I N V E S T O R P R E S E N T AT I O N | B A S I C S O F R E F I N I N G A N D R E N E W A B L E D I E S E L 2 0 2 1
Advancing theFuture of EnergyW I T H C A P I T A L D I S C I P L I N E , I N N O V A T I O N A N D U N M A T C H E D E X E C U T I O N
Basics of Refining and Renewable Diesel
R E L I A B L E A F F O R D A B L E S U S T A I N A B L E E N E R G Y
I N V E S T O R P R E S E N T AT I O N | B A S I C S O F R E F I N I N G A N D R E N E W A B L E D I E S E L 2 0 2 1 2
Gary SimmonsExecutive Vice PresidentChief Commercial Officer.
I N V E S T O R P R E S E N T AT I O N | B A S I C S O F R E F I N I N G A N D R E N E W A B L E D I E S E L 2 0 2 1
Agenda
3
1 Crude Oil Overview
2 Refining Basics
3 Refinery Optimization and Economics
4 Renewable Diesel Basics
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Crude Oil Characteristics
Heavy, sour, high acid crude oils are more difficult to process, but trade at a discount relative to light, sweet, low acid crudes oils
4
• Crude oils are blends of hydrocarbon molecules
o Classified and priced by density, sulfur content and acidity
• Density is commonly measured in API gravity(relative density of crude oil to water)
o API > 10: lighter, floats on water
o API < 10: heavier, sinks in water
• Sulfur content is measured in weight percent
o Less than 0.7% sulfur content = sweet
o Greater than 0.7% sulfur content = sour
• Acidity is measured by Total Acid Number (TAN)
o High acid crudes are those with TAN greater than 0.7
o Acidic crudes are corrosive to refinery equipment and require greater investment to process significant volumes
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Canada10%
U.S. 4%
South & Central
America 19%
Europe 1%
Russia / FSU 8%
Middle East 48%
Africa7%
Asia Pacific 3%
1.73 Trillion Barrels of Oil Reserves (2019)
Crude Oil Reserves and Quality
Majority of global reserves are sour crude oils
WTI and Brentare the primary light sweet crude oil pricing benchmarks
5
Sour
Sweet
Heavy Light
Maya Cold Lake
WCS
Basrah
Southern Green
Arab Medium
CastillaMars Arab Light
WTS
ANS
Dalia
WTI MidlandLLS
Brent
Bakken
Eagle Ford WTI Light
Napo
Oriente
2.51
0.0
1.0
2.0
3.0
4.0
0 10 20 30 40 50 60
API Gravity
Crude Oil Quality
Sulf
ur,
wt% M100
Source: Valero and industry reports.
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What is in a Barrel of Crude Oil?
Refineries upgradecrude oil into higher value gasoline and distillates
6
2019 U.S. Refinery Production
8% Propane/Butane
45%
GasolineRBOBCBOBConventionalCARBPremium
38%
DistillateJet FuelDieselHeating Oil
Fuel Oil & Other10%
Source: Energy Information Administration.
