Company Name: Valero Energy Company Ticker: VLO US Date: 2013-03-07 Event Description: Bank of America Merrill Lynch

Refining Conference

Market Cap: 25,744.57 Current PX: 46.56 YTD Change($): +12.44 YTD Change(%): +36.460

Bloomberg Estimates - EPS Current Quarter: 1.014 Current Year: 5.703 Bloomberg Estimates - Sales Current Quarter: 30109.200 Current Year: 125027.444

Bank of America Merrill Lynch Refining Conference Company Participants

William R. Klesse Joseph W. Gorder

Other Participants
Doug Leggate

MANAGEMENT DISCUSSION SECTION

William R. Klesse
Going to be snow, and I wondered how many would show up. There was no snow. So you all deserve a lot of credit for your interest in Valero and in the industry, and I want to thank you for being here. Appreciate very much.

Doug Leggate
Bill, the slides are coming up here in a second.

William R. Klesse
Oh, okay.

Doug Leggate
Just moving those over.

William R. Klesse
So we had an excellent 2012, and the fundamentals continued to improve. So they remain with us; they're improving. And just think about some of Doug's slides just then. But we have low natural gas costs. We have lots of crude oil coming at us, and it keeps getting more and more. Every forecast is raised. A whole bunch of consultants have come out the other day and have raised these differentials going through the rest of the year. And exports are key to the industry. So, basically, there's more refining capacity in the United States relative to demand. So you have to have exports. So our Safe Harbor. So I know some of you follow us; some don't. So just a brief overview. We have 16 refineries, about 3 million barrels a day of capacity. When you count crude and feedstocks, we run about a little over 2 million barrels a day of crude. 6,800 branded, so we're really a refiner in the wholesale market or with a branded marketing operation. We're spinning off our retail, which I've got a couple other slides. That's the company-operated piece of the retail. We have a large renewable fuels business. We believe ethanol continues to be the part of the fuel mix. We think E10 is part of the mix. E85 is part of the mix. We're not supporters of E15. Diamond Green Diesel is a project that's

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Company Name: Valero Energy Company Ticker: VLO US Date: 2013-03-07 Event Description: Bank of America Merrill Lynch Refining Conference

Market Cap: 25,744.57 Current PX: 46.56 YTD Change($): +12.44 YTD Change(%): +36.460

Bloomberg Estimates - EPS Current Quarter: 1.014 Current Year: 5.703 Bloomberg Estimates - Sales Current Quarter: 30109.200 Current Year: 125027.444

