statement excellence Vision

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1 CONTENTS FINANCIAL HIGHLIGHTS 1 A LOOK AT OUR COMPANY 2 Map of Operations 3 LETTER TO StockHOLDERS 4 delivering on long-term value 8 Converting Low-cost crude into high-value products 10 making the grade for competitive operations 12 A constant focus on safety, reliability, environmental stewardship 14 Setting new standards for retail excellence 16 Setting the course for next-generation fuels 18 taking a leadership role in our Communities 20 Our Employees are the heart of our success 22 Board of Directors/EXECUTIVE TEAM 24 stockholder information

2 Vision statement Valero strives to be a world-class competitor in the global energy business, generating industry-leading returns on its investments in an employee-focused, socially conscious, community-minded, safe, reliable and environmentally responsible way. Commitment to excellence As a leading manufacturer and marketer of transportation fuels, other petrochemical products and power, we are committed to following these guiding principles to achieve excellence in our business, industry and relationships with our employees and communities. Commitment to Safety The safety of our employees, our operations and our communities is our highest priority. Commitment to Our Stakeholders We are committed to delivering long-term value to all stakeholders our employees, investors and customers by pursuing profitable, valueenhancing strategies with a focus on world-class operations. Commitment to Our Employees Our employees are our No. 1 asset. We are committed to providing a challenging, enjoyable and rewarding work environment, which fosters creative thinking, teamwork, open communication, respect and opportunity for individual professional growth and development. Commitment to the Environment We are committed to producing environmentally clean products, while striving to improve and enhance the environmental quality of our operations within our local communities. Commitment to our Communities We are committed to taking a leadership role in the communities in which we live and work by providing company support and encouraging employee involvement.

3 Financial Highlights Summary Annual Report This summary annual report provides only a financial summary. The company s full, audited financial statements are contained in its Annual Report on Form 10-K for the year ended December 31, 2011, which has been filed with the SEC and made available to all stockholders. This information is also available at [Millions of dollars, except per-share amounts] OPERATING revenues $ 125,987 $ 82,233 OPERATING INCOME $ 3,680 $ 1,876 Income from continuing operations ATTRIBUTABLE TO VALERO $ 2,097 $ 923 Earnings PER COMMON SHARE FROM CONTINUING operations assuming dilution $ 3.69 $ 1.62 TOTAL ASSETS $ 42,783 $ 37,621 VALERO STOCKHOLDERS EQUITY $ 16,423 $ 15,025 CAPITAL EXPENDITURES AND DEFERRED TURNAROUND and catalyst costs $ 2,984 $ 2,265 Please visit to learn more about our company. The terms Valero, we, our, and us when used in this report may refer to Valero Energy Corporation, to one or more of our consolidated subsidiaries, or to all of them taken as a whole SUMMARY ANNUAL REPORT 3

4 A look at our Company from Continent to continent Since its founding in 1980, Valero has grown to be one of the world s leading refiners, marketers and corporate citizens. Valero is a company that takes pride in what it does for its customers, making products that improve people s lives, and what it does for its communities. As a Fortune 50 company based in San Antonio, Texas, USA, with approximately 22,000 dedicated employees, Valero is an international manufacturer and marketer of transportation fuels, other petrochemical products and power. The company is the world s largest independent petroleum refiner, with assets that include 16 refineries with a combined throughput capacity of 3 million barrels per day, and a vast network of pipelines and terminals. The refineries are geographically diverse, with locations along the United States West and Gulf coasts, and in the Mid- Continent, as well as in Canada, United Kingdom and the Caribbean. Our diversity allows us to react quickly to shifts and regional differences in the marketplace. For example, Valero s California refineries serve a huge West Coast market; and our Gulf Coast refineries are located in a key U.S. refining region, with large, complex plants that can readily serve export markets. Valero owns and operates some of the most complex refineries in the industry, efficiently processing lower-cost crude oil and other feedstocks into high-value fuels, including diesel, gasoline, jet fuel and specialty products such as asphalt, propane and natural gas liquids. Valero also is a major fuel retail operator and wholesaler, with about 6,800 retail and branded wholesale outlets under the Valero, Diamond Shamrock, Shamrock and Beacon brands in the U.S. and the Caribbean; Ultramar in Canada; and Texaco in the U.K. and Ireland. The company s 1,300 company-operated stores emphasize convenience, quality, variety and value at modern, high-volume locations. Through its Valero Renewables subsidiary, Valero was the first traditional petroleum refiner to enter large-scale ethanol production with the purchase of 10 stateof-the-art plants, and total production of 1.2 billion gallons per year making Valero one of the largest ethanol producers in the U.S. Under Sunray Wind, Valero operates a 50-megawatt wind farm that produces electricity for its McKee Refinery and a local utility. From the production of corn ethanol to wind electrical power to investments in emerging biofuels processes, Valero is positioned for the next generation of energy production. Safety is Valero s highest priority, with very committed efforts under way in both occupational and process safety. The company also demonstrates its commitment to all of its communities through a variety of philanthropic efforts, volunteer activities and educational support programs. Valero is committed to its employees, providing a safe work environment, competitive pay and benefits, and opportunities for career advancement. Valero consistently has been recognized as one of the world s most-admired refiners and marketers, and one of the best places to work. Valero strives every day for excellence. From performing at the highest levels across its refining, marketing and logistics systems to taking a leadership role in communities through company support and volunteerism, Valero truly is worldclass from continent to continent. 4 VALERO ENERGY CORPORATION