Refinery Gases7%
• < 24 API Gravity
• > 0.7 % Sulfur
• Least Expensive
• 24 to 34 API Gravity
• > 0.7 % Sulfur
• Less Expensive
• > 34 API Gravity
• < 0.7 % Sulfur
• Most Expensive
Crude Oil Types Characteristics Inherent Yields
Light Sweet(WTI, LLS, Brent)
3%
32%
30%
35%
Medium Sour(Mars, Arab Medium)
Heavy Sour(Maya, WCS)
2%
24%
26%
48%
1%
15%21%
63%
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Basic Refining Concept
7
Light Ends Recovery & Treatment
GasolinePetrochemicals
Fuel Gas Propane
NGLs
Light Naphtha Gasoline
90–220°F
220–315°F
KeroseneJet fuel Diesel
315–450°F
450–650°F
Gasoline Diesel
Gasoline DieselCoke
Intermediates Final Products
C1 - C4
C5 - C8
C8 - C12
C12 - C30
C30 - C50+
C30 - C50+
C50 - C100+
Heavy Naphtha
Kerosene
Diesel / Light Gasoil
Heavy Gasoil
Residual Fuel Oil / Asphalt
Natural GasPropaneButaneCrude Distillation
Unit(Atmospheric)
GasolineDiesel
Furnace
Crude Oil
< 90°F
Isomerization / Blending
Reformer / Blending
Hydrotreater
Hydrotreater / Hydrocracker
FCC / Hydrocracker
Coker / Resid Hydrocracker
Dis
tilla
tio
n T
ow
er
Vacuum Distillation
Unit
650 - 800°F
+800°F
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Low Conversion: Hydroskimming (Topping)
Low complexity refineries process sweet crude oils
8
8%
32%
GasolineRBOBCBOBConventionalCARBPremium
32%DistillateULSK / Jet FuelULSDHeating Oil
VGOFuel OilAsphalt & Other
32%
Fuel GasPropane Butane
4%
Light, SweetCrude
Dis
tilla
tio
n T
ow
er
Naphtha
LPG
Gasoline
Kerosene
Diesel
ULSK / Jet Fuel
ULSD
Vacuum Gasoil
Resid
Reformer
Distillate Hydrotreater
Hydrogen
VacuumDistillation
Unit
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Medium Conversion: Catalytic Cracking
Moderate complexity refineries tend to run more sour crudes, yield more high value products and achieve higher volume gain
9
Light-Medium,
Sour Crude
Dis
tilla
tio
n T
ow
er
ULSD
ULSK / Jet Fuel
Naphtha
LPG
Reformate
Kerosene
Diesel
Gasoil
Resid / Asphalt
43%
GasolineRBOBCBOBConventionalCARBPremium
30%
DistillateULSKJet FuelULSDHeating Oil
Fuel OilAsphalt & Other
19%
Fuel GasPropane Butane
8%
Reformer
Hydrogen
Vacuum Distillation
Unit
Alkylation Unit
Distillate Hydrotreater
Alkylate
FCC Gasoline
LCO ~
~
~
~
Slurry
Fluid Catalytic Cracker (FCC)
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Fluid Catalytic Cracker (FCC)
10
Québec FCC unit.
Rea
cto
r
Reg
ener
ato
r
Spent Catalyst
Regenerated Catalyst
Fluid Catalytic Cracker Yields
Total FCC liquid volume yield is approximately 110% of throughput
Refinery Gases
Butylene
(Alky Feed)
Gasoline
Light Cycle Oil
(Distillate)
Slurry
Gasoil
Air
Frac
tio
nat
or FCC converts
low-value gasoils intohigher value light products
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High Complexity: Coking / Resid Destruction
High complexity refineries can run heavier, more sourcrudes oils while achieving the highest light product yields and volume gain
11
~
Hydrogen Plant
Delayed Coker
Distillate Hydrotreater
Reformer
LPG
Propane / Butane
Naphtha
Kerosene
Diesel
Light Gasoil
Gasoil
Resid
Reformate
Alkylation Unit
Alkylate
Gasoline
ULSD / ULSK / Jet Fuel
Naphtha
Coker Gasoil
Diesel
Coke
Butylene
Hydrogen
Hydrocracker
Gasoline
~~
~~~
Reformer
Distillate Hydrotreater
LCO
47%
GasolineRBOBCBOBConventionalCARBPremium
33%
DistillateJet Fuel ULSKULSDHeating Oil
HeavyFuel Oil& Other
14%
Fuel GasPropane Butane6%
Medium –Heavy,
Sour Crude
Vacuum Distillation
Unit
ULSK / Jet Fuel
ULSD
Slurry
Hydrogen
Hydrogen
Hydrocracker (HCU)
Fluid Catalytic Cracker (FCC)
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Hydrocracker Unit (HCU)
12
Total Hydrocracker liquid volume yieldis approximately 110% to 115% of throughput
Hydrocracker Yields
Port Arthur Hydrocracker Unit.
Hydrogen
Gasoil
Refinery Gases
Gasoline
Distillate
Unconverted OilUnconverted Oil
Upgrades high sulfur gasoil into low sulfur gasoline, jet and diesel
Increases volumetric yield of products through hydrogen saturation
Rea
cto
r
Frac
tio
nat
or
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Delayed Coker
13
Refinery Gases
Gasoline
Distillate
Gasoil
Co
ke D
rum
Total Coker unit liquid volume yield is approximately 80% of throughput.
