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 effects and impact of the emergence of new variants of the COVID-19 virus and government responses thereto;
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, including inflation, 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/displacement 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:

the effects arising out of the Russia-Ukraine conflict, including with respect to changes in trade flows and impacts to crude oil and other markets;
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, 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 countries 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 to agree on and to maintain crude oil price and production controls;
the level of consumer demand, consumption and overall economic activity, including the effects from seasonal fluctuations and market prices;
refinery, renewable diesel plant, or ethanol plant overcapacity or undercapacity;
the risk that any transactions 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, 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 trade restrictions, expropriation or impoundment of assets, failure of foreign governments and state-owned entities to honor their contracts, property disputes, economic instability, restrictions on the transfer of funds, duties and tariffs, transportation delays, import and export controls, labor unrest, security issues involving key personnel, 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 the effect thereof on consumer demand; 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 (g) beginning on page 55 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 (g), we disclose the reasons why we believe our use of such non-GAAP financial measures provides useful information. See the table on page 61 for a reconciliation of capital investments attributable to Valero to its most directly comparable GAAP financial measure. Beginning on page 60, 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

Our results for the second quarter and first six months of 2022 were favorably impacted by the effect from the ongoing recovery in the worldwide demand for petroleum-based transportation fuels while the worldwide supply of those products remained constrained. This supply and demand imbalance has contributed to increases in the market prices of petroleum-based transportation fuels (as well as crude oil and other feedstocks that are processed to make these products) and in refining margins. Supply has remained constrained for a variety of reasons, including, but not limited to, effects from refinery closures and disruptions in the crude oil and petroleum-based products markets resulting from the Russia-Ukraine conflict. Refineries closed over the last two years and other refineries ceased crude oil processing and are being transitioned to renewable fuel production. In addition, these negative impacts to the supply of petroleum-based products have been exacerbated by the Russia-Ukraine conflict as a result of countries and private market participants responding to the conflict by taking actions to refrain from purchasing and transporting Russian crude oil and petroleum-based products.

The strong demand for our products and the increase in refining margins were the primary contributors to us reporting $4.7 billion of net income attributable to Valero stockholders for the second quarter of 2022 and $5.6 billion of net income attributable to Valero stockholders for the first six months of 2022. Our operating results, including operating results by segment, are described in the following summary under “Second Quarter Results” and “First Six Months Results.” Detailed descriptions can be found under “RESULTS OF OPERATIONS.”

Our operations generated $6.4 billion of cash during the first six months of 2022. This cash was used to make $1.5 billion of capital investments in our business and return $2.7 billion to our stockholders through dividend payments and the purchase of common stock for treasury. In addition, we completed various debt reduction and refinancing transactions that reduced our debt by $1.05 billion during the first six months of 2022. As a result of this and other activity, our cash and cash equivalents increased by $1.3 billion, from $4.1 billion as of December 31, 2021 to $5.4 billion as of June 30, 2022. We had $9.8 billion in liquidity as of June 30, 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.”

Second Quarter Results

For the second quarter of 2022, we reported net income attributable to Valero stockholders of $4.7 billion compared to $162 million for the second quarter of 2021. The increase of $4.5 billion was primarily due to higher operating income of $5.7 billion, partially offset by higher income tax expense of $1.2 billion. The details of our operating income and adjusted operating income by segment and in total are reflected on the following page. Adjusted operating income excludes the adjustments reflected in the tables in note (g).


	Three Months Ended June 30,
	2022		2021		Change
Refining segment:
Operating income	$	6,212	$	349	$	5,863
Adjusted operating income	6,122		442		5,680
Renewable Diesel segment:
Operating income	152		248		(96)

Ethanol segment:
Operating income	101		99		2
Adjusted operating income	79		99		(20)
Total company:
Operating income	6,219		509		5,710
Adjusted operating income	6,127		602		5,525

While our operating income increased by $5.7 billion in the second quarter of 2022 compared to the second quarter of 2021, adjusted operating income increased by $5.5 billion primarily due to the following:

Refining segment. Refining segment adjusted operating income increased by $5.7 billion primarily due to higher gasoline and distillate (primarily diesel) margins and higher throughput volumes, partially offset by higher operating expenses (excluding depreciation and amortization expense) and lower margins on other products.
Renewable Diesel segment. Renewable Diesel segment operating income decreased by $96 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 decreased by $20 million primarily due to higher corn prices, lower production volumes, and higher operating expenses (excluding depreciation and amortization expense), partially offset by higher ethanol and corn related co-product prices.