going to produce renewable diesel that actually fits into the California regulations. That should be done in the second quarter. We have a partner there in Darling out of Dallas. And we have approximately 22,000 employees, but that will drop significantly when we spin off retail in the second quarter. Looking at our footprint, we're a diverse organization. Obviously, you could see the ethanol plants in green, and the light green up in the Midwest. The refineries we've spread out across the country. We exited the East Coast of the United States, but we did buy Pembroke in Wales in the UK. And we shut down our Aruban refinery. It's now a terminal. But the refinery is mothballed, as there's a lots of development happening in the Caribbean, and the refinery has excellent crudes, vacuum, visbreaker, and cockers. We think, as you see in the lower right, complexity still matters, and I'll acknowledge to you it's location, location, location. And if you don't have location, you have to have logistics, but still you have to still have to have the hardware. I mentioned that we're spinning off retail. For those that don't follow us, it's actually a spin to our shareholders. We're going to spin 80%. It's a value creation. If you look at the chart, really tells the story of what we're doing. And by the way, this whole presentation's in our handout, plus a very thick appendix. Matt and Ashley have spent a lot of work on our presentation, so there's a lot of industry data there, as well as specific to Valero, so make sure you grab a copy of it. But looking at this, this is the delta chart of EBITDA multiples. We picked two of them, Couche-Tard and Casey's. You can see how it's tracked over the years. It's compared to Valero, so it's the delta. We really think we're going to have a lift here of 4 to 5 times when we spin it to our shareholders. Value creation is somewhere in the neighborhood of $1.6 billion to $2 billion of value creation. It'll be a dividend. We do 80%, we are levering it up a little bit. Valero will get about $800 million net after we pay some taxes in Canada, but it's a tax-free spin And a little more on this is: CST is 1,900 units. It'll be one of the largest retail businesses in the U.S. It's 1,000 company-operated stores, most of them in the Southwest, going out through California; Canada it's 800. There's three basic businesses, as you can see there, and we also have a Home Heat business. The highlights, it's large. Obviously it's a large scale. 61% of the U.S. sites are in Texas, which is obviously a more favorable economic area. And there's lots of ownership in the U.S., so 82% or so of the outlets are actually owned. So solid track record. You can see that on page 30 in the appendix if you want to look at it later. It shows you the history of its EBITDA performance. It's a competitively positioned business. It's excellent logistics, private-label program, food is one of the big growth items in retail. And we have excellent leadership, very capable leadership, in that business. Switching back to Valero, the first four items listed here really apply to the entire industry. The last one is a little more specific to Valero. There have been closures. I know some refineries have come back from the dead. Some of them are already dead; they're just zombies and they don't know it. But some have come back. If you think about the whole competitiveness of the U.S. and I'll go into that in more detail we have this oil. It is coming. We talk mostly about oil and natural gas in this presentation, but I can for those of you investing in other companies, the NGLs are coming just as quickly: ethane, propane, butanes are all coming with the gas production. And the last one that's very specific to Valero is that we have a changing yield structure from our refineries. We are very focused on distillates, high-margin items, and actually it's gas to liquids, which I'll cover a little more. So looking at the closures, there have been closures in the Atlantic Basin, whether it's the East Coast, the Caribbean, Western Europe, things have closed. [indiscernible] (6:46) is closed and gone, Marcus Hook is gone. If you think about Hess has announced Port Reading, shut down. Imperial in Canada, Halifax, there's some debate where that's going to actually wind up. Tesoro announced Hawaii is going to shut down. Australia, there's shutdowns. So as you look at this chart, there are closures. Yes, Trainer did come back from the dead. We understand that. Petit-Couronne in France is down. It's not running oil. Our view is it's going to eventually close. The weakest competitors, quite frankly, are Western Europe. If you think about it, as we go through this, they don't have low-cost natural gas, they don't have the oil coming, so it's obviously in the Atlantic Basin the weaker competitor. Exports are key, because on the supply side, obviously Venezuela, Mexico, there's been lots of refining issues, so that creates a market for us.

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Company Name: Valero Energy Company Ticker: VLO US Date: 2013-03-07 Event Description: Bank of America Merrill Lynch Refining Conference

Market Cap: 25,744.57 Current PX: 46.56 YTD Change($): +12.44 YTD Change(%): +36.460

Bloomberg Estimates - EPS Current Quarter: 1.014 Current Year: 5.703 Bloomberg Estimates - Sales Current Quarter: 30109.200 Current Year: 125027.444