Co
ke D
rum
Coker Yields
Fuel Oil
(Resid)
Frac
tio
nat
or
Coke
Furnace
Port Arthur Delayed Coker Unit
Upgrades low value residual fuel oil into higher value light products
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Greg BramVice PresidentSupply Chain Optimization.
I N V E S T O R P R E S E N T AT I O N | B A S I C S O F R E F I N I N G A N D R E N E W A B L E D I E S E L 2 0 2 1
Maximizing Refinery ProfitLinear Programming (LP) Model
Relationship between variables are modeled in a series of linear equations
Linear program is used to find combination of feed slate, products, unit operating rates, and operating parameters that delivers highest profit
15
• Prices
• Qualities
• Availability (purchase volumes)
• Prices
• Specifications
• Market demand (sales volumes)
• 10 to 25+ individual process units
• Unit hardware constraints
• Operating parameters
• Operating costs
Refinery
Feedstocks (100+) Products (30+)
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Linear Program (LP) Example: What’s for Breakfast?
Your goal is to consume at least 18 grams of protein, but not more than 10 grams of total fat for the lowest price
16
1 LARGE BAGEL$2.00
3 g protein1 g fat
2 LARGE EGGS$3.50
6 g protein5 g fat
3 BACON SLICES$4.00
8 g protein8 g fat
1 CUP OATMEAL$2.50
4 g protein1 g fat
1 CUP ORANGE JUICE$2.50
2 g protein0 g fat
I N V E S T O R P R E S E N T AT I O N | B A S I C S O F R E F I N I N G A N D R E N E W A B L E D I E S E L 2 0 2 1
Optimizing Breakfast from an Engineer’s Point of View
Even with only five food choices, there are so many possible combinations that using trial and error to find the one with the lowest cost is not efficient
17
Minimize the cost of breakfast
Consume no more than 10 grams of total fat
Consume at least 18 grams of protein
3 g 4 g 6 g 8 g 2 g ≥18 grams protein
1 g 1 g 5 g 8 g 0 g ≤ 10 grams total fat
$2.00 $2.50 $3.50 $4.00 $2.50 = Minimum
Solve for number of servings of each item:
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What’s the Optimal Breakfast?
Linear programming is a branch of applied mathematics concerned with problems of constrained optimization
Price and “quality” of each variable drives the optimum solution
18
Servings Unit Cost Total Fat (g)Protein (g)
0
2.7 $2.50 = $6.75
0.9
0
0
$4.00 = $3.60
4 = 10.8
8 = 7.2
1 = 2.7
8 = 7.2
$10.35 GOAL = Lowest
18 g Min protein
10 g Max fat
Meal
I N V E S T O R P R E S E N T AT I O N | B A S I C S O F R E F I N I N G A N D R E N E W A B L E D I E S E L 2 0 2 1
Crude Oil Break Even Values
Break Even Value (BEV) = Alternate Crude Total Product Value –Reference Crude Total Product Value
BEV for alternate crude as a percentage of reference crude value is relatively insensitive to flat price environment
19
Products
Light Sweet(1)
Yields
Medium Sour(2)
Yields
Heavy Sour(2)
Yields
Light Sweet @ $99/bbl
Prices
Light Sweet @ $51/bbl
Prices
Refinery gases 3% 2% 1% $49 $31
Gasoline(3) 32% 24% 15% $108 $60
Distillate(4) 30% 26% 21% $117 $69
Heavy fuel oil(5) 35% 48% 63% $79 $41
(1) Reference crude.(2) Alternate crudes.(3) Gasoline crack: $9/bbl.(4) Distillate crack: $18/bbl.(5) Heavy fuel oil: 80% of reference crude value.
Crude
Light Sweet @ $99/bbl
BEV
Light Sweet @ $51/bbl
BEV
BEV@ $99/bbl
% of Light Sweet
BEV @ $51/bbl
% of Light Sweet
Medium sour -$3.55 -$2.58 96% 95%
Heavy sour -$7.76 -$5.65 92% 89%
Crude Break Even Values (High and Low Crude Prices)
Crude Product Yields and Prices (High and Low Crude Prices)
I N V E S T O R P R E S E N T AT I O N | B A S I C S O F R E F I N I N G A N D R E N E W A B L E D I E S E L 2 0 2 1
Crude Oil Differentials Versus ICE Brent
20Source: Argus. ASCI represents Argus Sour Crude Index.
