Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Form 10-Q, including without limitation our disclosures below under “OVERVIEW AND OUTLOOK*,*” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify our forward-looking statements by the words “anticipate,” “believe,” “expect,” “plan,” “intend,” “scheduled,” “estimate,” “project,” “projection,” “predict,” “budget,” “forecast,” “goal,” “guidance,” “target,” “could,” “would,” “should,” “may,” “strive,” “seek,” “potential,” “opportunity,” “aimed,” “considering,” “continue,” and similar expressions.

These forward-looking statements include, among other things, statements regarding:

the effect, impact, potential duration or timing, or other implications of the COVID-19 pandemic, government restrictions, requirements, or mandates in response thereto, variants of the COVID-19 virus, vaccine distribution and administration levels, economic activity, and global crude oil production levels, and any expectations we may have with respect thereto, including with respect to our responses thereto, our operations and the production levels of our assets;
the effect, impact, potential duration or timing, or other implications of the Russia-Ukraine conflict;
future Refining segment margins, including gasoline and distillate margins, and discounts;
future Renewable Diesel segment margins;
future Ethanol segment margins;
expectations regarding feedstock costs, including crude oil differentials, product prices for each of our segments, and operating expenses;
anticipated levels of crude oil and liquid transportation fuel inventories and storage capacity;
expectations regarding the levels of, and timing with respect to, the production and operations at our existing refineries and plants and projects under construction;
our anticipated level of capital investments, including deferred turnaround and catalyst cost expenditures, our expected allocation between, and/or within, growth capital expenditures and sustaining capital expenditures, capital expenditures for environmental and other purposes, and joint venture investments, the expected timing applicable to such capital investments and any related projects, and the effect of those capital investments on our business, financial condition, results of operations, and liquidity;
our anticipated level of cash distributions or contributions, such as our dividend payment rate and contributions to our qualified pension plans and other postretirement benefit plans;
our ability to meet future cash requirements, whether from funds generated from our operations or our ability to access financial markets effectively, and our ability to maintain sufficient liquidity;
our evaluation of, and expectations regarding, any future activity under our share repurchase program or transactions involving our debt securities;
anticipated trends in the supply of, and demand for, crude oil and other feedstocks and refined petroleum products, renewable diesel, and ethanol and corn related co-products in the regions where we operate, as well as globally;
expectations regarding environmental, tax, and other regulatory matters, including the anticipated amounts and timing of payment with respect to our deferred tax liabilities, matters impacting our

ability to repatriate cash held by our foreign subsidiaries, and the anticipated effect thereof on our business, financial condition, results of operations, and liquidity;

the effect of general economic and other conditions on refining, renewable diesel, and ethanol industry fundamentals;
expectations regarding our risk management activities, including the anticipated effects of our hedge transactions;
expectations regarding our counterparties, including our ability to pass on increased compliance costs and timely collect receivables, and the credit risk within our accounts receivable or accounts payable;
expectations regarding adoptions of new, or changes to existing, low-carbon fuel standards or policies, blending and tax credits, or efficiency standards that impact demand for renewable fuels; and
expectations regarding our publicly announced greenhouse gas (GHG) emissions reduction/offset targets and our current and any future carbon transition projects.

We based our forward-looking statements on our current expectations, estimates, and projections about ourselves, our industry, and the global economy and financial markets generally. We caution that these statements are not guarantees of future performance or results and involve known and unknown risks and uncertainties, the ultimate outcomes of which we cannot predict with certainty. In addition, we based many of these forward-looking statements on assumptions about future events, the ultimate outcomes of which we cannot predict with certainty and which may prove to be inaccurate. Accordingly, actual performance or results may differ materially from the future performance or results that we have expressed, suggested, or forecast in the forward-looking statements. Differences between actual performance or results and any future performance or results expressed, suggested, or forecast in these forward-looking statements could result from a variety of factors, including the following:

demand for, and supplies of, refined petroleum products (such as gasoline, diesel, jet fuel, and petrochemicals), renewable diesel, and ethanol and corn related co-products;
demand for, and supplies of, crude oil and other feedstocks;
the effects of public health threats, pandemics, and epidemics, such as the COVID-19 pandemic and variants of the virus, governmental and societal responses thereto, including requirements and mandates with respect to vaccines, vaccine distribution and administration levels, and the adverse impacts of the foregoing on our business, financial condition, results of operations, and liquidity, including, but not limited to, our growth, operating costs, administrative costs, supply chain, labor availability, logistical capabilities, customer demand for our products, and industry demand generally, margins, production and throughput capacity, utilization, inventory value, cash position, taxes, the price of our securities and trading markets with respect thereto, our ability to access capital markets, and the global economy and financial markets generally;
acts of terrorism aimed at either our refineries and plants or third-party facilities that could impair our ability to produce or transport refined petroleum products, renewable diesel, ethanol, or corn related co-products, to receive feedstocks, or otherwise operate efficiently;
the effects of war or hostilities, and political and economic conditions, in nations that produce crude oil or other feedstocks or consume refined petroleum products, renewable diesel, ethanol or corn related co-products;
the ability of the members of the Organization of Petroleum Exporting Countries (OPEC) to agree on and to maintain crude oil price and production controls;
the level of consumer demand, consumption and overall economic activity, including seasonal fluctuations;
refinery, renewable diesel plant, or ethanol plant overcapacity or undercapacity;
the risk that any divestitures may not provide the anticipated benefits or may result in unforeseen detriments;
the actions taken by competitors, including both pricing and adjustments to refining capacity or renewable fuels production in response to market conditions;
the level of competitors’ imports into markets that we supply;
accidents, unscheduled shutdowns, weather events, civil unrest, expropriation of assets, and other economic, diplomatic, legislative, or political events or developments, terrorism, cyberattacks, or other catastrophes or disruptions affecting our operations, production facilities, machinery, pipelines and other logistics assets, equipment, or information systems, or any of the foregoing of our suppliers, customers, or third-party service providers;
changes in the cost or availability of transportation or storage capacity for feedstocks and our products;
political pressure and influence of environmental groups and other stakeholders upon policies and decisions related to the production, transportation, storage, refining, processing, marketing, and sales of crude oil or other feedstocks, refined petroleum products, renewable diesel, ethanol, or corn related co-products;
the price, availability, technology related to, and acceptance of alternative fuels and alternative-fuel vehicles, as well as sentiment and perceptions with respect to GHG emissions more generally;
the levels of government subsidies for, and executive orders, mandates, or other policies with respect to, alternative fuels, alternative-fuel vehicles, and other low-carbon technologies or initiatives, including those related to carbon capture, carbon sequestration, and low-carbon fuels, or affecting the price of natural gas and/or electricity;
the volatility in the market price of compliance credits (primarily RINs needed to comply with the RFS) and emission credits needed under the other environmental emissions programs;
delay of, cancellation of, or failure to implement planned capital projects and realize the various assumptions and benefits projected for such projects or cost overruns in constructing such planned capital projects;
earthquakes, hurricanes, tornadoes, and other weather events, which can unforeseeably affect the price or availability of electricity, natural gas, crude oil, waste and renewable feedstocks, corn, and other feedstocks, critical supplies, refined petroleum products, renewable diesel, and ethanol;
rulings, judgments, or settlements in litigation or other legal or regulatory matters, including unexpected environmental remediation costs, in excess of any reserves or insurance coverage;
legislative or regulatory action, including the introduction or enactment of legislation or rulemakings by governmental authorities, such as tariffs, environmental regulations, changes to income tax rates, introduction of a global minimum tax, tax changes or restrictions impacting the foreign repatriation of cash, actions implemented under the Renewable and Low-Carbon Fuel Blending Programs and the other environmental emissions programs, including changes to volume requirements or other obligations or exemptions under the RFS, and actions arising from the EPA’s or other governmental agencies’ regulations, policies, or initiatives concerning GHGs, including mandates for or bans of specific technology, which may adversely affect our business or operations;
changing economic, regulatory, and political environments and related events in the various countries in which we operate or otherwise do business, including expropriation or impoundment of assets, failure of foreign governments and state-owned entities to honor their contracts, property disputes, and decisions, investigations, regulations, issuances or revocations of permits and other authorizations, and other actions, policies and initiatives by the states, counties, cities, and other jurisdictions in the countries in which we operate or otherwise do business;
changes in the credit ratings assigned to our debt securities and trade credit;
the operating, financing, and distribution decisions of our joint ventures or other joint venture members that we do not control;
changes in currency exchange rates, including the value of the Canadian dollar, the pound sterling, the euro, the Mexican peso, and the Peruvian sol relative to the U.S. dollar;
the adequacy of capital resources and liquidity, including availability, timing, and amounts of cash flow or our ability to borrow or access financial markets;
the costs, disruption, and diversion of resources associated with campaigns and negative publicity commenced by investors, stakeholders, or other interested parties;
overall economic conditions, including the stability and liquidity of financial markets; and
other factors generally described in the “RISK FACTORS” section included in our annual report on Form 10-K for the year ended December 31, 2021.

Any one of these factors, or a combination of these factors, could materially affect our future results of operations and whether any forward-looking statements ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and actual results and future performance may differ materially from those expressed, suggested, or forecast in any forward-looking statements. Such forward-looking statements speak only as of the date of this quarterly report on Form 10-Q and we do not intend to update these statements unless we are required by applicable securities laws to do so.

All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing, as it may be updated or modified by our future filings with the U.S. Securities and Exchange Commission (SEC). We undertake no obligation to publicly release any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events unless we are required by applicable securities laws to do so.

NON-GAAP FINANCIAL MEASURES

The discussions in “OVERVIEW AND OUTLOOK,” “RESULTS OF OPERATIONS,” and “LIQUIDITY AND CAPITAL RESOURCES” below include references to financial measures that are not defined under GAAP. These non-GAAP financial measures include adjusted operating income (loss) (including adjusted operating income (loss) for each of our reportable segments, as applicable); Refining, Renewable Diesel, and Ethanol segment margin; and capital investments attributable to Valero. We have included these non-GAAP financial measures to help facilitate the comparison of operating results between periods, to help assess our cash flows, and because we believe they provide useful information as discussed further below. See the tables in note (c) beginning on page 39 for reconciliations of adjusted operating income (loss) (including adjusted operating income (loss) for each of our reportable segments, as applicable) and Refining, Renewable Diesel, and Ethanol segment margin to their most directly comparable GAAP financial measures. Also in note (c), we disclose the reasons why we believe our use of such non-GAAP financial measures provides useful information. See the table on page 45 for a reconciliation of capital investments attributable to Valero to its most directly comparable GAAP financial measure. Beginning on page 44, we disclose the reasons why we believe our use of this non-GAAP financial measure provides useful information.

OVERVIEW AND OUTLOOK

Overview

Business Operations Update

Despite the ongoing COVID-19 pandemic, which negatively impacted the demand for and market prices of our products throughout much of the last two years, the demand for most of our products returned to near pre-pandemic levels by the latter half of 2021 and has remained at those levels during the first quarter of 2022. Demand for most of our products improved along with improvements in the global economy as the worldwide efforts to address the virus have progressed. While increased demand has led to higher market prices for most of our products, including higher market prices for crude oil and other feedstocks that we purchase and process to make those products, the negative impact to the worldwide supply of crude oil and petroleum-based products resulting from the Russian invasion of and military attack on Ukraine in February 2022 was the primary reason for the market price increases during the quarter. Various actions taken by countries and private market participants regarding the purchase and transport of Russian crude oil and petroleum-based products in response to the invasion has resulted in a lower worldwide supply of these products and a corresponding increase in prices. The strong demand and associated increase in refining margins were the primary contributors to us reporting $905 million of net income attributable to Valero stockholders for the first quarter of 2022. Our operating results, including operating results by segment, are described in the following summary under “First Quarter Results” and detailed descriptions can be found under “RESULTS OF OPERATIONS.”