Looking at the Atlantic Basin, it's been a key part of our strategy. We exited the East Coast. We picked up Pembroke from Chevron into the whole business. You can see how products move in this Atlantic Basin. This is a big market, as you guys can imagine, between the U.S., Western Europe, South America, and West Africa. So you could see that we are moving these products all around, and we compete very well in the business. So looking at the Gulf Coast and some of the crude discounts, product margins, and we have a couple more slides on this, but it is the topic that gets a lot of attention here. But you can see the blue is the fourth quarter of 2012, and the red is the first quarter of quarter to date of 2013, so gasoline, gas crack, is a little better. The distillates just a hair less. The LLS to Brent, still it does not reflect where we think it's going. We truly believe LLS will sell at a discount to Brent. And it's going to happen here. It bounces around, it did for a while, now goes back on a positive. But it has to, if you think about it. It has to just because of price. And then you can see the Mars, the medium sours and the heavy sours here. The fourth quarter, we had very good heavy sour discounts, lot of oil was into the Gulf of Mexico, heavy oil, and thus coking was very good in the fourth quarter. And, remember, Valero has a mixture of light crude refineries and heavy crude refineries. Now, so we talk about the shutdowns there, and then you come over to the demand side. This gives you a long history of demand. 2004, if you remember, which really kicked off the golden age of refining in this sense, was huge demand, to think that the world grew almost 3 million barrels a day of oil consumption. Very large. The rest of the periods you could see obviously 2009, the end of 2008 and 2009, were huge hits. Frankly, the U.S. has not recovered from that, and you all know that when you look at the distillate numbers, the gasoline demand numbers, are still way down. Then you see the recovery in 2010 and you get out here to 2012. We think a net number there is about 700,000 barrels a day of growth. This year we're looking for more around 1 million barrels, 900,000 barrels a day to 1 million. And there's a lot of different forecasts, and we're only at the beginning of March. But clearly, the world continues to grow, and that's in the developing countries of the world. It is really not growing, as the chart actually shows here, in Western Europe, Japan, or the United States. With economic recovery Doug had it on his slide we should get some uptick in demand. But demand growth in North America is not a key part of Valero's story about our stock performance. Now, capacity's growing in the world as well, and quite a bit of capacity's coming in. We show here 2013 through 2017, and obviously the further you get out, it gets a little hazier, and we know that. 2013-2014's pretty solid, and 2015. You can see there's capacity in China and the Middle East coming on. The two Saudi refineries are shown here in blue, and you see that. And so there is growth. The other side of it is, just remember, some of the new capacity that's been announced in Mexico, Brazil, Colombia, a lot of these places, it's either not going to get built or it's going to be far later than what has been forecast. And you say, well, why? Remember this Brazilian refinery that's going to be done here in another year or so originally was going to be $4 billion. It was going to be already running. They're now talking about $20 billion, and it's still got another year or so to get there. The Tula refinery in Mexico. They're saying $12 billion. I'll assure you, if they build that, it's going to be much more than $12 billion. So and personally I don't think that the new administration in Mexico will do this. But if they do, it'll be later, and it's going to cost them a lot more, and thus that's why, as you see our story, we think exports for the entire industry, not just Valero, in fact happen. And I'll talk more about that in a few minutes. The other places, though Ecuador, Peru, Algeria, Egypt they just don't have the money for these kinds of things, so they announce the stuff it's not going to happen. So what's happening with crude oil? Well, if you don't know about this, I guess you haven't been paying attention, because oil is coming very rapidly. There's all different kinds of forecasts, 700,000 barrels a day increase, 800,000 barrel a day increase. I saw another guy here in New York put out 1.3 million barrels day. January of 2013 to January of 2012, I think it was up 1.3 million barrels a day. That's oil, 55 API or less. Then you have all the NGLs on top of that. So this production is coming very rapidly. So if we look at this, just on this slide here, and then if you look at our lines, the orange dotted line is the U.S. Gulf Coast light crude imports for last year, and you can see it averaged about 500,000 BPD here 449,000. But in December, it was all the way down to 100,000 BPD 150,000. Now, the facts are, remember in December, lots of different things happened: LIFO, there's a lot of things in our industry. But the facts are, this is coming down rapidly. Few years ago it was 1.5 million barrels a day of imports into the Gulf Coast of light sweet crude.

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Company Name: Valero Energy Company Ticker: VLO US Date: 2013-03-07 Event Description: Bank of America Merrill Lynch Refining Conference

Market Cap: 25,744.57 Current PX: 46.56 YTD Change($): +12.44 YTD Change(%): +36.460

Bloomberg Estimates - EPS Current Quarter: 1.014 Current Year: 5.703 Bloomberg Estimates - Sales Current Quarter: 30109.200 Current Year: 125027.444