-25%
-20%
-15%
-10%
-5%
0%
5%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Maya (heavy sour) ASCI (medium sour) WTI (light sweet) LLS (light sweet)
Pre
miu
mD
isco
un
t
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Martin ParrishSenior Vice PresidentAlternative Energy and Project Development
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Active Low-carbon Mandates
Carbon Mandates in Development orGHG Emissions Goal
Global Low-carbon Fuel Policies Driving Demand Growth for Renewable Diesel
22
2030 GHG Emissions Reduction Target
Net-Zero GHG Emissions Target
Primary Transportation Fuel Policy Mechanism
2030 Liquid Fuels Goal
California 40% Net-zero by 2045Low Carbon Fuel Standard
(LCFS)Reduce the carbon intensity of transportation
fuels by at least 20%
Canada 30% Net-zero by 2050Clean Fuel Standard (CFS) –enforcement expected 2022
Reduce the carbon intensity of transportation fuels by 10-12%
EU 40% Net-zero by 2050Renewable Energy Directive II
(RED II)Replace 14% of transport fuels with biofuels
Other Policies in Place
• Oregon is matching California’s GHG reduction target and has an LCFS policy in place• British Columbia and Ontario have existing low-carbon fuels policies• Sweden is implementing a 21% GHG reduction mandate for diesel by 2020 and aims for 50% of transport fuels to be biofuels by 2030• Finland aims for 30% of transport fuels to be biofuels by 2030
Potential Policies
• State of Washington continues to debate an LCFS with a 20% GHG reduction target by 2035• New York introduced legislation that would require net-zero emissions by 2050 with the possibility of LCFS legislation• Certain Midwest states and Colorado are exploring similar renewables mandates
$0
$100
$200
20
14
20
15
20
16
20
17
20
18
20
19
20
20
LCFS Credit Price(monthly average, $ per metric ton)
113
618
20
14
20
15
20
16
20
17
20
18
20
19
California Renewable Diesel Consumption
(million gallons)
Source: California Air Resources Board. LCFS credit price through December 2020.
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Renewable Diesel 31%
Ethanol24%
Biodiesel14%
Electricity (on-road charging)
13%
Electricity (other) 7%
Biomethane9%
Other1%
LCFS Credit by Fuel Type(2020 YTD)
-6%
-20%
-20%
-15%
-10%
-5%
0%
2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
California LCFS Performance(% reduction in carbon intensity)
Historic Compliance Targets
Reported % CI Reduction
Future Compliance Targets
Renewable Diesel Driving Low Carbon Results in California
Cost-effective fuel that can be used with existing vehicles
Does not require infrastructure investments
Over 2 billion gallons consumed since 2011
23Source: California Air Resources Board. 2020 through June 30.
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Diamond Green Diesel (DGD) Feedstock and Margin Indicator
DGD is designed to process low carbon feedstocks for higher product value
24
NYMEXULSD
D4 RIN LCFS Feedstock RenewableDiesel Margin
DGD Feedstock Carbon Intensity and Product Value
New York Ultra Low Sulfur Diesel (ULSD) price ($ per gallon)+ 1.7 * Renewable Identification Number (D4 RIN, $ per RIN)+ 0.007 * Low Carbon Fuel Standard (LCFS) credit ($ per metric ton) - 8.5 * Chicago Soybean Oil price ($ per pound)
DGD Margin Indicator$ per gallon
LCFS credit value ($ per gallon)
Carbon Intensity (g CO2e / MJ)
Source: California Low Carbon Fuel Standard (LCFS) 2020 values, assuming $200 per metric ton carbon price.