Our operations generated $588 million of cash during the first quarter of 2022. This cash, along with cash on hand, was used to make $843 million of capital investments in our business and return $545 million to our stockholders through dividend payments and the purchase of common stock for treasury. In addition, we completed debt reduction and refinancing transactions that reduced our long-term debt by $750 million. As a result of this and other activity, our cash and cash equivalents decreased by $1.5 billion, from $4.1 billion as of December 31, 2021 to $2.6 billion as of March 31, 2022. We had $7.3 billion in liquidity as of March 31, 2022. The components of our liquidity and descriptions of our cash flows, capital investments, and other matters impacting our liquidity and capital resources, can be found under “LIQUIDITY AND CAPITAL RESOURCES.”

First Quarter Results

For the first quarter of 2022, we reported net income attributable to Valero stockholders of $905 million compared to a net loss attributable to Valero stockholders of $704 million for the first quarter of 2021. The increase of $1.6 billion was primarily due to higher operating income of $2.1 billion, partially offset by higher income tax expense of $400 million. The details of our operating income (loss) and adjusted operating income (loss) by segment and in total are reflected on the following page. Adjusted operating income (loss) excludes the adjustments reflected in the tables in note (c).


	Three Months Ended March 31,
	2022		2021		Change
Refining segment:
Operating income (loss)	$	1,451	$	(592)	$	2,043
Adjusted operating income (loss)	1,469		(506)		1,975
Renewable Diesel segment:
Operating income	149		203		(54)

Ethanol segment:
Operating income (loss)	1		(56)		57
Adjusted operating income (loss)	2		(56)		58
Total company:
Operating income (loss)	1,384		(666)		2,050
Adjusted operating income (loss)	1,403		(580)		1,983

While our operating income increased by $2.1 billion in the first quarter of 2022 compared to the first quarter of 2021, adjusted operating income increased by $2.0 billion primarily due to the following:

Refining segment. Refining segment adjusted operating income increased by $2.0 billion primarily due to higher gasoline and distillate (primarily diesel) margins, the effect of estimated excess energy costs in the first quarter of 2021 arising from Winter Storm Uri, and higher throughput volumes.
Renewable Diesel segment. Renewable Diesel segment operating income decreased by $54 million primarily due to higher feedstock costs, an unfavorable impact from commodity derivative instruments associated with our price risk management activities, and higher operating expenses (excluding depreciation and amortization expense), partially offset by higher sales volumes and higher renewable diesel prices.
Ethanol segment. Ethanol segment adjusted operating income increased by $58 million primarily due to higher ethanol prices and the effect of estimated excess energy costs in the first quarter of 2021 arising from Winter Storm Uri, partially offset by higher corn prices.

Outlook

Many uncertainties remain with respect to the Russia-Ukraine conflict and the COVID-19 pandemic, and while it is difficult to predict the ultimate economic impacts that these events may have on us, we have noted several factors below that have impacted or may impact our results of operations during the second quarter of 2022.

Gasoline and diesel product demand has returned to near pre-pandemic levels and is expected to follow typical seasonal patterns. Jet fuel demand continues to improve slowly, but remains below pre-pandemic levels.
Crude oil discounts are expected to remain near current levels until restrictions against Russia, Iran, or Venezuela are lifted.
Renewable diesel margins are expected to remain consistent with current levels.
Ethanol margins are expected to improve as demand follows typical seasonal patterns.

RESULTS OF OPERATIONS

The following tables, including the reconciliations of non-GAAP financial measures to their most directly comparable GAAP financial measures in note (c) beginning on page 39, highlight our results of operations, our operating performance, and market reference prices that directly impact our operations. Note references in this section can be found on pages 39 through 42.

First Quarter Results -

Financial Highlights By Segment and Total Company

(millions of dollars)


	Three Months Ended March 31, 2022
	Refining		Renewable Diesel		Ethanol		Corporate and Eliminations		Total
Revenues:
Revenues from external customers	$	36,813	$	595	$	1,134	$	—	$	38,542
Intersegment revenues	4		386		127		(517)		—
Total revenues	36,817		981		1,261		(517)		38,542
Cost of sales:
Cost of materials and other	33,606		755		1,104		(516)		34,949

Operating expenses (excluding depreciation and amortization expense reflected below)	1,193		51		135		—		1,379
Depreciation and amortization expense	549		26		20		—		595
Total cost of sales	35,348		832		1,259		(516)		36,923
Other operating expenses	18		—		1		—		19
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—		—		—		205		205
Depreciation and amortization expense	—		—		—		11		11
Operating income by segment	$	1,451	$	149	$	1	$	(217)	1,384
Other expense, net (b)									(20)
Interest and debt expense, net of capitalized interest									(145)
Income before income tax expense									1,219
Income tax expense									252
Net income									967
Less: Net income attributable to noncontrolling interests									62
Net income attributable to Valero Energy Corporation stockholders									$	905

First Quarter Results -

Financial Highlights By Segment and Total Company (continued)

(millions of dollars)


	Three Months Ended March 31, 2021
	Refining		Renewable Diesel		Ethanol		Corporate and Eliminations		Total
Revenues:
Revenues from external customers	$	19,469	$	352	$	985	$	—	$	20,806
Intersegment revenues	3		79		60		(142)		—
Total revenues	19,472		431		1,045		(142)		20,806
Cost of sales:
Cost of materials and other (a)	18,022		187		924		(141)		18,992

Operating expenses (excluding depreciation and amortization expense reflected below) (a)	1,471		29		156		—		1,656
Depreciation and amortization expense	533		12		21		—		566
Total cost of sales	20,026		228		1,101		(141)		21,214
Other operating expenses	38		—		—		—		38
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—		—		—		208		208
Depreciation and amortization expense	—		—		—		12		12
Operating income (loss) by segment	$	(592)	$	203	$	(56)	$	(221)	(666)
Other income, net									45
Interest and debt expense, net of capitalized interest									(149)
Loss before income tax benefit									(770)
Income tax benefit									(148)
Net loss									(622)
Less: Net income attributable to noncontrolling interests									82
Net loss attributable to Valero Energy Corporation stockholders									$	(704)