And as you can see in the chart, as much oil is coming. BP is the green, their conversion, in 2013. That's a little delayed now, so I'm unclear when their project's actually going to be done, but it's very large 200,000 barrels a day or so. So a lot of sweet oil's getting push back into Cushing, let alone the production, and then it's eventually going to get pushed to the Gulf Coast, and the pipelines are getting built. And in the back, in the appendix, we have all this detail on these pipelines. The place that it's going to move to, though, is the U.S. Gulf Coast. So in this slide, then, we show some of the logistics capabilities, and this is logistics to the U.S. Gulf Coast. So we have in 2016 an estimate, that black dotted line on the chart, which is a little less than 4 million, but frankly every single forecast we get from people now, it's always higher. I can't think of anybody that's revising their production forecast down. So here's a forecast says this, but the facts are the oil is being found, produced, and eventually coming to market. So if you look at this chart and you can see we put on the Gulf Coast, too, that dotted orange line you can see that there will be a lot of takeaway capacity. This includes rail and pipe, rail primarily from the Bakken, because we think that is how it's going to clear. Pipe from Cushing, bringing this all to the Gulf Coast. This to the Gulf Coast logistics. This doesn't count some of the other logistics. And just so you know how our chart works here, this is a year-end number, so that you can see. So it won't be an average for the year. But it is going to the Gulf Coast very quickly. When the arb is open as wide as it is, $20, pick your numbers at different places, $40 against Brent for WCS, things like that, you know things are going to get built. There's too much money sitting there. So, at great risk, but since everybody wants to talk about this, this is kind of the how we look at it for the next 12 to 24 months. Now, part of this chart for us the key is to think that we believe New York Harbor is where it's going to balance against Brent. So Brent's still coming into the East Coast. You're going to ship it from the Gulf Coast. So you're going to rail it into the East Coast all of you are following the other companies that operate on the East Coast; they're all building rail. Phillips 66 publicly announced that they had contracted for a ship to bring it up from the Gulf Coast. You know if anybody wanted to do more of that, it's $5 to $6 a barrel from the Gulf Coast on a Jones Act ship. So you know these markets are clearing like this. Our view is New York Harbor's the place it's going to clear, and then you're going to have diffs all the way back to all the appropriate places that ultimately approach the taps, until the point where you have no other place to put the oil. I believe that's further out, though, because refiners like us, other refiners, are all trying to figure out how to run more light oil. So in the U.S. Gulf Coast, where you have heavy crude refineries, we're trying to figure out how to run more light oil, which we'll talk some more about. So you see how all this clears. So the Bakken's clearing by rail. We already know we didn't put the line on here, but another one of the companies is taking it out to Washington by rail. So you know it clears like this, rail terrace, pipeline terrace, it's all eventually going to come to the Gulf Coast. So our view is that Cushing, when you get closer to the end of the year, and so let's say it's late, so now we're into 2014, but you have Keystone South with a lot of capacity. Seaway's building another line. Eventually they'll solve their problem in Houston, and they have the other line. You have the BridgeTex line. You have Longhorn reversing. You have all these pipelines that are bringing Cushing West Texas down to the Gulf Coast. And then the question becomes, how fast is the production going up? And is it going to overwhelm the Texas-Oklahoma area by production increase? If not, this almost has to go to some relative ratio to tariff. If production overwhelms, then you're still in the same boat, producers looking for more general takeaway capacity. You look at the Bakken, you look at the Canadian, same kind of situation. How's it going to move? Well, the increment's rail. We're buying rail cars just like everybody. It's very interesting, when you think about it, that guys like me are talking about rail cars. The next slide here is Keystone. We believe it will be approved. So we're sticking to our story. The environmental impact statement really didn't raise any issues. They altered the route there over the Sand Hills in Nebraska again down the Steele City. So we do believe it'll happen. We think it's a 2015 project. The southern leg, though, is happening. Remember, that is under construction here. We expect the southern leg to be done late 2013, maybe it's the early part of 2014. That goes into Port Arthur. That is an advantage for Valero. We want the oil over Port Arthur. We don't necessarily want it in Houston. So that helps us a lot. Then it goes down to Houston. So we do expect rail, all these pipelines, all these other things, to happen. If Keystone's not improved, the oil's still going to come to the Gulf Coast.

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Company Name: Valero Energy Company Ticker: VLO US Date: 2013-03-07 Event Description: Bank of America Merrill Lynch Refining Conference

Market Cap: 25,744.57 Current PX: 46.56 YTD Change($): +12.44 YTD Change(%): +36.460

Bloomberg Estimates - EPS Current Quarter: 1.014 Current Year: 5.703 Bloomberg Estimates - Sales Current Quarter: 30109.200 Current Year: 125027.444