20 27
32
54
82
100
$1.89$1.70
$1.58
$1.01
UsedCooking Oil
DistillersCorn Oil
AnimalFats
SoybeanOil
GridElectricity
Diesel
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Renewable Diesel Process and Properties
A Pretreatment Unit allows the plant to process advantaged, low carbon intensity feedstocks
25
Pretreatment Unit
Feedstocks:Used Cooking Oil, Recycled Animal Fats and Inedible
Corn Oil
DeoxygenationReactor
Water
Separation Isomerization
Renewable Diesel
Light Fuels / Propane
H 2
Product Separation
Property Renewable Diesel
Physical properties Cetane > 70, Sulfur < 2 ppm
Cold temperature issues No issues
Stability No issues
Allowed in pipelines Yes
Practical limit in blend No limit with proper labeling; 85% sold in California
Renewable Naphtha
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Questions and Answers
26
I N V E S T O R P R E S E N T AT I O N | B A S I C S O F R E F I N I N G A N D R E N E W A B L E D I E S E L 2 0 2 1
Appendix Contents
27
Topic Pages
Major Refining Processes – Crude Processing 28
Major Refining Processes – Cracking 29
Major Refining Processes – Combination 30
Major Refining Processes – Treating 31
Refining and Renewable Diesel Acronyms 32
I N V E S T O R P R E S E N T AT I O N | B A S I C S O F R E F I N I N G A N D R E N E W A B L E D I E S E L 2 0 2 1 28
• Definition
• Separating crude oil into different hydrocarbon groups.
• The most common means is through distillation.
• Process
• Desalting – Prior to distillation, crude oil is often desalted to remove corrosive salts as well as metals and other suspended solids.
• Atmospheric distillation – Used to separate the desalted crude into specific hydrocarbon groups (straight run gasoline, naphtha, light gas oil, etc.) or fractions.
• Vacuum distillation – Heavy crude residue (“bottoms”) from the atmospheric column is further separated using a lower-pressure distillation process. Means to lower the boiling points of the fractions and permit separation at lower temperatures, without decomposition and excessive coke formation.
Major Refining Processes – Crude Processing
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• Definition
• Breaking down large, heavy hydrocarbon molecules into smaller hydrocarbon molecules through application of heat (thermal) or the use of catalysts.
• Process
• Coking – Thermal non-catalytic cracking process that converts low value oils to higher value gasoline, gas oils and marketable coke. Residual fuel oil from vacuum distillation column is typical feedstock.
• Visbreaking – Thermal non-catalytic process used to convert large hydrocarbon molecules in heavy feedstocks to lighter products such as fuel gas, gasoline, naphtha, and gas oil. Produces sufficient middle distillates to reduce the viscosity of theheavy feed.
• Catalytic cracking – A central process in refining where heavy gas oil range feeds are subjected to heat in the presence of catalyst, whereby large molecules crack into smaller molecules in the gasoline and lighter boiling ranges.
• Catalytic hydrocracking – Like cracking, used to produce blending stocks for gasoline and other fuels from heavy feedstocks. Introduction of hydrogen in addition to a catalyst allows the cracking reaction to proceed at lower temperatures than in catalytic cracking, although pressures are much higher.
Major Refining Processes – Cracking
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• Definition
• Linking two or more hydrocarbon molecules together to form a large molecule (e.g. converting gases to liquids) or rearranging toimprove the quality of the molecule.
• Process
• Alkylation – Important process to upgrade light olefins to high-value gasoline components. Used to combine small molecules into large molecules to produce a higher octane product for blending into gasoline.
• Catalytic reforming – The process whereby naphthas are changed chemically to increase their octane number. Octane number is a measure of whether a gasoline will knock in an engine. The higher the octane number, the more resistance to pre or self–ignition.
• Polymerization – Process that combines smaller molecules to produce high octane blendstock.
• Isomerization – Process used to produce compounds with high octane for blending into the gasoline pool. Also used to produce isobutene, an important feedstock for alkylation.
Major Refining Processes – Combination
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• Definition
• Processing of petroleum products to remove some of the sulfur, nitrogen, heavy metals, and other impurities
• Process
• Catalytic hydrotreating and hydroprocessing – Used to remove impurities (e.g. sulfur, nitrogen, oxygen, and halides) from petroleum fractions. Hydrotreating further upgrades heavy feeds by converting olefins and diolefins to paraffins, which reduces gum formation in fuels. Hydroprocessing also cracks heavier products to lighter, more saleable products.
