizona market. Arizona market now is served by California, but we know that California refineries are closing.

Jeff Mower:

That's right.

Janet McGurty:

So that's tightening it there. So there are projects, actually a Phillips 66 and a Kinder Morgan project, which seems to be the one having the most traction, about supplying California from the Midwest, which will be a big boon for the Midwest refiners, because they are kind of landlocked. They're stranded barrels. They really can't send much to the East Coast. Gulf Coast, of course, they don't. They actually get it up from the Gulf Coast through the Explorer pipeline and the Magellan Pipeline. But this gives them new markets. And again, a very, very lucrative market. California is a good market, because prices are high.

So that's the kind of thing that people are doing. They're looking at opportunities, so they're slightly shifting their perspective on things. So we will see that, and they're spending money, I think over a billion dollars, I think if you add it all up, what people said they're doing. And they're making more jet. So jet is another thing that we don't make enough of. So some refineries are adding more jet and less gas. So I mean, that's a shifting of slate. So it's quite interesting to see, and a lot of them are just doing it through small projects, which is actually really interesting.

Jeff Mower:

Has their view on just the macro and the macroeconomic view, has it shifted much? I know a year is a long time, although that seems like just yesterday, but I know last year around this time there were more concerns, especially... Well, maybe not this time, a little later in the year, in April last year when Trump first started passing tariffs, imposing tariffs. And that was a real concern. And I'm just curious, things seem to have, I don't know, evened out. Have they discussed that much?

Janet McGurty:

Well, not really, because oil products for the most part have kind of been excluded from it. So it's not really a big deal. But what they are seeing is that they're seeing easier permitting to do things. So that's a big deal for them. So that allows them to do these little projects that they're doing, because it's just easier to get it done. You're not running through a lot of red tape. And then, they're also seeing more exports to South America, Latin America, Mexico. So they're positive.

Plus, I mean, we have the push away from EVs, which was weighing on gasoline any demand. So people are more positive just in a general sense, all together about the future of refined products. They're not going away as quickly as was once thought. So diesel, so we had an extremely cold bout here on the East Coast, so we had a lot of the power generators, like the ISOs, like New England Power for example. They were using heating oil to run their generators, because they needed it to put it into when they run peak capacity there. So that popped up demand for diesel, it had a ripple effect across the distillate market. So we are seeing that kind of an impact going forward.

Jeff Mower:

Yeah, thank you. How about Ashok? I know some of the upstream companies were touting their efficiency gains, especially I believe Exxon and Chevron saying they're using technology to produce more. What's going on there?

Ashok Dutta:

Clearly on the home turf and the Permian, like you said, the focus is on efficiency gains. And the emerging mantra, if I may, is producing more with little or no additional costs. So hold on to your horses as far as adding new barrels, and try and do as much as you can in terms of technology. Exxon is talking about the success it is having with its lightweight propanes, LWB, and this year it plans to use that product, which comes out of its refineries, for 50% of its wells. Besides, it has also talked about 40, four zero, stackable technologies, which are in various stages of testing and development. Admittedly, some of them may not see the light of the day, but that's the extent to which they are working behind the radar. Similarly, Chevron is also working very hard with its own chemical products, which they call surfactants. And they're using that in the Permian pretty efficiently to increase output by another 10% this year. So that's the thing on the technology front.

Jeff Mower:

Yeah, and the outlet goes for producers, right? It's a bit more supply, but same impression, we're still getting a bit heavy.

Ashok Dutta:

Yeah, but there's just one kind of elephant in the room. The basics of shale in the Permian entails that you keep on drilling, otherwise the rate of decline is pretty sharp. So in the world of shale, that is something that you have to keep on doing, and I'm sure they are masters in this. It's just that they are drilling much more efficiently, they're bringing in new products and they're bringing down their DNC costs.

Jeff Mower:

What about moving into, have they talked much about M&A? We've had a few deals lately, and I know you've written about that before, that we might see a surge in M&A this year, largely because of these oil prices that are lingering around 50 or $60, right?

Ashok Dutta:

Yeah. And in addition to that, there's just so much of capital that's available. We heard at a conference in mid-January that there's some $85 billion of private capital, primarily private capital that's floating out there. And Jeff, the word out there is banks are hungry for deals. Our interpretation would be that they are very much in favor of deals that involve high PDP, which is one of the basics in an M&A. Very quickly for our readers, if I may explain, what is PDP? It's a food developed and producing, so it's a very low-hanging fruit, as the reserves can be easily extracted and monetized.

So we were expecting that coming out of '23, '24, bulk of the major deals that we saw in the Permian, Exxon, Pioneer Natural Resources, Chevron, Hess, and the others, we were expecting with '25 the focus, and in '26 it would be more on the small or the junior cap companies. But then, we had Devon and Coterra merging, and that deal, they said it's $58 billion. And the new company could potentially, based on their resources, produce 1.6 million BOE per day. A fascinating thing about this deal is with this acquisition, Devon finds itself to be a very major natural gas producer in the Permian. There's also growing interests coming out of the other basins, particularly from Asian buyers, who are looking to lock in natural gas resources. So it's not just oil, Jeff, it's also natural gas and LNG.

Jeff Mower:

No, fair enough. Anything else, Janet or Ashok, from the earnings calls that we missed? Any other details or things that our listeners should look out for going forward?

Janet McGurty:

They've increased capital spending. Before for a long time it was just going towards sustaining capital turnarounds and things like that, necessary work. But we're seeing more growth now. And the growth which we saw in the maybe last five years was mostly going to renewables projects. And that has shifted back to traditional refine. Not that they're not doing renewables, but the focus has returned to regular oil and gas refine, which is good. And again, they're little projects that are all looking to cut down their cost per barrel, and they're being successful at it. So it's just making them stronger and more economic. Especially if you look at the global, refining is a global thing. So globally it kind of puts them in a better position.

Ashok Dutta:

And Jeff, for the US upstream players, one emerging thing, if you may, is they are looking at being a part of the need for more power for data centers. We have some of them like Exxon talking in terms of investing in power projects in Texas, and it'll not be Exxon alone. Others will also throw their hats. So they see that as another way in which they can divert their investment.

Jeff Mower:

Well, thank you very much, Janet and Ashok, for joining me, and thank you to our listeners for tuning in. If you liked this episode, please be sure to leave us a rating or review on your favorite podcast player. This Oil Markets episode was produced by Maite Perez in Mexico City.