5 Map of Operations AURORA WELCOME ALBERT CITY FORT DODGE CHARLES CITY JEFFERSON ALBION HARTLEY JEAN GAULIN (QUEBEC) UNITED KINGDOM PEMBROKE BLOOMINGBURG BENICIA LINDEN WILMINGTON MEMPHIS RETAIL AND BRANDED WHOLESALE PRESENCE WHOLESALE MARKETING PRESENCE VALERO REFINERIES MCKEE SAN ANTONIO ARDMORE THREE RIVERS BILL GREEHEY (EAST & WEST, CORPUS CHRISTI) TEXAS CITY PORT ARTHUR HOUSTON ST. CHARLES MERAUX ARUBA VALERO ETHANOL PLANTS VALERO HEADQUARTERS ULTRAMAR - CANADIAN OPERATIONS CREDIT CARD CENTER 5 VALERO ENERGY CORPORATION

6 a letter to our Stockholders 2011 was an excellent year for Valero, as we achieved our best annual earnings performance since 2008 due to improved operations and better industry margins. We reported an operating profit of $3.68 billion and net income of $2.1 billion, or $3.69 per share. We shared that strong financial success with you. Through stock buybacks in 2011, we reduced our share count by 2 percent, and we tripled the annual dividend rate to 60 cents per share, returning our dividend to the pre- Great Recession level. Our goal is to return more cash to shareholders and have one of the highest cash yields among our peers. Your company finished 2011 financially strong, having a cash balance of approximately $1.0 billion, additional liquidity of $4.5 billion, a debt-to-capitalization ratio of just 29 percent and an investment-grade bond rating. We paid off approximately $780 million of debt last year. We achieved our best annual earnings performance since 2008 due to improved operations and better industry margins. As always, personal safety continues to be our top priority. In 2011, our refining system s average total employee recordable-incident rate (TRIR) of 0.62 incidents per 200,000 working hours was second-lowest in our history. Our contractor TRIR was also Valero has reduced injury rates by 46 percent since 2004, and though our goal is zero for both employees and contractors, these are excellent results. Our Houston, Three Rivers and Wilmington refineries, and our Corpus Christi Asphalt Terminal, were re-approved as Star Sites in the Voluntary Protection Programs of the federal Occupational Safety and Health Administration and the California Division of Occupational Safety and Health. Valero has nine U.S. refineries that have achieved a prestigious VPP Star representing about one-third of all refinery Star Sites nationally. Also, our Houston refinery received the American Fuel and Petrochemical Manufacturers (AFPM) Distinguished Safety Award for 2011, the second time a Valero refinery has won this industry honor. In process safety we made substantial progress through intense assessments of our mechanical integrity, electrical and rotating 6 VALERO ENERGY CORPORATION

7 a letter to our stockholders equipment networks. We have nearly completed our retro positive material identification effort as well. We also believe that a reliable refinery is a safer refinery. Valero s refineries reached first-quartile mechanical availability (reliability) performance, a huge improvement. All of our safety results reflect our company s and our employees constant focus. We continue to significantly reduce emissions at our refineries, achieving a 59 percent reduction in reportable emissions since Improvements such as new-generation flue-gas scrubbers dramatically reduce sulfur dioxide emissions, and flare-gas recovery systems capture gases and liquids for further processing. In 2011, Valero achieved the best energy efficiency in its history. Improved efficiency reduces our emissions to air as well as our carbon footprint. We believe our strategic acquisitions and capital projects are laying a foundation for long-term earnings growth. We also know that operational excellence in everything from reliability to energy efficiency to cost reduction makes us more competitive. Our people and their dedicated efforts for our success ultimately set us apart. Key growth projects that will add significantly to earnings and cash flow in 2012 and beyond are progressing rapidly. The most significant are the large hydrocracker projects at our Port Arthur and St. Charles refineries. These new hydrocrackers are designed to maximize diesel production. In the hydrocracking process, volume expansion allows us to yield up to 1.2 barrels of products from one barrel of feedstock. We expect our system product yield of diesel and jet fuel to increase from percent to percent, one of the highest distillate yields in the U.S. refining industry. We expect distillates will offer us a higher gross margin than gasoline. Key growth projects that will add significantly to earnings and cash flow in 2012 and beyond are progressing rapidly. The Port Arthur hydrocracker project is expected to be completed at mid-year, contributing during the second half of The St. Charles hydrocracker project should be completed by year end. At our McKee and Memphis refineries, we have commenced operation of new hydrogen plants that have reduced our hydrogen costs. Using 2011 commodity prices, these projects are expected to generate annual pre-tax savings of approximately $175 million. We also completed FCC revamp projects that will increase the reliability of both the Memphis and St. Charles refineries. A huge Port Arthur coke drum replacement and turnaround was completed in 2011, and a similar project to replace the coke drums at our St. Charles refinery is under way. These projects will significantly improve mechanical availability. The Saint Laurent Pipeline connecting our Jean Gaulin Refinery in Quebec with a terminal in Montreal, when completed in 2012, will allow Valero to place more products into Montreal and Ontario at a lower cost. Interestingly, this project took more than six years to get regulatory approval. The diligence of our people made it happen. Acquisitions have played a key part in our history, and that continued in 2011 as we acquired Chevron s U.K. and Ireland businesses, which included the Pembroke Refinery in Wales, one of Western Europe s most complex refineries. This refinery purchase, at roughly 14 percent of replacement value, also included ownership interests in four major pipelines, 11 fuel terminals, a 14,000-barrel-per-day aviation fuels business and a wholesale marketing network of approximately 1,000 Texaco-branded wholesale sites. Also in 2011, Valero acquired the Meraux Refinery, plus related businesses, from Murphy Oil USA Inc. 7 VALERO ENERGY CORPORATION 2011 SUMMARY ANNUAL REPORT 7

