Basics of Refining and Optimization

December 2, 2019

© 2019 Valero. All rights reserved.

Disclaimers
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,” “illustrative” 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. 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 can not 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.

2
Gary Simmons
SVP Supply, International Operations & Systems Optimization

© 2019 Valero. All rights reserved.

Agenda

1 Crude Oil Overview

2 Refining Basics

3 Refinery Optimization and Economics

4
Crude Oil Characteristics

• Crude oils are blends of hydrocarbon molecules

– Classified and priced by density, sulfur content and acidity
• Density is commonly measured in API gravity
(relative density of crude oil to water)
– API > 10: lighter, floats on water
– API < 10: heavier, sinks in water
• Sulfur content is measured in weight percent
– Less than 0.7% sulfur content = sweet
– Greater than 0.7% sulfur content = sour
• Acidity is measured by Total Acid Number (TAN)
– High acid crudes are those with TAN greater than 0.7
– Acidic crudes are corrosive to refinery equipment and require greater investment to process
significant volumes

Light, sweet, low TAN crudes are easier to process and trade at premiums
relative to heavier, sour, high TAN crudes

5
Crude Oil Basics
Estimated1.66
Estimated 1.66Trillion
TrillionBarrels
Barrelsof
ofOil
Oil
Reserves(2018)
Reserves (2018) Crude
CrudeOil Quality
Quality
Sour
4.0
Russia/FSU Maya
7% Cold Lake WCS

Basrah
3.0
M100 Arab Medium
2.51 Napo

Sulfur, wt%
Southern Green Canyon
South
Middle East America 2.0 Castilla
49% 20% Mars Arab Light
Oriente WTS
United
1.0 ANS Bakken
States WTI Midland
2% Dalia LLS
Western Brent
Africa
Europe Eagle Ford WTI Light
8%
1% 0.0
Canada
10% 0 10 20 30 40 50 60
Sweet
Mexico Asia Pacific API Gravity
0.4% 3% Heavy Light

• Majority of global crude oil reserves are sour

• Most quoted benchmarks are light sweet crude oils (WTI and Brent)

6 Source: EIA and Industry reports.

What is in a Barrel of Crude Oil?
Crude Oil Types Characteristics Inherent Yields

3% 2019 U.S. Refinery

Light Sweet
• > 34 API Gravity Production
(WTI, LLS, Brent) 32%
• < 0.5 % Sulfur Fuel Gas
Propane/
30% 7%
8% Propane
Butane
• Most Expensive Butane
35%
Gasoline
RBOB
CBOB
2% 45% Conventional
Medium Sour • 24 to 34 API CARB
(Mars, Arab Medium) Gravity 24% Premium
• > 0.7 % Sulfur 26%
Distillate
• Less Expensive 48% ULSK
38% Jet Fuel
ULSD
Heating Oil
1%
Heavy Sour
• < 24 API Gravity 15% VGO
(Maya, WCS)
21% 10% Fuel Oil
• > 0.7 % Sulfur Asphalt & Other
• Least Expensive 63% Source: EIA refinery yield through Aug 2019.

7 Refineries upgrade crude oil into higher value gasoline and distillate products
Basic Refining Concept
Intermediates Final Products
C1 - C4 Light Ends Fuel Gas
Recovery & Propane
Natural Gas Treatment NGLs
< 90°F Propane
Crude Distillation Butane

Unit 90– C5 - C8 Isomerization

220°F / Blending Gasoline
(Atmospheric)
Distillation Tower

Light Naphtha

C8 - C12 Reformer /
220– Gasoline
315°F Blending Petrochemicals
Heavy Naphtha

C12 - C30 Kerosene

315– Hydrotreater Jet fuel
450°F Kerosene Diesel

Furnace C30 - C50+ Hydrotreater / Gasoline

450–
650°F Diesel / Hydrocracker Diesel
Crude Light Gas Oil
Oil

C30 - C50+ FCC / Gasoline

Vacuum
Hydrocracker Diesel
650 - 800°F
Distillation Heavy Gas Oil
Unit C50 - C100+ Gasoline
Coker / Resid
+800°F Diesel
Residual Fuel Oil Hydrocracker
Coke
8 / Asphalt
Low Complexity: Hydroskimming (Topping)

LPG Fuel Gas

4% Propane
8% Butane
Distillation Tower

Gasoline
RBOB
Naphtha Gasoline
Reformer 32% CBOB
Conventional
CARB
Premium
Hydrogen

Kerosene ULSK / Jet Fuel Distillate

Distillate 32% ULSK
Light, Sweet Diesel ULSD Jet Fuel
Hydrotreater
Crude ULSD
Heating Oil