Major Refining Processes – Treating
I N V E S T O R P R E S E N T AT I O N | B A S I C S O F R E F I N I N G A N D R E N E W A B L E D I E S E L 2 0 2 1
Refining and Renewable Diesel Acronyms
32
• AGO – Atmospheric Gasoil• API – American Petroleum Institute• ATB – Atmospheric Tower Bottoms• B–B – Butane-Butylene Fraction• BBLS – Barrels• BPD – Barrels Per Day• BTC – Blenders Tax Credit• BTX – Benzene, Toluene, Xylene• CARB – California Air Resource Board• CCR – Continuous Catalytic Regenerator• CI – Carbon Intensity• DAO – De–Asphalted Oil• DCS – Distributed Control Systems• DHT – Diesel Hydrotreater• DSU – Desulfurization Unit • EPA – Environmental Protection Agency• ESP – Electrostatic Precipitator• FCC – Fluid Catalytic Cracker• GDU – Gasoline Desulfurization Unit• GHT – Gasoline Hydrotreater• GOHT – Gasoil Hydrotreater• GPM – Gallon Per Minute
• P–P – Propane–Propylene• PSI – Pounds per Square Inch• RBOB – Reformulated Blendstock for Oxygenate Blending • RDS – Resid Desulfurization• RFG – Reformulated Gasoline• RFS – Renewable Fuel Standard• RIN – Renewable Identification Number• RON – Research Octane Number• RVP – Reid Vapor Pressure• SMR – Steam Methane Reformer (Hydrogen Plant)• SOX – Sulfur Oxides• SRU – Sulfur Recovery Unit• TAME – Tertiary Amyl Methyl Ether• TAN – Total Acid Number• UCO – Used Cooking Oil• ULSD – Ultra Low Sulfur Diesel• ULSK – Ultra Low Sulfur Kerosene• VGO – Vacuum Gasoil• VOC – Volatile Organic Compound• VPP – Voluntary Protection Program• VTB – Vacuum Tower Bottoms• WTI – West Texas Intermediate• WWTP – Waste Water Treatment Plant
• HAGO – Heavy Atmospheric Gasoil• HCU – Hydrocracker Unit• HDS – Hydrodesulfurization• HDT – Hydrotreating• HGO – Heavy Gasoil• HOC – Heavy Oil Cracker (FCC)• H2 – Hydrogen• H2S – Hydrogen Sulfide• HF – Hydroflouric (acid)• HVGO – Heavy Vacuum Gasoil• kV – Kilovolt• kVA – Kilovolt Amp• LCFS – Low Carbon Fuel Standard• LCO – Light Cycle Oil• LGO – Light Gasoil• LPG – Liquefied Petroleum Gas• LSD – Low Sulfur Diesel• LSR – Light Straight Run (Gasoline)• MON – Motor Octane Number• MTBE – Methyl Tertiary–Butyl Ether• MW – Megawatt• NGL – Natural Gas Liquids• NOX – Nitrogen Oxides
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This presentation contains forward-looking statements made by Valero Energy Corporation (“VLO” or “Valero”)
within the meaning of federal securities laws. These statements discuss future expectations, contain projections of
results of operations or of financial condition or state other forward-looking information. You can identify forward-
looking statements by words such as “believe,” “estimate,” “expect,” “forecast,” “could,” “may,” “will,” “targeting,” or
other similar expressions that convey the uncertainty of future events or outcomes. These forward-looking
statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some
of which are beyond the control of Valero and are difficult to predict including, but not limited to, the effect, impact,
potential duration or other implications of the COVID-19 pandemic. These statements are often based upon various
assumptions, many of which are based, in turn, upon further assumptions, including examination of historical
operating trends made by the management of Valero. Although Valero believes that the assumptions were
reasonable when made, because assumptions are inherently subject to significant uncertainties and contingencies,
which are difficult or impossible to predict and are beyond its control, Valero cannot give assurance that it will
achieve or accomplish its expectations, beliefs or intentions. When considering these forward-looking statements,
you should keep in mind the risk factors and other cautionary statements contained in Valero’s filings with the
Securities and Exchange Commission, including Valero’s annual reports on Form 10-K, quarterly reports on Form 10-
Q, and other reports available on Valero’s website at www.valero.com. These risks could cause the actual results of
Valero to differ materially from those contained in any forward-looking statement.
Cautionary Statement
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Investor Relations Contacts
Homer BhullarVice President, Investor Relations [email protected]
Eric HerbortSenior Manager, Investor Relations [email protected]
Gautam Srivastava Senior Manager, Investor Relations [email protected]
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