8 a letter to our stockholders (continued) The refinery, purchased at about 10 percent of replacement value, is located outside New Orleans on the Mississippi River only 40 miles from our St. Charles refinery and provides many opportunities for synergies between the two plants. We strive to be ranked in the first quartile of refineries in industry benchmark studies. Seven Valero refineries ranked in the first quartile in key categories, and each of those sites finished in the top 10 percent in at least one category, including mechanical availability, cash operating expense, energy efficiency, personnel efficiency and maintenance cost. Our ethanol plants continued to post impressive results, with record operating income of $396 million in In less than three years, the plants have posted cumulative pre-tax cash flow of $863 million, compared with their original purchase price of $760 million. We are also investing in other forms of alternative energy. In our Diamond Green Diesel joint venture, we are partnering with Darling International to produce renewable diesel from recycled animal fat and used cooking oil. We expect this 10,000-barrel-perday facility next to our St. Charles refinery to be completed by the end of We have investments in other emerging biofuels technologies, and operate a 50-megawatt wind farm next to our McKee refinery. Our people have continued to make a difference in the communities where we live and work. Our retail segment reported its most profitable year ever with $381 million in operating income in The Canadian retail business boosted our results with record operating income of $168 million, while our U.S. operations had its second-best year on record. Together, these businesses operate approximately 1,300 stores, manage fuel pricing at another 500 stores, and include card lock and home heat businesses. Our wholesale marketing business is now represented by approximately 5,000 stores and branded marketing outlets flying the Valero, Diamond Shamrock, Shamrock, Ultramar, Beacon and Texaco brands. Our people have continued to make a difference in the communities where we live and work. Valero and its employees pledged $11.3 million for Valero s United Way campaign for Through the Valero Texas Open and Benefit for Children Golf Classic, the company helped raise a record $9 million for children s charities in 2011 bringing the 10- year total to more than $62.5 million. And Valero employees logged more than 143,000 volunteer hours in 2011 for hundreds of community projects. The pursuit of excellence is reflected in everything we do: managing our refining portfolio in oversupplied 8 VALERO ENERGY CORPORATION

9 a letter to our stockholders U.S. and Western Europe markets, supplying growing international economies with refined products, and successfully dealing with the lack of government support, numerous regulations and the impact of high prices on consumers. U.S. federal policies are not supportive of investment or job creation. There is a crude oil and natural gas exploration and development boom going on in the United States, but it gets little if any federal support. In Texas, where Valero has significant operations, federal regulators have taken over carbon dioxide permitting and invalidated long-standing state permit programs, hurting investment. A massive, time-consuming effort is required to prepare and obtain permits for projects that could add jobs and boost local economies. We feel strongly that we need a public policy and regulatory environment that supports growth, energy efficiency and competitiveness. We are part of a viable manufacturing business that offers excellent employment, pays taxes and supports communities. This is why we support public policy that creates jobs, lowers costs to consumers, reduces reliance on overseas oil, and decreases political risks abroad. The Keystone XL pipeline from Canada to the Gulf Coast would do all of those things, but the U.S. administration in early 2012 denied TransCanada Corp s application to move forward. We were deeply disappointed and believe the decision to be misguided, as it reflected a small, but vocal, political group. Ultimately, we expect this project to be approved. We are looking forward to making our operations even better and strengthening our position as a world-class competitor. A number of factors bode well for Valero s competitiveness. The closures of uncompetitive refineries in the Atlantic Basin are reducing excess capacity and increasing demand for products from our Gulf Coast refineries. We are exporting into growing markets, such as Latin America and Mexico, from our large, competitive Gulf Coast refineries. The export markets are paying a higher price than the domestic U.S. market. Without these export markets, more refineries would close. As a U.S. manufacturer of refined products and petrochemicals, we are benefiting from access to relatively inexpensive domestic natural gas. Valero is an independent refiner, not an oil producer, so crude oil prices are a concern. We buy crude oil and other feedstocks daily in order to supply fuels and petrochemical feedstocks to our customers every day. We make products that improve people s lives, and every day we are focused on doing that in a safe, environmentally sensitive and competitive way. Our facilities and our people are among the best in the industry in safety, regulatory compliance, reliability and profitability. In closing, I want to thank our employees for their commitment to excellence, our customers for their business, and our suppliers and contractors who make tremendous efforts toward our goal of safe, reliable and constantly improving operations. Finally, thank you for your investment in our company and your confidence in us. We are looking forward to making our operations even better and strengthening our position as a world-class competitor. Bill Klesse Chairman of the Board, Chief Executive Officer and President 9 VALERO ENERGY CORPORATION 2011 SUMMARY ANNUAL REPORT 9