First Quarter Results -

Average Market Reference Prices and Differentials


	Three Months Ended March 31,
	2022		2021
Refining
Feedstocks (dollars per barrel)
Brent crude oil	$	97.34	$	61.09
Brent less West Texas Intermediate (WTI) crude oil	2.88		3.26
Brent less Alaska North Slope (ANS) crude oil	1.73		0.33
Brent less Louisiana Light Sweet (LLS) crude oil	0.57		1.11
Brent less Argus Sour Crude Index (ASCI) crude oil	4.93		2.99
Brent less Maya crude oil	8.50		4.70
LLS crude oil	96.77		59.98
LLS less ASCI crude oil	4.36		1.88
LLS less Maya crude oil	7.93		3.59
WTI crude oil	94.46		57.84

Natural gas (dollars per million British Thermal Units)	4.32		19.66

Product margins (dollars per barrel)
U.S. Gulf Coast:
Conventional Blendstock of Oxygenate Blending (CBOB) gasoline less Brent	15.67		10.12
Ultra-low-sulfur (ULS) diesel less Brent	27.95		10.19
Propylene less Brent	(28.82)		18.50
CBOB gasoline less LLS	16.24		11.23
ULS diesel less LLS	28.52		11.30
Propylene less LLS	(28.25)		19.61
U.S. Mid-Continent:
CBOB gasoline less WTI	16.02		14.82
ULS diesel less WTI	27.27		17.21
North Atlantic:
CBOB gasoline less Brent	17.68		11.56
ULS diesel less Brent	32.47		11.89
U.S. West Coast:
California Reformulated Gasoline Blendstock of Oxygenate Blending (CARBOB) 87 gasoline less ANS	28.46		14.56
California Air Resources Board (CARB) diesel less ANS	32.27		14.14
CARBOB 87 gasoline less WTI	29.61		17.49
CARB diesel less WTI	33.42		17.07

First Quarter Results -

Average Market Reference Prices and Differentials (continued)


	Three Months Ended March 31,
	2022		2021
Renewable Diesel
New York Mercantile Exchange ULS diesel (dollars per gallon)	$	3.04	$	1.74
Biodiesel RIN (dollars per RIN)	1.43		1.18
California Low-Carbon Fuel Standard (dollars per metric ton)	138.63		195.30
Chicago Board of Trade (CBOT) soybean oil (dollars per pound)	0.68		0.48

Ethanol
CBOT corn (dollars per bushel)	6.70		5.39
New York Harbor ethanol (dollars per gallon)	2.39		1.78

Total Company, Corporate, and Other

The following table includes selected financial data for the total company, corporate, and other for the first quarter of 2022 and 2021. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.


	Three Months Ended March 31,
	2022		2021		Change
Revenues	$	38,542	$	20,806	$	17,736
Cost of materials and other (see note (a))	34,949		18,992		15,957
Operating expenses (excluding depreciation and amortization expense) (see note (a))	1,379		1,656		(277)

Operating income (loss)	1,384		(666)		2,050
Adjusted operating income (loss) (see note (c))	1,403		(580)		1,983
Other income (expense), net (see note (b))	(20)		45		(65)

Income tax expense (benefit)	252		(148)		400
Net income attributable to noncontrolling interests	62		82		(20)

Revenues increased by $17.7 billion in the first quarter of 2022 compared to the first quarter of 2021 primarily due to increases in the product prices of the petroleum-based transportation fuels associated with sales made by our Refining segment. This increase in revenues, along with lower operating expenses (excluding depreciation and amortization expense) of $277 million, which includes the impact of estimated excess energy costs of $532 million arising out of Winter Storm Uri in the first quarter of 2021, was partially offset by an increase in cost of materials and other of $16.0 billion primarily due to increases in crude oil and other feedstock costs. These changes resulted in a $2.1 billion increase in operating income, from an operating loss of $666 million in the first quarter of 2021 to operating income of $1.4 billion in the first quarter of 2022.

Adjusted operating income increased by $2.0 billion, from an adjusted operating loss of $580 million in the first quarter of 2021 to adjusted operating income of $1.4 billion in the first quarter of 2022. The components of this $2.0 billion increase in adjusted operating income are discussed by segment in the segment analyses that follow.

“Other income (expense), net” decreased by $65 million in the first quarter of 2022 compared to the first quarter of 2021 primarily due to a charge of $50 million from the early retirement of debt in the first quarter of 2022 (see note (b)).

Income tax expense increased by $400 million in the first quarter of 2022 compared to the first quarter of 2021 primarily as a result of higher income before income tax expense. Our effective tax rate was 21 percent for the first quarter of 2022 compared to 19 percent for the first quarter of 2021.

Net income attributable to noncontrolling interests decreased by $20 million in the first quarter of 2022 compared to the first quarter of 2021 primarily due to lower earnings associated with DGD, a consolidated joint venture. See Note 6 of Condensed Notes to Consolidated Financial Statements regarding our accounting for DGD.

Refining Segment Results

The following table includes selected financial and operating data of our Refining segment for the first quarter of 2022 and 2021. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.


	Three Months Ended March 31,
	2022		2021		Change




Operating income (loss)	$	1,451	$	(592)	$	2,043
Adjusted operating income (loss) (see note (c))	1,469		(506)		1,975

Refining margin (see note (c))	$	3,211	$	1,498	$	1,713
Operating expenses (excluding depreciation and amortization expense reflected below) (see note (a))	1,193		1,471		(278)
Depreciation and amortization expense	549		533		16

Throughput volumes (thousand barrels per day) (see note (e))	2,800		2,410		390

Refining segment operating income increased by $2.0 billion in the first quarter of 2022 compared to the first quarter of 2021. Refining segment adjusted operating income, which excludes the adjustments in the table in note (c), also increased by $2.0 billion in the first quarter of 2022 compared to the first quarter of 2021. The components of this increase in the adjusted results, along with the reasons for the changes in those components, are outlined below.