And I believe what'll happen here is the producer's going to lose some of their revenue. Because it's going to go by rail, it's going to go by alternate pipelines, it's going to go by barge. It's still going to flow. So back to Valero. So some of this was just industry stuff there, which does impact us greatly, though. But back to Valero here, we always get the question of how much light oil can you run, because we're deemed to be this heavy crude refiner. But, frankly, we run a lot of light oil as well. And a couple years ago, I never would have said that at one of these meetings, because we wanted to be known as a heavy crude refiner. But you can see here, we've been doing things, imports in the fourth quarter. We did not run on the Gulf Coast any foreign light sweet. In January, we did buy a distressed cargo of some light sweet. So we always, if you listen to our earnings call, we always act in our economic interest. And so there was some economics there to do that. But you can see some of the movement in the mediums and light. We can run today over 500,000 barrels a day. But we're doing a lot of stuff as well that'll allow us to run more light sweet, substituting a lot of what? Our medium sours, pushing the medium sours out. Medium sours are Middle East crudes, some of the Brazilian crudes, those types of crudes start to get pushed out. Now, one of the huge advantages, because if you remember earlier, I said we don't really think U.S. demand is even with a strong economy, and, yes, we'll sell more fuels, because over 80% of Valero's output is fuel we'll sell more in the United States, but that's not really our story. Our story is that this is one industry in this country that can compete, one manufacturing industry that can export. Some of the reasons sure, we have great talented people, skills, welders, pipe fitters, operators, instrument people, lots of skill sets, but we also have some fundamental advantages now that we didn't have a few years ago. Low-cost natural gas it's huge for a company like us. So just to put this in perspective for you, $0.25 per barrel in operating costs, cash operating costs, or cost of goods sold, which is hydrogen; it's about 50-50. $0.25 per barrel, so it's cash, per $1 per Mcf. So if you had an $8 lower per Mcf or million BTU gas price, that's $2 a barrel's cash for Valero. I've seen some other companies give this number. This has the reason ours is a little higher is we have a lot of hydro-processing. Now, so you take natural gas to hydrogen, hydrogen into the products, and that is a cost of goods sold. But cash wise, $8 on gas, $2 a barrel. Why is that so significant? Valero's cash operating costs, $3.60 a barrel, $3.70 a barrel, it's right in that range. And I know you're wondering, well, why do you put that to $0.09 a gallon, right? So now you're wondering, why do you pay $4 at the pump? Well, it's not because of the refiner. But anyhow, think about the magnitude of what I said on natural gas. If our cash operating costs are $3.60, and an $8 difference is worth $2, you can see this is a huge competitive advantage. So, looking at the chart, in the U.S., we just used $3 here; I know it's a little higher than that. If you go over here and use $9 in Europe, if you come over and use $15 on LNG, you can see why we can compete. We use 700 million BTUs a day, or Mcf a day, every dollar is $700,000 a day. And then you can convert it to the proper places on our income statement. But you can see this is significant, a huge competitive advantage that is unique to the North America. Now, the other thing that Valero's doing is we're growing distillate production, we're really changing our output. And we do that because distillates are growing faster in the world and have better margins, and then there's another reason as well. So the chart on the left shows the margins, red is diesel versus Brent, and the blue is gasoline. And so gasoline started out weak, but it always starts out weak. Remember we're dealing year to date in 2013 versus 2012 as the whole year. So you can see, though, where the margins are. But growth diesel on average is growing two times gasoline in the world. Now, 2012 it was flatter. Remember China was having a contraction. We had mild winters. There's been a lot of things going on here, but we still believe diesel's going to grow twice as fast. So you can see lots of growth. And so Valero, then, has been continuing to make more distillates. So we have these two big hydrocracker projects, about $1.5 billion, $1.6 billion apiece. We finished the one at Port Arthur. It's operating, and it's 60,000 barrel a day hydrocracker; our permit's 57,000 barrels. And the one at St. Charles will be done and operating in the second quarter. And we're a little behind on that, finishing it. These are very large jobs for our company, there's no question about it. But they are the right job today, because they make diesel, and if you think they're a gas to liquid. So you look at these projects, very unique to us, and you go to this chart, and you see what's happening. So our distillate yield before the hydrocrackers came online was about 33% of our product, because, remember, the U.S. business is geared to make gasoline. And so, U.S. demand, roughly 9 million barrels a day of

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Company Name: Valero Energy Company Ticker: VLO US Date: 2013-03-07 Event Description: Bank of America Merrill Lynch Refining Conference

Market Cap: 25,744.57 Current PX: 46.56 YTD Change($): +12.44 YTD Change(%): +36.460

Bloomberg Estimates - EPS Current Quarter: 1.014 Current Year: 5.703 Bloomberg Estimates - Sales Current Quarter: 30109.200 Current Year: 125027.444