10 delivering on long-term value Following a period of rapid growth through acquisition, Valero prudently moved toward rationalizing and optimizing its assets. Now, Valero s forwardthinking capital projects and recent acquisitions are aimed at boosting opportunities for profitable, long-term growth and value. A substantial amount of our 2011 capital budget of nearly $3 billion funded projects with potential for significant earnings power and returns. These included Fluid Catalytic Cracking (FCC) unit revamps at our St. Charles and Memphis refineries, new hydrocrackers at Port Arthur and St. Charles, new hydrogen plants at McKee and Memphis, a new Quebec products pipeline, and the Diamond Green Diesel joint venture at St. Charles. All totaled, these projects have the potential to add more than $1 billion in annual earnings before interest, taxes, depreciation and amortization (EBITDA) in a commodity-price environment like in The FCC revamp projects were completed in 2011, and are expected to increase time between maintenance turnarounds and improve flexibility to run additional discounted feedstocks. A substantial amount of our 2011 capital budget of nearly $3 billion funded projects with potential for significant earnings power and returns. The large hydrocracker projects at Port Arthur and St. Charles, due for completion during the second half of 2012, were designed to create high-value products from lower-cost feedstocks and hydrogen sourced from relatively inexpensive natural gas. Favorable economics are expected to be driven by margin and volume gains. Both projects will have main units of about 60,000 barrels-perday capacity, primarily producing diesel and jet fuel to meet growing global demand for middle distillates. Both also have the advantage of being located at large, Gulf Coast refineries to leverage existing operations and export capabilities. The new hydrogen plants at McKee and Memphis should reduce the cost of hydrogen, using cheaper natural gas instead of more expensive crude oil, when started up in early The new Saint Laurent Pipeline connecting our Jean Gaulin Refinery in Quebec with a terminal in Montreal will have an initial throughput capacity of 100,000 barrels per day and allow Valero to place more products into the Montreal and Ontario markets. And under our Diamond Green Diesel joint venture with Darling International, we are building a 10,000-barrel-per-day facility at our St. Charles refinery that is designed to produce diesel fuel from recycled animal fat and cooking oil. 10 VALERO ENERGY CORPORATION

11 delivering on long-term value Our acquisition of the Pembroke Refinery in Wales, as well as marketing and logistics assets throughout the United Kingdom and Ireland, marked an important entry into the European markets. Pembroke is one of Western Europe s largest and most complex refineries, and its low cash operating cost per barrel also makes it a competitive addition to our portfolio. In addition to the refinery, we also acquired ownership interests in four major pipelines and 11 fuel terminals, a 14,000 barrel-per-day aviation fuels business and a network of more than 1,000 Texaco-branded wholesale sites. Also in 2011, Valero acquired the Meraux Refinery outside New Orleans, plus related businesses. The refinery s location on the Mississippi River only 40 miles away from our St. Charles Refinery provides excellent potential for synergies between the two plants. Valero will continue to invest in operations and consider acquisitions that boost long-term value. The large hydrocracker projects at Port Arthur and St. Charles, due for completion during the second half of 2012, were designed to create high-value products from lower-cost feedstocks and hydrogen sourced from relatively inexpensive natural gas. 11 VALERO ENERGY CORPORATION 2011 SUMMARY ANNUAL REPORT 11

12 Converting Low-Cost crude into High-value products Valero s strategy of acquiring and developing complex refineries to convert lower-cost feedstocks into premium fuels has long given the company a competitive edge. That may be true now more than ever, with the company making optimum use of discounted feedstocks and producing higher liquid yields and with new capital projects coming online that should take advantage of both. higher-yield crude oils. In fact, in 2011 we ran 86 different crude oils. Seventy percent of Valero s capacity can process feedstocks that are discounted compared with waterborne lightsweet crudes, and both heavy-sour and West Texas Intermediate (WTI) discounts have been favorable. Our McKee and Ardmore refineries, for example, process WTI or other crudes that price at or below WTI. Valero has the Lower feedstock costs and better yields industry s highest have increased our competitiveness. refinery conversion ratio, which refers to the flexibility to process a wide Rapid growth in the Eagle Ford shale variety of discounted feedstocks into formation in South Texas also has a high proportion of high-value clean lowered crude costs, compared with products. We believe that size and imports. Valero s Three Rivers Refinery, conversion matter to competitiveness. Bill Greehey Refinery (Corpus Christi) East and West plants, and Houston We are constantly evaluating Refinery are all positioned to process opportunities to process lower-cost, Eagle Ford oil. Processing grew from zero to 65,000 barrels per day in 2011, and is expected to rise to more than 100,000 barrels per day in Lower feedstock costs and better yields have increased our competitiveness. Valero boosted liquid-volume yield in 2011, worth approximately $135 million mainly through optimization of refining units, catalysts and feedstocks. Liquid products have a much higher value than solid products like coke and sulfur, which is important with high crude oil prices. Continued global demand growth also is important to our refining margins, as refining is a global business. World diesel demand has grown to become much larger than gasoline demand, with a structural supply-demand imbalance in Latin America and a 12 VALERO ENERGY CORPORATION