Vacuum Gasoil VGO

Vacuum 32% Fuel Oil
Distillation Resid Asphalt
Unit & Other

Low complexity refineries run sweet crude

9
Medium Complexity: Catalytic Cracking
LPG Fuel Gas
8% Propane
Butane
Distillation Tower

Naphtha Reformate Gasoline

Reformer RBOB
43% CBOB
Conventional
CARB
Premium

Light-
Kerosene
Hydrogen
~~
ULSK / Jet Fuel Distillate
ULSK
Distillate
Medium, Diesel Hydrotreater 30% Jet Fuel
ULSD ULSD
Sour Crude

LCO ~~
Alkylate
Heating Oil

Fluid Alkylation
Catalytic Unit
Gas Oil FCC Gasoline
Cracker
Vacuum (FCC)
Distillation Slurry Fuel Oil
Unit Resid / Asphalt
19% Asphalt
& Other

Moderate complexity refineries tend to run more sour crudes,

10 yield more high value products and achieve higher volume gain
Fluid Catalytic Cracker (FCC)
Québec FCC unit.
Fluid Catalytic Cracker Yields
Refinery Gases
Butylene

Fractionator
(Alky Feed)
Gasoline

Reactor
Light Cycle Oil
(Distillate)

Spent

Regenerator
Catalyst Slurry

Gasoil Regenerated
Catalyst

Air
Total FCC liquid volume yield is approximately
110% of throughput.
Converts low value gasoils into higher value light products

11
High Complexity: Coking / Resid Destruction
LPG Hydrogen Hydrogen Fuel Gas
Hydrocracker
Plant Propane
Propane / Butane 6% Butane

Naphtha Reformate Gasoline

Reformer
RBOB

Kerosene
Hydrogen ~
ULSK / Jet Fuel
47% CBOB
Conventional
CARB
Diesel

Hydrogen
Distillate
Hydrotreater
ULSD

~ ~~ Premium

Distillate
Gasoline
ULSK
Medium – Light Gasoil Hydrocracker
ULSD / ULSK / Jet Fuel

~~ 33% Jet Fuel

Heavy, (HCU)
ULSD
Sour Crude LCO
Heating Oil
Alkylation
Butylene
Fluid Catalytic Unit
Alkylate
Cracker Gasoline
(FCC) Slurry

Gasoil Coker Gasoil

Naphtha Reformer
Vacuum
Distillation Resid Delayed Diesel
Distillate Hydrotreater Heavy
Unit Coker Coke 14% Fuel Oil
& Other

High complexity refineries can run heavier, more sour crudes while
achieving the highest light product yields and volume gain
12
Hydrocracker (HCU)
Port Arthur HCU. Hydrocracker Yields

Hydrogen
Refinery Gases

Fractionator
Gasoil

Reactor
Gasoline

Distillate

Unconverted Oil

Total Hydrocracker liquid volume yield is approximately

110% to 115% of throughput.

• Upgrades high sulfur gasoil into low sulfur gasoline, jet and diesel
Port Arthur hydrocracker.
• Increases volumetric yield of products through hydrogen saturation

13
Delayed Coker
Port Arthur Delayed Coker Unit. Coker Yields

Refinery Gases

Coke Drum

Coke Drum

Fractionator
Gasoline

Distillate

Gasoil
Fuel Oil
(Resid)

Coke

Furnace
Total Coker unit liquid volume yield is approximately 80% of
throughput.

Upgrades low value residual fuel into higher value light products

14
Greg Bram
VP Supply Chain Optimization

© 2019 Valero. All rights reserved.

Maximizing Refinery Profit

Feedstocks (100+) Products (30+)

• Prices • Prices
• Qualities
Refinery • Specifications
• Availability • Market demand
(purchase volumes) (sales volumes)

• 10 to 25+ individual process units

• Unit hardware constraints
• Operating parameters
• Operating costs

• Relationship between variables modeled in series of linear equations

• Linear program used to find combination of feed slate, products, unit operating rates, and
operating parameters that delivers highest profit

16
Linear Program (LP) Example: What’s for Breakfast?

$2.50
$2.00
$4.00
$3.50 $2.50

Nutritional Information
Serving Size $/Serving Protein (g) Total Fat (g)
Bagel 1 large bagel $ 2.00 3 1
Oatmeal 1 cup $ 2.50 4 1
Eggs 2 large eggs $ 3.50 6 5
Bacon 3 slices $ 4.00 8 8
Orange juice 1 cup $ 2.50 2 0

Your goal is to consume at least 18 grams of protein, but not

more than 10 grams of total fat for the lowest price.
17
Optimizing Breakfast from an Engineer’s Point of View
Solve for number of servings of each item:

Consume at least 18 grams of protein

18
Oatmeal Eggs Bacon Juice
Bagel
Servings
3g
Servings
4g
Servings
6g
Servings
8g
Servings
2g
≥ grams
protein

Consume no more than 10 grams of total fat

10
Juice
Bagel 1g
Oatmeal 1g
Eggs
Servings
5g Bacon
Servings
8g
Servings
0g ≤ grams
Servings Servings total fat

Minimize the cost of breakfast

Bagel Oatmeal Eggs Bacon $4.00 Juice $2.50

Servings
$2.00
Servings
$2.50
Servings
$3.50
Servings Servings = Minimum

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 isn’t efficient

18
What’s Best?

Servings Unit Cost Protein (g) Total Fat (g)

Bagel 0
Oatmeal 2.7 X $2.50 = $6.75 X 4 = 10.8 X 1 = 2.7
Eggs 0
Bacon 0.9 X $4.00 = $3.60 X 8 = 7.2 X 8 = 7.2
Orange juice 0
Total meal $10.35 18 10
GOAL = Lowest cost Min 18 g protein Max 10 g fat

• Linear programming is a branch of applied

mathematics concerned with problems of
constrained optimization
• Started in 1947 and used by the US Air Force
to optimize logistics
• Price and “quality” of each variable drive the
optimum solution

19
Crude Oil Valuation

• Linear programs are used to calculate relative refining values

(quality differentials) for crude oils versus a benchmark, such as
Brent or WTI
• Relative value for a crude is largely determined by its yields
• Wider discounts ($/barrel) are needed for medium and heavy sour
crudes to break even with light sweets
• Percentage discount required for medium and heavy sours to break
even with light sweets stays about the same at low and high flat
prices

20
Crude Break Even Values
Light Sweet(1) Medium Sour(2) Heavy Sour(2) Light Sweet Light Sweet
@ $99/bbl @ $51/bbl
Products Yields Yields Yields Prices 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

Break Even Value (BEV) = Alternate Crude Total Product Value – Reference Crude Total Product Value

Light Sweet Light Sweet BEV BEV

@ $99/bbl @ $51/bbl @ $99/bbl @ $51/bbl
Crude BEV BEV % of Light Sweet % of Light Sweet

Medium sour -$3.55 -$2.58 96% 95%

Heavy sour -$7.76 -$5.65 92% 89%

BEV for alternate crude as a percentage of reference crude value is relatively insensitive to flat price environment

21
Crude Oil Differentials Versus ICE Brent
5%
Premium

0%

-5%

-10%
Discount

-15%

-20%

Maya (heavy sour) ASCI (medium sour) WTI (light sweet) LLS (light sweet)

-25%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: Argus; 2019 prices through November 2019. All prices are spot values. ASCI represents Argus Sour Crude Index.

22
Questions and Answers

23
Appendix Contents

Topic Pages
Hundreds of Crude Types Around the World 25

Major Refining Processes – Crude Processing 26

Major Refining Processes – Cracking 27

Major Refining Processes – Combination 28

Major Refining Processes – Treating 29

Refining Acronyms 30

IR Contacts 31

24
Hundreds of Crude Types Around the World
• Al Shaheen • Basrah Light • Kole • N'kossa
• Alaska North Slope (ANS) • BCF 17 • Kuito • Nanhai Light
• Alba • Belayim Blend • Kutubu Blend • Napo
• Algerian Condensate • Belida • Kuwait • Nemba
• Amna • Beryl • Labuan • NFC II
• Anasuria • Bintulu Condensate • Laminaria • Nile Blend
• Arab Extra Light • Bonny Light • Lavan Bleznd • Njord
• Arab Heavy • Boscan • Light Louisiana Sweet (LLS) • Norne
• Arab Light • Bow River • Liverpool Bay • NW Shelf Condensate
• Arab Medium • Brass River • Mandji • Olmeca
• Arab Super Light • Brega • Maureen • Oman
• Ardjuna • Brent Blend • Marib Light • Oriente
• Arun Condensate • Brunei Light • Marlim • Oseberg
• Asgard • Cabinda • Mars Blend • Oso Condensate
• Attaka • Canadon Seco • Masila • Palanca Blend
• Azeri Light • Cano Limon • Maya • Panyu
• Bach Ho • Captain • Medanito • Pennington
• Bachaquero • Ceiba • Minas • Pierce
• Bakken • Cerro Negro • Miri • Qatar Marine
• Cold Lake • Champion • Mixed Blend Sweet • Qua Iboe
• Cossack • Cinta • Murban • Tapis
• Cusiana • Furrial • Rabi • Tengiz
• Daqing • Gippsland • Rincon • Terra Nova
• Djeno • Girassol • Saharan Blend • Tia Juana Light
• Doba Blend • Glitne • Sarir • Triton
• Draugen • Gryphon • Schiehallion • Troll
• Dubai • Gullfaks • Senipah • Turkmen Blend
• Dulang • Handil Mix • Seria Light Export • Umm Shaif
• Eagle Ford • Hanze • Shengzli • Upper Zakum
• Ekofisk • Harding • Siberian Light • Urals
• Es Sider • Heavy Louisiana Sweet (HLS) • Siri • Varg
• Escalante • Heidrun • Sirri • Vasconia
• Escravos • Hibernia • Sirtica • Wafra
• Flotta • Iran Heavy • Sleipner Condensate • West Texas Intermediate (WTI)
• Foinaven • Iran Light • Snorre • West Texas Sour (WTS)
• Forcados • Isthmus • Sokol • Widuri
• Foroozan Blend • Jasmine • Souedieh • Xikomba
• Forties • Jotun • Statfjord • Yoho
• Fulmar • Khafji • Suez Blend • Zafiro
• Kirkuk • SyncrudeSweet Blend • Zakum
• Kittiwake • Syrian Light • Zarzaitine