gasoline. Take ethanol out, about 8 million barrels a day. 8.2 million, 8.3 million comes from refineries. Diesel business is about 3.6 million barrels a day, 3.7 million barrels a day in the U.S. So even in the U.S., it's very gasoline oriented, but in the world, distillates demand is higher than distillate demand or consumption for gasoline. So then you can see here, just a couple of competitors. With our hydrocrackers operating, we're going to be just about at 40%, 39%. The chart on the other side just shows the gasoline and diesel. But the key point with us is we really are changing our output a lot here, and when we we're going to expand these units. We have another project we're working on at Meraux, and we will very soon, probably by 2015, we will be really a one-to-one gasoline to distillate ratio operation. And the reason you have two things going on, on these hydrocrackers. You have the distillate, which I just spoke about, this distillate crack. But they are also we have a very nice chart in the appendix they are gas to liquids projects. Natural gas to hydrogen, hydrogen into the hydrocracker. One barrel in, we get 1.2 barrels out. That 0.2 came from the hydrogen. $3 natural gas, let's just say it's hydrogen is $40, $50, and then it makes distillate $110. So that gas portion, the gas to liquids piece there, has a gross margin, $50, $60, $70 a barrel. So you have gas to liquids and you're going to see more of these type projects, I believe gas to liquids, and then you have the product that you ultimately make, the majority product, actually being distillates, growing faster in the world. So we continue to improve our operations. We're working hard on this. First quartile is our goal. It's a goal for the last two years for any of you that have followed us. We have added significant improvements. Energy continues to improve. Our CO2 footprint is shrinking. When you look on a same like the same basis, if you took it to the same basis, you can't count new units, keep it to the same basis our CO2 footprint shrinks. And if you look at mechanical availability, it's improved remarkably, a major effort in the company. We want to be a safe, reliable, and steady operation. And we slipped a little in 2012, but that was primarily driven by Meraux, where we had an upset. And then we did some work, and we actually did what they call positive material identification in a very thorough thickness inspection. Took us about three months. Capital spending. Last year we spent $3.4 billion. In 2011 we spent $3 billion. We have had high spending. You could see the different categories on the chart. We had given you guidance of $2.5 billion for 2013. We've raised our guidance to $2.85 billion here at this meeting and in this handout. That $350 million increase, part of it is St. Charles. We're overrunning have overrun and delayed at St. Charles. Also we have some logistics that we're doing. Obviously we're doing as I said earlier we're doing rail as well, so we do have guidance. When we look out to 2014, we're still in that $2.5 billion, $2.6 billion, $2.7 billion range. So capital spending has dropped for Valero or is expected to drop for Valero. And then we have very good financial strength. We expect to generate a lot of free cash flow, a lower capital spending, the margins, and all of that. We've been returning cash to the shareholder. We raised our dividend here in January, so we're up to $0.20 a quarter or $0.80 a year. Over the last two years, we've bought 27 million shares. And you can see that at the bottom chart on your right, shows you we've been returning cash to the shareholder. And our dividend payout up at the top, you can see that chart as well. Our goal is to have one of the highest cash yields. We know that's come down quite a bit here with the stock run we've had, but it still remains one of our goals. We have lot of cash, good credit, nothing drawn. Our balance sheet's very strong. One of our other goals is to maintain our investment-grade rating. This retail spinoff, though, the way I view it and the way Gene and Joe would view it, is this is a dividend to our shareholder. We're dividending value to the shareholder, so we continue to be value focused in returning value to the shareholder. So our strengths you expect us to do this. This is our job, to be focused on safety, environmental, regulatory, compliance you expect that. We all know what happens when managements fall down in this area and our people fall down, so very strong focus. We need to complete our projects. I've mentioned we're a little behind at St. Charles. It'll get done here in the second quarter. We continued to improve our portfolio and continue to return cash to our shareholder, with our goal being to increase our long-term shareholder value. And even though we've had quite a stock run, we still believe a stock price run we still believe that we're an excellent buy still. Lots of things are going our way. Remember, a few years ago, I come to a meeting and you all thought Reliance was going to kill us. I haven't had a question on Reliance unless I bring it up.

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Company Name: Valero Energy Company Ticker: VLO US Date: 2013-03-07 Event Description: Bank of America Merrill Lynch Refining Conference

Market Cap: 25,744.57 Current PX: 46.56 YTD Change($): +12.44 YTD Change(%): +36.460

Bloomberg Estimates - EPS Current Quarter: 1.014 Current Year: 5.703 Bloomberg Estimates - Sales Current Quarter: 30109.200 Current Year: 125027.444

The U.S. is so competitive here, and Valero is doing the right things to capture its piece of this market that lets us to be able to export. It's not the same as the golden age of refining. This is between the mountains. You think about it, it's between the Appalachians, and it's between the Rockies. It's all about location in this corridor, and if you don't have the location, you have to have those logistics to try to take advantage. So it's coming down, the oil, everything's coming down toward the Gulf Coast, and that's why these discounts and everything are going to move that way, and that's why Valero is very well situated to do that. So Atlantic Basin, there's been closures. Who's the weak link refining in the Atlantic Basin now? Western Europe. The magnitude, maybe 2 million to 3 million barrels a day. You can see how the whole thing is shaping up for us. Shale production, investing in projects so we can move lots of barrels. The hydrocrackers are a uniqueness to Valero. They're coming on a lot one's on, the other one's coming. And we expect to return more cash to the shareholders. And our retail spin it's very difficult for us to figure out how much the market is giving us credit for this $3 to $5 of value that's being spun out. And with that, I thank you very much.