Refining segment margin increased by $1.7 billion in the first quarter of 2022 compared to the first quarter of 2021.

Refining segment margin is primarily affected by the prices of the petroleum-based transportation fuels that we sell and the cost of crude oil and other feedstocks that we process. The table on page 34 reflects market reference prices and differentials that we believe had a material impact on the change in our Refining segment margin in the first quarter of 2022 compared to the first quarter of 2021.

The increase in Refining segment margin was primarily due to the following:

◦An increase in distillate (primarily diesel) margins had a favorable impact of approximately $1.1 billion.

◦An increase in gasoline margins had a favorable impact of approximately $278 million.

◦An increase in throughput volumes of 390,000 barrels per day had a favorable impact of approximately $243 million.

Refining segment operating expenses (excluding depreciation and amortization expense) decreased by $278 million primarily due to lower energy costs, which includes the effect of estimated excess energy costs in the first quarter of 2021 arising out of Winter Storm Uri of $478 million (see note (a)).

Renewable Diesel Segment Results

The following table includes selected financial and operating data of our Renewable Diesel segment for the first quarter of 2022 and 2021. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.


	Three Months Ended March 31,
	2022		2021		Change


Operating income	$	149	$	203	$	(54)


Renewable Diesel margin (see note (c))	$	226	$	244	$	(18)
Operating expenses (excluding depreciation and amortization expense reflected below)	51		29		22
Depreciation and amortization expense	26		12		14

Sales volumes (thousand gallons per day) (see note (e))	1,738		867		871

Renewable Diesel segment operating income decreased by $54 million in the first quarter of 2022 compared to the first quarter of 2021. The components of this decrease, along with the reasons for the changes in those components, are listed below.

Renewable Diesel segment margin decreased by $18 million in the first quarter of 2022 compared to the first quarter of 2021.

Renewable Diesel segment margin is primarily affected by the price of the renewable diesel that we sell and the cost of the feedstocks that we process. The table on page 35 reflects market reference prices that we believe had a material impact on the change in our Renewable Diesel segment margin in the first quarter of 2022 compared to the first quarter of 2021.

The decrease in Renewable Diesel segment margin was primarily due to the following:

◦An increase in the cost of the feedstocks we process had an unfavorable impact of approximately $392 million.

◦Price risk management activities had an unfavorable impact of approximately $96 million. We recognized a hedge loss of $119 million in the first quarter of 2022 compared to a hedge loss of $23 million in the first quarter of 2021.

◦An increase in sales volumes of 871,000 gallons per day had a favorable impact of approximately $291 million. The increase in sales volume was primarily due to the

additional production capacity resulting from the expansion of DGD’s existing renewable diesel plant (the DGD Plant) that commenced operations in the fourth quarter of 2021.

◦Higher renewable diesel prices had a favorable impact of approximately $166 million.

Renewable Diesel segment operating expenses (excluding depreciation and amortization expense) increased by $22 million primarily due to increased costs resulting from the expansion of the DGD Plant that commenced operations in the fourth quarter of 2021.
Renewable Diesel segment depreciation and amortization expense increased by $14 million primarily due to depreciation expense associated with the expansion of the DGD Plant that commenced operations in the fourth quarter of 2021.

Ethanol Segment Results

The following table includes selected financial and operating data of our Ethanol segment for the first quarter of 2022 and 2021. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.


	Three Months Ended March 31,
	2022		2021		Change



Operating income (loss)	$	1	$	(56)	$	57
Adjusted operating income (loss) (see note (c))	2		(56)		58

Ethanol margin (see note (c))	$	157	$	121	$	36
Operating expenses (excluding depreciation and amortization expense reflected below) (see note (a))	135		156		(21)
Depreciation and amortization expenses	20		21		(1)

Production volumes (thousand gallons per day) (see note (e))	4,045		3,562		483

Ethanol segment operating income increased by $57 million in the first quarter of 2022; however, Ethanol segment adjusted operating income, which excludes the adjustment in the table in note (c), increased by $58 million in the first quarter of 2022 compared to the first quarter of 2021. The components of this increase in the adjusted results, along with the reasons for the changes in those components, are outlined below.

Ethanol segment margin increased by $36 million in the first quarter of 2022 compared to the first quarter of 2021.

Ethanol segment margin is primarily affected by prices of the ethanol and corn related co-products that we sell and the cost of corn that we process. The table on page 35 reflects market reference prices that we believe had a material impact on the change in our Ethanol segment margin in the first quarter of 2022 compared to the first quarter of 2021.

The increase in Ethanol segment margin was primarily due to the following:

◦Higher ethanol prices had a favorable impact of approximately $171 million.

◦An increase in production volumes of 483,000 gallons per day had a favorable impact of approximately $21 million.

◦Higher prices on the co-products that we produce, primarily inedible corn oil, had a favorable impact of approximately $16 million.

◦Higher corn prices had an unfavorable impact of approximately $175 million.

Ethanol segment operating expenses (excluding depreciation and amortization expense) decreased by $21 million primarily due to lower energy costs, which includes the effect of estimated excess energy costs in the first quarter of 2021 arising out of Winter Storm Uri of $54 million (see note (a)).

The following notes relate to references on pages 32 through 39.

(a)In mid-February 2021, many of our refineries and plants were impacted to varying extents by the severe cold, utility disruptions, and higher energy costs arising out of Winter Storm Uri. The higher energy costs resulted from an increase in the prices of natural gas and electricity that significantly exceeded rates that we consider normal, such as the average rates we incurred the month preceding the storm. As a result, our operating loss for the three months ended March 31, 2021 includes estimated excess energy costs of $579 million.

The above-mentioned pre-tax estimated excess energy charge is reflected in our statement of income line items and attributable to our reportable segments for the three months ended March 31, 2021 as follows (in millions):


	Refining		Renewable Diesel		Ethanol		Total
Cost of materials and other	$	47	$	—	$	—	$	47
Operating expenses (excluding depreciation and amortization expense)	478		—		54		532
Total estimated excess energy costs	$	525	$	—	$	54	$	579

(b)“Other income (expense), net” for the three months ended March 31, 2022 includes a charge of $50 million from the early retirement of approximately $1.4 billion aggregate principal amount of various series of our senior notes.