25
Major Refining Processes – Crude Processing

• 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.

26
Major Refining Processes – Cracking

• 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 the heavy feed.
– Catalytic cracking – A central process in refining where heavy gas oil range feeds are subjected to
heat in the presence of catalyst and 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.

27
Major Refining Processes – Combination

• Definition
– Linking two or more hydrocarbon molecules together to form a large molecule (e.g. converting
gases to liquids) or rearranging to improve 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 numbers. Octane numbers are measures 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.

28
Major Refining Processes – Treating

• 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.

29
Refining Acronyms
• AGO – Atmospheric Gas Oil • kVA – Kilovolt Amp
• ATB – Atmospheric Tower Bottoms • LCO – Light Cycle Oil
• B–B – Butane-Butylene Fraction • LGO – Light Gas Oil
• BBLS – Barrels • LPG – Liquefied Petroleum Gas
• LSD – Low Sulfur Diesel
• BPD – Barrels Per Day • LSR – Light Straight Run (Gasoline)
• BTX – Benzene, Toluene, Xylene • MON – Motor Octane Number
• CARB – California Air Resource Board • MTBE – Methyl Tertiary–Butyl Ether
• CCR – Continuous Catalytic Regenerator • MW – Megawatt
• DAO – De–Asphalted Oil • NGL – Natural Gas Liquids
• DCS – Distributed Control Systems • NOX – Nitrogen Oxides
• DHT – Diesel Hydrotreater • P–P – Propane–Propylene
• DSU – Desulfurization Unit • PSI – Pounds per Square Inch
• EPA – Environmental Protection Agency • RBOB – Reformulated Blendstock for Oxygenate Blending
• RDS – Resid Desulfurization
• ESP – Electrostatic Precipitator • RFG – Reformulated Gasoline
• FCC – Fluid Catalytic Cracker • RIN – Renewable Identification Number
• GDU – Gasoline Desulfurization Unit • RON – Research Octane Number
• GHT – Gasoline Hydrotreater • RVP – Reid Vapor Pressure
• GOHT – Gas Oil Hydrotreater • SMR – Steam Methane Reformer (Hydrogen Plant)
• GPM – Gallon Per Minute • SOX – Sulfur Oxides
• HAGO – Heavy Atmospheric Gas Oil • SRU – Sulfur Recovery Unit
• HCU – Hydrocracker Unit • TAME – Tertiary Amyl Methyl Ether
• HDS – Hydrodesulfurization • TAN – Total Acid Number
• ULSD – Ultra Low Sulfur Diesel
• HDT – Hydrotreating • ULSK – Ultra Low Sulfur Kerosene
• HGO – Heavy Gas Oil • VGO – Vacuum Gas Oil
• HOC – Heavy Oil Cracker (FCC) • VOC – Volatile Organic Compound
• H2 – Hydrogen • VPP – Voluntary Protection Program
• H2S – Hydrogen Sulfide • VTB – Vacuum Tower Bottoms
• HF – Hydroflouric (acid) • WTI – West Texas Intermediate
• HVGO – Heavy Vacuum Gas Oil • WWTP – Waste Water Treatment Plant
• kV – Kilovolt

30
Investor Relations Contacts

For more information, please contact:

Homer Bhullar Gautam Srivastava Tom Mahrer

Vice President, Investor Relations Manager, Investor Relations Manager, Investor Relations
210.345.1982 210.345.3992 210.345.1953
[email protected] [email protected] [email protected]

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