Q&A
<Q - Doug Leggate>: Bill, thank you very much indeed. We are running a few minutes late, folks, but we are going to take five or 10 minutes for questions. And I believe there's a button in the back of your seats, if you have any questions, and we also have a microphone here if the buttons aren't working. On both sides, thank you. Bill, maybe I could just take off with one. You did mention the potential for LLS discounts relative to Brent. There's a lot of moving parts, obviously, particularly with Keystone, potential exports or swaps with Mexico, I think are now being talked about by the EIA. How do you expect heavy oil discounts to follow LLS, or at least how do you expect that relationship to move forward? <A - William R. Klesse>: So the way we would look at the heavy crude discounts is they're going to be against Brent. So we expect so you got Brent. We expect LLS to go below Brent, and in our mind it has to, because you have all this light oil. Now, it does depend where you talk about. So we'll say St. James, Houston, Houston/Corpus Christi. There's going to be all these differentials on the Gulf Coast. But if we just make this simple, Brent, a discount LLS. Then you're going to have a discount for heavy Maya, but it's really going to be relative back to Brent. So I would say to you, if everything happens the way we just said, LLS to Maya will narrow. It'll still be economic to process, though, into a sunk coke, because if you have a 10%, 12% price discount against Brent, you'll have economics through your coke. And then who sets the price for the products? Products can be exported, so products are at world price. Brent is the crude that's setting basically, in the whole scheme of things, world prices. So what happens? We'll still have margin to do it. But I would not mislead you. Our view is LLS to Maya, say Maya heavy crude price, will narrow. Brent will stay wide enough to run. <Q - Doug Leggate>: Thanks. Any questions from the floor? And, again, we have two microphones on either side. Right here in the front. <Q>: What about LLS to WTI? <A - William R. Klesse>: So LLS to WTI, our view there is it's all about pipelines. From Cushing, price point Cushing let's say St. James is the price point. So you got the pipelines coming to Houston, right, or to Port Arthur. Now, there's a lot of volume, BridgeTex, Longhorn from West Texas. Seaway hasn't done its 400,000 barrels a day, but eventually they will. They're building a second Seaway, called something, and that's another 440,000 BPD or so. Then you have Keystone South, which I see all different kinds of numbers, somewhere between 500,000 and 800,000 BPD, all right, coming down Port Arthur back to Houston. So where we see it really is Houston becomes bottlenecked. Now you have the ECHO line that takes some over. Everybody's looking at barges. Some of our competitors we've announced stuff, too to move barrels along the Gulf Coast. So our view is you're going to have St. James. You're going to have a discount coming back to Houston. You'll have discount coming back to Corpus, but it's going to narrow

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Company Name: Valero Energy Company Ticker: VLO US Date: 2013-03-07 Event Description: Bank of America Merrill Lynch Refining Conference

Market Cap: 25,744.57 Current PX: 46.56 YTD Change($): +12.44 YTD Change(%): +36.460

Bloomberg Estimates - EPS Current Quarter: 1.014 Current Year: 5.703 Bloomberg Estimates - Sales Current Quarter: 30109.200 Current Year: 125027.444