(c)We use certain financial measures (as noted below) that are not defined under GAAP and are considered to be non-GAAP measures.

We have defined these non-GAAP measures and believe they are useful to the external users of our financial statements, including industry analysts, investors, lenders, and rating agencies. We believe our adjusted operating income measures (including for our Refining and Ethanol segments) are useful to assess our ongoing financial performance because, when reconciled to their most comparable GAAP measures, they provide improved comparability between periods after adjusting for certain items that we believe are not indicative of our core operating performance and that may obscure our underlying business results and trends. We believe our Refining margin, Renewable Diesel margin, and Ethanol margin, as applicable, are important measures of the relevant segment’s operating and financial performance because, with respect to such segment, it is the most comparable measure to the industry’s market reference product margins, which are used by industry analysts, investors, and others to evaluate our performance. These non-GAAP measures should not be considered as alternatives to their most comparable GAAP measures nor should they be considered in isolation or as a substitute for an analysis of our results of operations as reported under GAAP. In addition, these non-GAAP measures may not be comparable to similarly titled measures used by other companies because we may define them differently, which diminishes their utility.

Non-GAAP measures are as follows:

**◦**Refining margin is defined as Refining segment operating income (loss) excluding the modification of RVO adjustment (as defined in note (d)), operating expenses (excluding depreciation and amortization expense), depreciation and amortization expense, and other operating expenses, as reflected in the table below.


	Three Months Ended March 31,
	2022		2021
Reconciliation of Refining operating income (loss) to Refining margin
Refining operating income (loss)	$	1,451	$	(592)
Adjustments:
Modification of RVO (see note (d))	—		48

Operating expenses (excluding depreciation and amortization expense) (see note (a))	1,193		1,471
Depreciation and amortization expense	549		533
Other operating expenses	18		38
Refining margin	$	3,211	$	1,498

**◦**Renewable Diesel margin is defined as Renewable Diesel segment operating income excluding operating expenses (excluding depreciation and amortization expense) and depreciation and amortization expense, as reflected in the table below.


	Three Months Ended March 31,
	2022		2021
Reconciliation of Renewable Diesel operating income to Renewable Diesel margin
Renewable Diesel operating income	$	149	$	203
Adjustments:

Operating expenses (excluding depreciation and amortization expense)	51		29
Depreciation and amortization expense	26		12

Renewable Diesel margin	$	226	$	244

**◦**Ethanol margin is defined as Ethanol segment operating income (loss) excluding operating expenses (excluding depreciation and amortization expense), depreciation and amortization expense, and other operating expenses, as reflected in the table below.


	Three Months Ended March 31,
	2022		2021
Reconciliation of Ethanol operating income (loss) to Ethanol margin
Ethanol operating income (loss)	$	1	$	(56)
Adjustments:

Operating expenses (excluding depreciation and amortization expense) (see note (a))	135		156
Depreciation and amortization expense	20		21
Other operating expenses	1		—
Ethanol margin	$	157	$	121

**◦**Adjusted Refining operating income (loss) is defined as Refining segment operating income (loss) excluding the modification of RVO adjustment and other operating expenses, as reflected in the table below.


	Three Months Ended March 31,
	2022		2021
Reconciliation of Refining operating income (loss) to adjusted Refining operating income (loss)
Refining operating income (loss)	$	1,451	$	(592)
Adjustments:
Modification of RVO (see note (d))	—		48

Other operating expenses	18		38
Adjusted Refining operating income (loss)	$	1,469	$	(506)

**◦**Adjusted Ethanol operating income (loss) is defined as Ethanol segment operating income (loss) excluding other operating expenses, as reflected in the table below.


	Three Months Ended March 31,
	2022		2021
Reconciliation of Ethanol operating income (loss) to adjusted Ethanol operating income (loss)
Ethanol operating income (loss)	$	1	$	(56)



Other operating expenses	1		—
Adjusted Ethanol operating income (loss)	$	2	$	(56)

**◦**Adjusted operating income (loss) is defined as total company operating income (loss) excluding the modification of RVO adjustment and other operating expenses, as reflected in the table below.


	Three Months Ended March 31,
	2022		2021
Reconciliation of total company operating income (loss) to adjusted operating income (loss)
Total company operating income (loss)	$	1,384	$	(666)
Adjustments:

Modification of RVO (see note (d))	—		48

Other operating expenses	19		38
Adjusted operating income (loss)	$	1,403	$	(580)

(d)Under the RFS program, the EPA is required to set annual quotas for the volume of renewable fuels that must be blended into petroleum-based transportation fuels consumed in the U.S. by obligated parties. The quotas are used to determine an obligated party’s renewable volume obligation (RVO). In December 2021, the EPA released a proposed rule that, among other things, modified the volume standards for 2020 and, for the first time, established volume standards for 2021.

Because the existing volume standards for 2020 were established under a currently enforceable rule, we will recognize the effect of the modification in volume standards for 2020 in the period the final rule is enacted. However, because volume standards had not previously been established for 2021, we considered the new information available in the proposed rule in determining the estimated RVO for our Refining segment for the year ended December 31, 2021. As a result, we recognized in December 2021 a benefit related to the

modification of our RVO estimate of $205 million, of which $48 million is attributable to the three months ended March 31, 2021.

(e)We use throughput volumes, sales volumes, and production volumes for the Refining segment, Renewable Diesel segment, and Ethanol segment, respectively, due to their general use by others who operate facilities similar to those included in our segments.

LIQUIDITY AND CAPITAL RESOURCES

Overview

During the first quarter of 2022, our liquidity was impacted by the significant increases in commodity prices and our planned debt reduction and refinancing transactions. The significant increases in commodity prices affected the amount of cash generated by our product sales, as well as the cash used to pay for our feedstock purchases. In addition, the debt reduction and refinancing transactions reduced our long-term debt by $750 million as described in Note 4 of Condensed Notes to Consolidated Financial Statements. Overall, our liquidity declined by $1.9 billion during the first quarter of 2022, from $9.2 billion as of December 31, 2021 to $7.3 billion as of March 31, 2022.