13 Converting Low-Cost Crude into High-Value Products diesel shortage in Europe providing higher-margin export opportunities. Valero refineries are best-positioned to take advantage of those opportunities because of their size and complexity, particularly along the Gulf Coast with good export logistics and where new hydrocrackers set to go online in 2012 at Port Arthur and St. Charles will primarily produce diesel. Low-cost natural gas in the United States also is a competitive advantage compared with other global refiners. Valero represented 25 percent of all U.S. gasoline and distillate exports over the past three years. As a well-proven strategy, Valero will continue to make the most of low-cost feedstocks and improved yields to boost competitiveness and tap new growth markets. Seventy percent of Valero s capacity can process feedstocks that are discounted compared with waterborne light-sweet crudes, and both heavysour and West Texas Intermediate (WTI) discounts have been favorable. 13 VALERO ENERGY CORPORATION 2011 SUMMARY ANNUAL REPORT 13

14 Making the grade for competitive operations By most every measure, Valero efficiency, energy efficiency and energy efficiency. We continue to work continues to make the grade in mechanical availability. The Corpus with lesser-performing plants to raise its operations, with the ultimate Christi plants ranked No. 1 in the entire portfolio. goal to grow long-term value. maintenance cost, and No. 2 in cash Valero is competitive in safety, as well. operating expense and personnel One very important measure is The Houston Refinery earned the efficiency, while Houston was No. 1 how Valero stacks up with its peers. Distinguished Safety Award for 2011 in personnel efficiency. Refining industry benchmark studies from American Fuel & Petrochemical show our portfolio Manufacturers, formerly continues to improve. the National Petrochemical Our goal is to be a first-quartile refiner, Our goal is to be a firstquartile ranking in the top 25 percent of refiners in & Refiners Association. It is refiner, ranking in the top 25 percent of refiners in industry performance measures. industry performance measures. In addition, out of 12 Canadian the industry group s most prestigious recognition. At the end of 2011, the refinery completed two straight years without refineries that participate in the study, an employee or contractor recordable Out of 80 refineries in the U.S. that our Jean Gaulin Refinery in Quebec injury, and more than five years participate in an annual Solomon ranked No. 1 in cash operating without a contractor lost-time injury. Associates study, our Bill Greehey expense and in maintenance cost, and Refinery East and West plants in Our ongoing cost-savings programs No. 2 in personnel efficiency. Corpus Christi, as well as our Houston, have contributed to Valero s Wilmington, Port Arthur and Three Rivers refineries, ranked in the top 10 percent in one or more categories including maintenance cost, cash operating expense, personnel Overall, our refineries have reached first-quartile performance in mechanical availability, the highestlevel indicator of reliability, and are progressing toward first-quartile in competitiveness and improved financial performance. Our goal in 2011 was $100 million in savings, but we reached $200 million. 14 VALERO ENERGY CORPORATION

15 making the grade for competitive operations We will optimize our portfolio by continuing the highgrading strategy of the past several years successfully integrating new acquisitions into our portfolio and capturing synergies, evaluating dispositions of lesserperforming assets, and evaluating attractively priced acquisitions that improve competitiveness. For example, we continue to receive a strong contribution in earnings from our Valero Renewables ethanol plants. The large, efficient plants in great locations have a competitive advantage in costs. We acquired 10 world-class plants at an average of 35 percent of estimated replacement cost. In less than three years, cumulative earnings before interest, taxes, depreciation and amortization (EBITDA) was $863 million, surpassing the total purchase price of the plants of $760 million. The plants additionally provide platforms for future production of advanced biofuels. Valero wants to go to the head of the class in all competitive measures, with a constant focus on everything from safety and reliability to efficiency and cost-reduction. Our ongoing cost-savings programs have contributed to Valero s competitiveness and improved financial performance. 15 VALERO ENERGY CORPORATION 2011 SUMMARY ANNUAL REPORT 15

16 a constant focus on safety, reliability, environmental stewardship Our most important measure of success always has been the health and safety of our employees, contractors, customers and neighbors. That is why we are constantly focused on safety, reliability and environmental stewardship. Our programs continue to be some of the best in our industry because they are developed, supported and carried out by all employees. In 2011, our refining system s employee average total recordable-incident rate (TRIR) of 0.62 incidents per 200,000 working hours was second-lowest in company history. In all, Valero has reduced injury rates by 46 percent since We also work closely with our contract workforce to ensure they adopt high safety standards. Valero refinery contractors also recorded their second-lowest injury rate in 2011, at The U.S. Occupational Safety and Health Administration (OSHA) and the California Division of Occupational Safety and Health (Cal/OSHA) are partners with us in helping make our plants safer, through their Voluntary Protection Programs (VPP). Under the VPP initiatives, our facilities submit to rigorous, voluntary safety audits by independent teams of professionals trained by OSHA. We have made it our goal to have all of our U.S. refineries approved as VPP Star Sites, the agencies highest plant safety designations. Valero has reduced injury rates by 46 percent since Through 2011, we had nine VPP Star Sites in our refining system, representing about one-third of all refinery Star Sites nationally. During the year, three of our refineries Houston, Three Rivers and Wilmington as well as our Corpus Christi Asphalt Terminal were re-approved as Star Sites, under audits that are required every three years. Because safety is a team effort, 25 of our contractors also are Star-Site-approved. Our focus on safety extends beyond our refineries. At the end of 2011, our Valero Renewables ethanol plants had dramatically reduced TRIR by 52 percent from the year before. Our logistics operations recorded no losttime incidents in 2011, and our U.S. retail division had its best safety year in company history. Valero also recognizes that a reliable operation is a safe operation. And Valero refineries have made significant progress in key process safety and reliability measures. In 2011, our refineries achieved first-quartile industry performance in mechanical availability, which is the highest indicator of reliability, reflecting improvement in the percentage of time units are available for operation. 16 VALERO ENERGY CORPORATION