approaching the tariff. Now, we would have said that when Seaway started up and they started to bring 200,000 BPD down to the Gulf Coast, or 2-something, and then immediately they had that bottleneck in Houston. And so there was no place to move the oil, so it pushed the discount right back to Cushing. So I concede, if I had that crystal ball, I'd tell you, hey but you can tell that there's so much oil, it's got to be moving. Our view is it's flooding the Gulf Coast. And you talk to the producer guys, I think they see the same thing; it's flooding. So then what are we going to do? We're going to take some to Quebec. We already got our license to that. So we can take it from Corpus to Quebec. We'll be able to do some of that this summer. Our license is for 90,000 barrels a day for the year. You can do that. Irving, all these other guys are going to so you're going to fill the Canadian refineries, so the Canadian refineries are going to get it by rail, from west to east. Line 9 coming into Montreal gets reversed. TransCanada's got its pipeline; they're talking about the conversion because they have no natural gas on the line anymore. So they're going to have this big trunk line that's idle. So this is why Keystone XL isn't as important to a Valero as we thought it was four or five years ago, because all these pipelines are going to move this oil to the East, and maybe they do something going to back to the West. But this oil is going to come up, and you're going to fill all these corridors. You may take some to the West Coast on water. Frankly, rail looks to us that it's going to be very, very viable into the West Coast. At some point, if there's this much oil, you're going to have to address the export question. But we would say it goes to the tariffs. It's got to come to the tariffs. So it may not be St. James. St. James may be discounted to Houston. Houston's discounted back to Cushing. And you may have a couple dollars Brent a couple dollars freight for Brent for Houston. So this could still be $7, $8, $9, if you add up all the components. But we look at it as it's got to go to tariff, but where is the point you're clearing? <Q - Doug Leggate>: Take one more, over here on the left. <Q>: Thank you. Can you discuss, how many of your rail cars, the 5,300, are dedicated to Canada right now, bringing WCS down? <A - William R. Klesse>: Could you start over? I just didn't hear the first part. <Q>: How many of your rail cars, the 5,300, are dedicated to Canada, to bringing WCS down? And could you talk about the timing, the production volumes. And ultimately, when you start to bring that down, how do you see that impacting Maya over time in terms of how much volume you could get down there potentially? <A - William R. Klesse>: I'm going to let Joe answer this. He's in charge of all these rail cars. Just come up here. And but the rail cars we've been ordering are coming in over time, and frankly there is this 18-month lead time. So when you order a rail car today, you don't even see the first one for 18 months. And then the question is how moving Canadian oil, I think, and with the rail cars. <A - Joseph W. Gorder>: Okay. Well, good morning. Our plan right now, of the rail cars we got, probably 1,600 of those are going to be coiled cars, which will allow us the opportunity then to take raw bitumen, move it in the car, load the car, and then bring in down, put the steam on it when it gets there, and then move the oil out. The volumes we're anticipating the volumes to be anywhere from 25,000 to 30,000 barrels a day of raw bitumen going into St. Charles on rail. We're also looking at the possibilities of moving heavy sour Canadian crudes into our Wilmington refinery. And so we've got an allocation of rail cars for that. Now, that's not likely to be bitumen. That's going to be like a WCS or some oil that's got a diluent in it that would flow. But we'll be able to move volume in there also. And that could be 30,000 barrels a day. So that's our plans for the rail cars right now. <A - William R. Klesse>: We also are shipping heavy Canadian oil. We actually ship down to Mississippi from our Hartford terminal, 25,000, 30,000 barrels a day on barges. We're just like a lot of the guys; we're trying to grab you know, when we see a $40 discount remember my $3 operating cost our eyes go, whoa, how do we get that? So

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Company Name: Valero Energy Company Ticker: VLO US Date: 2013-03-07 Event Description: Bank of America Merrill Lynch Refining Conference

Market Cap: 25,744.57 Current PX: 46.56 YTD Change($): +12.44 YTD Change(%): +36.460

Bloomberg Estimates - EPS Current Quarter: 1.014 Current Year: 5.703 Bloomberg Estimates - Sales Current Quarter: 30109.200 Current Year: 125027.444

we're doing all those kind of things, too. But the rail car lead-time is amazing, to think that you order a car today, you're not going to see it for 18 months. And then, if you order 1,000 cars, that's the first car in 18 months, and they come in to you over the next 12 months. <A - William R. Klesse>: Bill, if I may take the last one, then we'll move along. Just a few words perhaps on the possibility of an MLP of your midstream infrastructure that you're building out? <A - William R. Klesse>: Yeah, sure. So the MLP. Well, we see what the marketplace is doing. We saw, frankly, I think Tesoro was very creative on how they financing the acquisition in California. And we see that. So what we have said is we're going to finish our retail spin. And, quite frankly, this is very complicated private letter ruling today with the SEC and I said that'll happen in the second quarter. We're convinced all the i's are getting dotted and all the t's crossed. So that'll happen. But that is taking our capacity to do that type of deal. Then I've said to people as I speak to them then we're going to look at an MLP very seriously. We have somewhere between $50 million and $100 million of EBITDA that we can readily identify to put into an MLP, and that's really pipeline and terminal, nothing else. We have some pipeline projects, which we're doing. We're JVed with a couple different people on projects. So we've said we're going to look at it very, very seriously here, but we are going to finish our retail spin.

Doug Leggate
Bill, thank you very much indeed. Thanks, guys, for coming up.

William R. Klesse
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