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SESSION 1 Today’s Vision - Tomorrow’s Reality A Refiner’s Perspective Session Presenter Rich Marcogliese Executive VP and COO Valero Energy Corporation ECC Discussion Points Valero Background Changing U.S. Refining Industry Environment U.S. Gasoline Supply/Demand World Diesel Supply/Demand World Refining Outlook Valero Growth Strategies ECC Challenges History of Growth through Acquisition 3,500 Throughput Capacity (MBPD) 3,000 1980 - Intra-state natural gas pipeline company 1983 - One refinery in Corpus Christi 1996 - Refinery acquisition strategy set 2005 - North America’s largest refiner Successful acquisitions and integration Now ~15% of U.S. capacity 3.3 million BPD 2,500 2,000 1,500 1,000 500 170,000 BPD 0 1996 Acquired From 1997 1998 2000 2001 2002 2003 2004 2005 North American Operations Quebec, Canada • 260,000 bpd capacity Benicia, California • 170,000 bpd capacity Paulsboro, New Jersey • 195,000 bpd capacity Wilmington, California • 135,000 bpd capacity Delaware City, Delaware • 210,000 bpd capacity McKee, Texas • 170,000 bpd capacity Memphis, Tennessee • 195,000 bpd capacity Three Rivers, Texas • 100,000 bpd capacity Ardmore, Oklahoma • 90,000 bpd capacity Valero Marketing Presence Retail & Branded Wholesale Presence Valero Headquarters Total 5800 retail and branded stores Corpus Christi, Texas • 315,000 bpd capacity Texas City, Texas • 245,000 bpd capacity St. Charles, Louisiana • 250,000 bpd capacity Houston, Texas • 145,000 bpd capacity Port Arthur, Texas • 310,000 bpd capacity Regionally Diverse, Complex Refiner San Nicholas, Aruba • 275,000 bpd capacity U.S. Refining Industry Environment Changing Ethanol Mandate Renewable Fuels Greenhouse Gas Regulations New Export Refineries U.S. Refinery Expansions Canadian Oil Sands High Crude and Retail Fuels Prices Declining Heavy Crude Production U.S. Gasoline World Diesel Demand Growth Demand Pressure U.S. Gasoline Supply/Demand Pressure U.S. Motor Gasoline Supply Outlook MMBPD 10 9 Cellulosic Ethanol 8 Corn Ethanol 7 Imports 6 U.S. Refined Gasoline 5 2005 2010 2015 Source: Revised EIA Annual Energy Outlook 2008, Renewable Fuels Association U.S. demand growth slowing with higher prices and vehicle efficiencies Mandated ethanol blending increasing to 1 MMBPD by 2013 Gasoline imports expected to continue at 1 MMBPD Potential for supply rising faster than demand Outlook for U.S. gasoline supply/demand is changing World Diesel Demand Growth MMBPD U.S. Diesel Demand Projections 7.0 30 6.0 25 5.0 20 2005 2005 2010 Source: Revised EIA Annual Energy Outlook 2008 World Diesel Demand Projections 2015 2010 2015 Source: Average of Consultant Projections U.S. and World diesel demand growth continuing Economic growth in developing countries and U.S. driving demand Global diesel margins expected to remain above historical levels Opportunity for U.S. refiners to produce and export diesel Biodiesel not expected to be a significant contributor Refinery Investments Needed to Increase Diesel Production World Refining Outlook World Refining Capacity and Demand Projections Reliance Jamnagar New Crude Complex, India 110 MMBPD 105 100 95 90 85 80 2008 2011 2014 Source: Reliance Industries website Refining Base Global Expansions Crude Demand Source: Revised EIA Annual Energy Outlook 2008, Valero expansion projections Worldwide refining capacity growth may exceed product demand growth Large scale export refineries being built (Reliance, Kuwait Al-Zour, Saudi Aramco) Several large U.S. refining expansions underway (Motiva, Marathon, Valero) World competition for engineering, fabrication, and construction resources Implies future project slowdowns or asset rationalization Valero Growth Strategies Expect Record Capital Spending in 2009 Focus on Key Refineries Increase ULSD production • Inline with projected world demand growth • Grassroots Gas Oil Hydrocrackers at 5.0 4.0 $ Billion • High Volume • Heavy Sour Crude Feedstocks • Niche Markets Capital Spending 3.0 2.0 1.0 - St. Charles and Port Arthur 2002 Expand Petrochemicals Production 2003 2004 2005 2006 Non Strategic 2007 2008 Strategic • New Aromatics Complex at St. Charles Pursue Alternative Fuels/Gasification • Convert low-value petroleum coke into power and hydrogen • Studying other alternative fuels options Continue to Process Low Cost Raw Materials • Canadian oil sands to Gulf Coast to offset declining Maya production Valero Continuing an Aggressive Program of Organic Growth 2009 Project Execution Challenges Valero Texas City Coker Key Refining Construction Costs 30 $M/BPD 25 20 15 10 5 0 Coker Hydrocracker U.S. Refinery 2003 Current Grass roots coker at Texas City built in 2003 Port Arthur clone set for 2010 at double cost and 33% longer timeline Skilled labor scarce, especially on Gulf Coast Owner’s perspective • Engineering quality and capability stretched • More limited shop space and extended queues • Labor experience, quality, and productivity have decreased Grassroots U.S. refinery estimated costs increased from $15M/BPD to $25-30M/BPD Industry expansions more costly and pace slowing Issues for the E&C Industry Recognize the changing U.S. and Worldwide refining environment Improve labor availability, quality, and productivity Upgrade engineering quality Improve execution timelines Provide better project cost certainty Collaborate with owners to minimize costs and timelines Refining Industry needs a responsive E&C Industry to help meet mutual challenges and economic needs Safe Harbor Statement Statements contained in this presentation that state the Company's or management's expectations or predictions of the future are forward– looking statements intended to be covered by the safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The words "believe," "expect," "should," "estimates," and other similar expressions identify forward–looking statements. It is important to note that actual results could differ materially from those projected in such forward–looking statements. For more information concerning factors that could cause actual results to differ from those expressed or forecasted, see Valero’s annual reports on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission, and available on Valero’s website at www.valero.com.