Our Liquidity

Our liquidity consisted of the following as of March 31, 2022 (in millions):


Available capacity from our committed facilities (a):
Valero Revolver	$	3,385
Canadian Revolver (b)	117
Accounts receivable sales facility	1,300
Letter of credit facility	50
Total available capacity	4,852
Cash and cash equivalents (c)	2,481
Total liquidity	$	7,333

(a)Excludes the committed facilities of the consolidated VIEs.

(b)The amount for our Canadian Revolver is shown in U.S. dollars. As set forth in the summary of our credit facilities in Note 4 of Condensed Notes to Consolidated Financial Statements, the availability under our Canadian Revolver as of March 31, 2022 in Canadian dollars was C$145 million.

(c)Excludes $157 million of cash and cash equivalents related to the consolidated VIEs that is available for use only by the VIEs.

Information about our outstanding borrowings, letters of credit issued, and availability under our credit facilities is reflected in Note 4 of Condensed Notes to Consolidated Financial Statements.

We believe we have sufficient funds from operations and from available capacity under our credit facilities to fund our ongoing operating requirements and other commitments over the next 12 months and thereafter for the foreseeable future. We expect that, to the extent necessary, we can raise additional cash through equity or debt financings in the public and private capital markets or the arrangement of additional credit facilities. However, there can be no assurances regarding the availability of any future financings or additional credit facilities or whether such financings or additional credit facilities can be made available on terms that are acceptable to us.

Cash Flows

Components of our cash flows are set forth below (in millions):


	Three Months Ended March 31,
	2022		2021
Cash flows provided by (used in):
Operating activities	$	588	$	(52)
Investing activities	(841)		(580)
Financing activities:
Debt issuances and borrowings	1,066		8
Repayments of debt and finance lease obligations (including premiums on early retirement of debt)	(1,904)		(32)
Other financing activities	(390)		(415)
Financing activities	(1,228)		(439)
Effect of foreign exchange rate changes on cash	(3)		12
Net decrease in cash and cash equivalents	$	(1,484)	$	(1,059)

Cash Flows for the Three Months Ended March 31, 2022

In the first quarter of 2022, we used $588 million of cash generated by our operations, $1.5 billion of cash on hand, and $1.1 billion in debt issuances and borrowings to make $841 million of investments in our business, repay $1.9 billion of debt and finance lease obligations (including premiums on the early retirement of debt), and fund $390 million of other financing activities. The debt issuance, borrowings, and repayments are described in Note 4 of Condensed Notes to Consolidated Financial Statements.

As previously noted, our operations generated $588 million of cash in the first quarter of 2022, driven primarily by net income of $967 million and noncash charges to income of $343 million, partially offset by an unfavorable change in working capital of $722 million. Noncash charges primarily included $606 million of depreciation and amortization expense and a $50 million loss on the early retirement of debt, partially offset by a $234 million deferred income tax benefit. Details regarding the components of the change in working capital, along with the reasons for the changes in those components, are described in Note 10 of Condensed Notes to Consolidated Financial Statements. In addition, see “RESULTS OF OPERATIONS” for an analysis of the significant components of our net income.

Our investing activities of $841 million consisted of $843 million in capital investments, as defined below under “Capital Investments,” of which $225 million related to capital investments by DGD and $13 million related to capital expenditures of VIEs other than DGD.

Other financing activities of $390 million consisted primarily of $401 million in dividend payments and $144 million for the purchase of common stock for treasury, partially offset by $165 million in contributions from the other joint venture member in DGD.

Cash Flows for the Three Months Ended March 31, 2021

In the first quarter of 2021, we used $1.1 billion of our cash on hand to fund our operations by $52 million, make $580 million of investments in our business, repay $32 million of debt and finance lease obligations, and fund $415 million of other financing activities.

Our operations typically generate positive net cash flows; however, in the first quarter of 2021, we used $52 million of cash to fund our operations that was largely driven by a significant increase in energy costs

at certain of our refineries and ethanol plants due to effects arising out of Winter Storm Uri, partially offset by noncash charges to income of $386 million, and a positive change in working capital of $184 million. Noncash charges primarily included $578 million of depreciation and amortization expense, partially offset by a $239 million deferred income tax benefit. Details regarding the components of the change in working capital, along with the reasons for the changes in those components, are described in Note 10 of Condensed Notes to Consolidated Financial Statements. In addition, see “RESULTS OF OPERATIONS” for an analysis of the significant components of our net loss.

Our investing activities of $580 million consisted of $582 million in capital investments, of which $154 million related to capital investments by DGD and $26 million related to capital expenditures of VIEs other than DGD.

Other financing activities of $415 million consisted primarily of $400 million in dividend payments and $14 million for the purchase of common stock for treasury.

Our Capital Resources

Our material cash requirements as of March 31, 2022 primarily consist of working capital requirements, capital investments, contractual obligations, and other matters, as described below. Our operations have historically generated positive cash flows to fulfill our working capital requirements.

Capital Investments

Capital investments are comprised of our capital expenditures, deferred turnaround and catalyst cost expenditures, and investments in nonconsolidated joint ventures, as reflected in our consolidated statements of cash flows as shown on page 5. Capital investments exclude strategic investments or acquisitions, if any.

We have publicly announced GHG emissions reduction/offset targets for 2025 and 2035. We believe that our expected allocation of growth capital into lower-carbon projects is consistent with such targets. Certain of these lower-carbon projects have been completed or are already in execution and the associated capital investments are included in our expected capital investments for 2022 discussed below. Our capital investments in future years to achieve these targets are expected to include investments associated with certain lower-carbon projects currently at various stages of progress, evaluation, or approval.

Capital Investments Attributable to Valero

Capital investments attributable to Valero is a non-GAAP financial measure that reflects our net share of capital investments and is defined as all capital expenditures, deferred turnaround and catalyst cost expenditures, and investments in nonconsolidated joint ventures, excluding the portion of DGD’s capital investments attributable to the other joint venture member and all of the capital expenditures of other consolidated VIEs.