17 a constant focus on safety, reliability, environmental stewardship Valero s goal in process safety is to continuously reduce incidents by focusing first on the main causes of unplanned shutdowns that also can lead to injury. We have made significant expenditures on environmental initiatives, demonstrating our commitment to environmental stewardship. We have undergone an array of improvements at our refineries, including new-generation scrubbers which dramatically reduce sulfur dioxide emissions and flare-gas recovery systems which capture and gather a variety of gases. Valero has achieved a 59 percent reduction in environmental incidents since In alternative energy, we are now one of the largest corn ethanol producers. We also operate a 50-megawatt wind farm and have investments in emerging biofuels technologies such as green diesel from recycled animal fat and cooking oil, and ethanol from cellulosic feedstocks and municipal solid waste. Safe, reliable and environmentally responsible operations will remain a key focus of Valero s operations as the company is committed to being world-class in every way. We have undergone an array of improvements at our refineries, including new-generation scrubbers which dramatically reduce sulfur dioxide emissions. 17 VALERO ENERGY CORPORATION 2011 SUMMARY ANNUAL REPORT 17

18 setting new standards for retail excellence Our retail business posted its most profitable year in history with operating income of $381 million in 2011, thanks to recordsetting results in Canada and the second-best year ever for U.S. operations. Of the total retail operating income for the year, Valero s U.S. operations earned $213 million, and Canada operations contributed $168 million. Despite a tough economy, higher fuel prices and a 3.5-percent drop in national demand, same-store volume at Valero s U.S. stores performed relatively well, down only 1.9 percent for the year, and up 0.3 percent in the fourth quarter. Fuel margins improved at 14.4 cents per gallon, up from 14.0 cents per gallon the previous year. Inside-store sales and margins rose 1.5 percent and 2.9 percent, respectively. The stores posted strong sales growth in most merchandise, other than cigarette categories. We continue to grow our private-label food offerings, featuring more than 100 items. Valero s U.S. operations earned $213 million, and Canada operations contributed $168 million. We continued to invest in our assets in 2011, spending $91 million to build new stores in the U.S. and remodel others, positioning us to take advantage of expected improvements in the economy. During 2011, in the U.S., Valero completed six new-toindustry stores, 85 remodels and 18 carwash upgrades, and acquired two stores. Our U.S. Corner Stores also achieved record-breaking community support campaigns, raising $2.28 million for the Muscular Dystrophy Association in 2011, and more than $1.9 million for Children s Miracle Network hospitals in communities where Valero operates. The retail stores additionally posted their best safety year ever, reducing total recordable injury rates by 21 percent, and lost-time injury rates by 27 percent, from the previous year. In Canada, the economy is improving, and we continue to see growth in demand in gasoline. Our volume continues to be strong, with volume per-site up 4.9 percent, and same-store sales up 1.3 percent. Fuel margins rose from the year before, and remain very strong. We continue to improve and transform the network in Canada. We re closing smaller companyoperated and dealer sites, and opening company-operated new sites six this year and adding new dealers. 18 VALERO ENERGY CORPORATION

19 setting new standards for retail excellence Average volume per site is up 23 percent during the past four years. Inside-store sales also continue to grow, with overall sales up 8.75 percent, and gross profits up 6.2 percent. As with our U.S. operations, we continued to invest in our Canadian operations, with a total of $32 million in capital spending on new sites, redevelopments, remodels and new dealers. Our Canadian retail operations have a solid track record of 27 percent to 55 percent return on capital employed over the past five years. Ultramar s home heat business volume declined slightly to 95.2 million gallons, from 96.2 million gallons the year before, reflecting an unusually warm winter. Fuel margin improved to 55.9 cents per gallon, up from 53.9 cents per gallon in Year after year, our constant goal in retail is to win every customer, every day, by setting new standards in retail excellence. During 2011, in the U.S., Valero completed six new-to-industry stores, 85 remodels and 18 carwash upgrades, and acquired two stores We continued to invest in our Canadian operations, with a total of $32 million in capital spending on new sites, redevelopments, remodels and new dealers. 19 VALERO ENERGY CORPORATION 2011 SUMMARY ANNUAL REPORT 19