We are a 50 percent joint venture member in DGD and consolidate its financial statements. As a result, all of DGD’s net cash provided by operating activities (or operating cash flow) is included in our consolidated net cash provided by operating activities. DGD’s members use DGD’s operating cash flow (excluding changes in its current assets and current liabilities) to fund its capital investments rather than distribute all of that cash to themselves. Because DGD’s operating cash flow is effectively attributable to each member, only 50 percent of DGD’s capital investments should be attributed to our net share of capital investments. We also exclude all of the capital expenditures of other VIEs that we consolidate because we do not operate those VIEs. See Note 6 of Condensed Notes to Consolidated Financial

Statements for more information about the VIEs that we consolidate. We believe capital investments attributable to Valero is an important measure because it more accurately reflects our capital investments.

Capital investments attributable to Valero should not be considered as an alternative to capital investments, which is the most comparable GAAP measure, nor should it be considered in isolation or as a substitute for an analysis of our cash flows as reported under GAAP. In addition, this non-GAAP measure may not be comparable to similarly titled measures used by other companies because we may define it differently, which may diminish its utility.


		Three Months Ended March 31,
	2022			2021
Reconciliation of capital investments to capital investments attributable to Valero
Capital expenditures (excluding VIEs)		$	152		$	160
Capital expenditures of VIEs:
DGD		219			153
Other VIEs		13			26
Deferred turnaround and catalyst cost expenditures (excluding VIEs)		453			230
Deferred turnaround and catalyst cost expenditures of DGD		6			1
Investments in nonconsolidated joint ventures		—			12
Capital investments		843			582
Adjustments:
DGD’s capital investments attributable to the other joint venture member		(112)			(77)
Capital expenditures of other VIEs		(13)			(26)
Capital investments attributable to Valero		$	718		$	479

We have developed an extensive multi-year capital investment program, which we update and revise based on changing internal and external factors. As previously disclosed in our annual report on Form 10-K for the year ended December 31, 2021, we expect to incur $2.0 billion for capital investments attributable to Valero during 2022. Approximately 60 percent of the expected capital investments attributable to Valero are for sustaining the business and 40 percent are for growth strategies, of which approximately 50 percent is allocated to expanding our low-carbon businesses.

Contractual Obligations

As of March 31, 2022, our contractual obligations included debt obligations, interest payments related to debt obligations, operating lease liabilities, finance lease obligations, other long-term liabilities, and purchase obligations. In the ordinary course of business, we had debt-related activities during the three months ended March 31, 2022, as described in Note 4 of Condensed Notes to Consolidated Financial Statements. There were no material changes outside the ordinary course of business with respect to our contractual obligations during the three months ended March 31, 2022.

As of March 31, 2022, our current portion of debt and finance lease obligations included $300 million of 4.00 percent Gulf Opportunity Zone Revenue Bonds Series 2010 (GO Zone Bonds) that are due December 1, 2040, but are subject to mandatory tender on June 1, 2022 (the Mandatory Tender Date) at a price equal to par plus accrued and unpaid interest up to, but excluding, the Mandatory Tender Date. We

have the option, however, to effectuate a remarketing of these bonds. We currently expect to acquire the GO Zone Bonds on their Mandatory Tender Date.

Other Matters Impacting Liquidity and Capital Resources

Stock Purchase Program

As of March 31, 2022, we had $1.2 billion remaining available for purchase under our stock purchase program, which has no expiration date. During the three months ended March 31, 2022, we made open market purchases of 1,334,550 shares for $126 million. Prior to these purchases, however, we had not purchased any shares of our common stock under our stock purchase program since mid-March 2020, and we will continue to evaluate the timing of repurchases when appropriate. We have no obligation to make purchases under this program.

Pension Plan Funding

As disclosed in our annual report on Form 10-K for the year ended December 31, 2021, we plan to contribute approximately $116 million to our pension plans and $22 million to our other postretirement benefit plans during 2022. No significant contributions were made during the three months ended March 31, 2022.

Environmental Matters

Our operations are subject to extensive environmental regulations by governmental authorities relating to the discharge of materials into the environment, waste management, pollution prevention measures, GHG emissions, and characteristics and composition of many of our products. Because environmental laws and regulations are becoming more complex and stringent and new environmental laws and regulations are continuously being enacted or proposed, the level of future expenditures required for environmental matters could increase in the future. See Note 12 of Condensed Notes to Consolidated Financial Statements for disclosure of our environmental liabilities.

Cash Held by Our Foreign Subsidiaries

As of March 31, 2022, $1.4 billion of our cash and cash equivalents was held by our foreign subsidiaries. Cash held by our foreign subsidiaries can be repatriated to us through dividends without any U.S. federal income tax consequences, but certain other taxes may apply, including, but not limited to, withholding taxes imposed by certain foreign jurisdictions, U.S. state income taxes, and U.S. federal income tax on foreign exchange gains. Therefore, there is a cost to repatriate cash held by certain of our foreign subsidiaries to us. However, we have accrued for withholding taxes and U.S. state income taxes on a portion of the cash held by certain of our foreign subsidiaries and we believe that the remaining cost is not material to our financial position and liquidity.

Concentration of Customers

Our operations have a concentration of customers in the refining industry and customers who are refined petroleum product wholesalers and retailers. These concentrations of customers may impact our overall exposure to credit risk, either positively or negatively, in that these customers may be similarly affected by changes in economic or other conditions, including the uncertainties concerning the COVID-19 pandemic and other worldwide events causing volatility in the global crude oil markets. However, we believe that our portfolio of accounts receivable is sufficiently diversified to the extent necessary to minimize potential credit risk. Historically, we have not had any significant problems collecting our accounts receivable.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Actual results could differ from those estimates. As of March 31, 2022, there were no significant changes to our critical accounting estimates since the date our annual report on Form 10-K for the year ended December 31, 2021 was filed.

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