20 setting the course for next-generation fuels Valero first gained a foothold 130 million gallons of ethanol Under Sunray Wind, Valero also in alternative energy with annually. The entire kernel of corn is operates 33 wind turbines in the its acquisition of 10 stateof-the-art processed, generating no liquid or Texas Panhandle that can produce corn ethanol plants in the U.S. heartland beginning in 2009, becoming the first traditional refiner to enter large-scale ethanol production. Under the subsidiary Valero Renewable Fuels Company LLC, or Valero Renewables, the solid waste. New corn-oil extraction equipment installed at several plants additionally will recover corn oil that will be used in part as a feedstock for biodiesel production. 50 megawatts of electricity capable of running the nearby McKee Refinery under peak wind conditions. The 250-foot-tall turbines at the wind farm are helping to reduce Valero s carbon footprint since they are replacing electricity company now is one of the A Valero Renewables plant processes up to generated from fossil fuels. largest ethanol producers, 47 million bushels of corn into as much as at roughly 1.2 billion gallons 130 million gallons of ethanol annually. Valero additionally has been investing in emerging biofuels per year. technologies. In a joint venture Ethanol is a clean-burning, highoctane renewable fuel produced by fermenting processed corn starch with yeast. The fuel can also be produced from cellulosic sources, like wood and plant material. Valero blends ethanol with its gasoline, resulting in a cleanerburning product. A Valero Renewables plant processes up to 47 million bushels of corn into as much as At several of its company-owned stores, Valero sells E-85, a blend of fuel consisting of up to 85 percent ethanol with unleaded gasoline. E-85 is approved for use in the U.S. in Flex Fuel vehicles, which are designed to run on both conventional gasoline and E-85 and are becoming more popular with buyers of new cars and light-duty trucks. called Diamond Green Diesel, Valero is partnering with Darling International Inc., the nation s leading rendering and recycling company serving the food industry, to build a 10,000-barrelper-day unit at its St. Charles Refinery by the end of 2012 that will process recycled animal fat and cooking oil into renewable diesel fuel. 20 VALERO ENERGY CORPORATION

21 setting the course for next-generation fuels It will mark Valero s first advanced biofuels production. The facility will be located with the existing refinery infrastructure. Darling will provide the feedstock 75 percent recycled animal fat and 25 percent used cooking oil. Valero is managing the construction, will operate the plant, and will market the diesel fuel and co-products volume. The plant will be capable of annually converting 1.1 billion pounds of fat into more than 136 million gallons of renewable green diesel. The product will be compatible with petroleum-based diesel fuel and can be shipped by pipeline. Importantly, the fuel will have a carbon cycle low enough to meet the most stringent of low-carbon fuel standards. With each of these alternative-energy initiatives, Valero is positioning itself for the next generation of fuels production. Valero also operates 33 wind turbines in the Texas Panhandle that can produce 50 megawatts of electricity capable of running the nearby McKee Refinery under peak wind conditions. 21 VALERO ENERGY CORPORATION 2011 SUMMARY ANNUAL REPORT 21

22 taking a leadership role in our communities At Valero, we are committed to taking a leadership role in the communities where we live and work, through our company support and employee involvement. We know that being a good operator also means being a good neighbor. We demonstrate our commitment to all of our communities through a variety of philanthropic efforts, volunteerism and educational support. Valero is a proud partner of United Way, pledging $11.3 million in 2011 and staffing large-scale Day of Caring events across the United States. We also helped raise a record $9 million for children s charities in the U.S. through the Valero Texas Open and Benefit for Children Golf Classic. The contribution always is among the largest charity gifts of any tournament on the PGA TOUR. Since Valero became title sponsor of the event, it has raised more than $62.5 million. Valero has Volunteer Councils at each of its locations to serve communities, and the councils have built strong bonds with many local charities. Our company-owned Corner Stores raised $2.28 million for the Muscular Dystrophy Association in 2011, and more than $1.9 million for Children s Miracle Network hospitals located in communities where Valero operates. We also helped raise more than $1.17 million for the National Multiple Sclerosis Society s Lone Star Chapter in 2011 through Velo Valero, the company s cycling team, as part of the annual Bike MS: Valero Alamo Ride to the River event. Velo Valero alone has topped $1.46 million in MS fundraising since Valero s title sponsorship began in Overall in 2011, Valero and its philanthropic organization, the Valero Energy Foundation, generated more than $43 million for worthy charities or causes, through direct donations or fundraising. Valero has Volunteer Councils at each of its locations to serve communities, and the councils have built strong bonds with many local charities. In 2011, our employees logged more than 143,000 volunteer hours for hundreds of community projects, including mentorships, shelter support, holiday events, emergency relief and other activities. We are a strong supporter of food banks wherever we operate, sponsoring several food drives each year. Valero Volunteers also have built many Habitat for Humanity homes throughout Valero s communities. Since 2000, the company has contributed more than $520, VALERO ENERGY CORPORATION

23 taking a leadership role in our communities and thousands of volunteer hours to sponsor or build Habitat homes in virtually every region. Valero is a strong advocate for education and contributes regularly to programs, agencies or organizations that share the same focus. Our mentoring program is a top priority of our Valero Volunteer Council and management, and for more than 10 years has helped inspire school children in our communities. Operation Comfort, Marines Helping Marines, Vietnam and World War II veterans museums, Returning Heroes Home, VFW, Soldiers Angels, and the National Committee for Employer Support of the Guard and Reserve. In all of these activities, our people make their towns and communities better places to live, and Valero will continue its long-standing leadership in community support wherever it operates. We additionally support many military organizations, including USO, Fisher House, Warrior Support Foundation, In 2011, our employees logged more than 143,000 volunteer hours for hundreds of community projects, including mentorships, shelter support, holiday events, emergency relief and other activities. 23 VALERO ENERGY CORPORATION 2011 SUMMARY ANNUAL REPORT 23

24 Our employees are the heart of our success Employees are the heart of every successful organization and that is especially true at Valero. The company marked its best year since 2008 in large part because of the hard work and dedication of its employees, whose focus on operational excellence made the most of improved market conditions and whose volunteerism and generosity continued to be a source of hope and inspiration. That is why we say our employees are our No. 1 asset and the heart of our success. We are proud to employ approximately 22,000 hardworking individuals with incredible dedication, and honored to be an employer of choice in the fuels manufacturing industry. Our global family of employees continues to invest time and talent to achieve returns for shareholders and communities alike. We believe that an investment in our employees from competitive pay and benefits to a caring company culture is an investment in the future of Valero and its communities. We are committed to providing a challenging, enjoyable and rewarding work environment which fosters creative thinking, teamwork, open communication, respect and opportunity for individual professional growth and development. We believe that an investment in our employees from competitive pay and benefits to a caring company culture is an investment in the future of Valero and its communities. Valero shows it values its employees in a number of ways. For example, the company vigorously promotes health and wellness, recognizing the importance of staying healthy and balancing work and home life. Valero subsidizes health-care premiums so that employees and their families can maintain excellent health. The company provides annual, on-site health-risk assessments that are free for employees and at reduced rates for spouses and retirees. Valero operates on-site wellness clinics at three locations, assisting employees with health emergencies as well as routine medical issues. A fitness center located at headquarters is available to employees, spouses and retirees at no charge. Our refineries at Corpus Christi, McKee, Port Arthur and Texas City also have fitness centers and most other field employees can use a fitness membership subsidy to join a local health club of their choice. To support work/life balance, Valero operates a nationally accredited child-care facility called the Valero Family Center at its headquarters, and eligible employees at field locations can receive child-care subsidies. The company also encourages its employees to pursue educational opportunities, and provides an excellent education reimbursement program for full-time and part-time employees attending a public or private university. 24 VALERO ENERGY CORPORATION

25 our employees are the heart of our success Valero is further committed to personal development through its assigned training curriculum offered to employees at each level. We recognize that resources that fuel growth and job satisfaction are critical to a successful operation. So, a systemwide learning and development program, nurtured by respect for the individual, helps employees understand the expectations of the company and realize their career goals. Finally, Valero understands the pride employees feel in being part of a company that makes a difference in its communities through such volunteer activities as the Valero Texas Open and Benefit for Children Golf Classic, Bike MS: Valero Alamo Ride to the River, United Way Days of Caring and Habitat for Humanity. Through the years, employee Volunteer Councils have built strong bonds with many local charities, organizations and agencies where Valero operates. Valero volunteers have touched thousands of lives and helped hundreds of nonprofit agencies. For our 2012 United Way campaign, our company adopted the theme, We are Valero. Our employees understand that creating a world-class energy company and improving people s lives is who we are and what we do every day. Valero understands the pride employees feel in being a part of a company that makes a difference in its communities. 25 Pictured VALERO are members ENERGY of the 2011 CORPORATION Valero Volunteer Executive Council and CEO Bill Klesse SUMMARY ANNUAL REPORT 25

26 Standing, left to right: Randall J. Weisenburger, Executive Vice President and Chief Financial Officer, Omnicom Group, Inc. Dr. Ronald K. Calgaard, Chairman, Ray Ellison Grandchildren Trust in San Antonio, Texas; former President, Trinity University Sen. Don Nickles, Retired U.S. Senator (R-Okla.); Chairman and CEO, The Nickles Group Dr. Susan Kaufman Purcell, Director, Center for Hemispheric Policy, University of Miami Board of directors Jerry D. Choate, Former Chairman of the Board and CEO, Allstate Corporation Rayford Wilkins Jr., CEO-Diversified Business, AT&T Stephen M. Waters, Managing Partner, Compass Advisers LLP; Chief Executive, Compass Partners European Equity Fund Seated, left to right: Bill Klesse, Chairman of the Board, CEO and President,Valero Energy Corporation not pictured: Philip J. Pfeiffer, Of Counsel, Fulbright & Jaworski Bob Marbut, Former Director and Chairman, RISCO U.S. Robert A. Profusek, Partner and Practice Leader, Mergers and Acquisitions, Jones Day Ruben M. Escobedo, Owner, Ruben Escobedo & Company Executive team 26 VALERO ENERGY CORPORATION Bill Klesse Chairman of the Board, CEO and President Joe Gorder Executive Vice President and Chief Commercial Officer Jim Gillingham Senior Vice President Alternative Energy and Project Development Martin Parrish Vice President Crude, Feedstock Supply & Trading Kim Bowers Executive Vice President and General Counsel Gary Arthur Jr. Senior Vice President Retail Marketing Clay Killinger Senior Vice President and Controller Gary Simmons Vice President Optimization, Planning & Economics Mike Ciskowski Executive Vice President and Chief Financial Officer Jay Browning Senior Vice President Corporate Law and Secretary Lane Riggs Senior Vice President Refining Operations Cheryl Thomas Vice President Information Services and Chief Information Officer Gene Edwards Executive Vice President and Chief Development Officer Mike Crownover Senior Vice President Human Resources Eric Fisher President Europe Donna Titzman Vice President and Treasurer