First Six Months Results

For the first six months of 2022, we reported net income attributable to Valero stockholders of $5.6 billion compared to a net loss attributable to Valero stockholders of $542 million for the first six months of 2021. The increase of $6.1 billion was primarily due to higher operating income of $7.8 billion, partially offset by higher income tax expense of $1.6 billion. 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 (g).


	Six Months Ended June 30,
	2022		2021		Change
Refining segment:
Operating income (loss)	$	7,663	$	(243)	$	7,906
Adjusted operating income (loss)	7,591		(32)		7,623
Renewable Diesel segment:
Operating income	301		451		(150)

Ethanol segment:
Operating income	102		43		59
Adjusted operating income	81		43		38
Total company:
Operating income (loss)	7,603		(157)		7,760
Adjusted operating income	7,530		54		7,476

While our operating income increased by $7.8 billion in the first six months of 2022 compared to the first six months of 2021, adjusted operating income increased by $7.5 billion primarily due to the following:

Refining segment. Refining segment adjusted operating income increased by $7.6 billion primarily due to higher gasoline and distillate (primarily diesel) margins and higher throughput volumes, partially offset by lower margins on other products.
Renewable Diesel segment. Renewable Diesel segment operating income decreased by $150 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 $38 million primarily due to higher ethanol and corn related co-product prices, partially offset by higher corn prices and higher operating expenses (excluding depreciation and amortization expense).

Outlook

Many uncertainties remain with respect to the supply and demand imbalance in the petroleum-based products market worldwide, and while it is difficult to predict the ultimate economic impacts this may have on us, we have noted several factors below that have impacted or may impact our results of operations during the third quarter of 2022.

Gasoline and diesel 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.
Light product (primarily gasoline and diesel) inventories in the U.S. are below historical levels and should support continued high utilization of refining capacity.
Crude oil discounts are expected to remain near current levels absent changes in crude oil supply or availability.
Renewable diesel margins are expected to remain consistent with current levels.
Ethanol demand is expected to follow 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 (g) beginning on page 55, 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 54 through 57.

Second Quarter Results -

Financial Highlights By Segment and Total Company

(millions of dollars)


	Three Months Ended June 30, 2022
	Refining		Renewable Diesel		Ethanol		Corporate and Eliminations		Total
Revenues:
Revenues from external customers	$	49,495	$	855	$	1,291	$	—	$	51,641
Intersegment revenues	11		596		201		(808)		—
Total revenues	49,506		1,451		1,492		(808)		51,641
Cost of sales:
Cost of materials and other (a)	41,313		1,213		1,226		(806)		42,946

Operating expenses (excluding depreciation and amortization expense reflected below)	1,402		58		167		(1)		1,626
Depreciation and amortization expense (c)	565		28		(3)		—		590
Total cost of sales	43,280		1,299		1,390		(807)		45,162
Other operating expenses	14		—		1		—		15
General and administrative expenses (excluding depreciation and amortization expense reflected below) (d)	—		—		—		233		233
Depreciation and amortization expense	—		—		—		12		12
Operating income by segment	$	6,212	$	152	$	101	$	(246)	6,219
Other income, net									33
Interest and debt expense, net of capitalized interest									(142)
Income before income tax expense									6,110
Income tax expense									1,342
Net income									4,768
Less: Net income attributable to noncontrolling interests									75
Net income attributable to Valero Energy Corporation stockholders									$	4,693

Second Quarter Results -

Financial Highlights By Segment and Total Company (continued)

(millions of dollars)


	Three Months Ended June 30, 2021
	Refining		Renewable Diesel		Ethanol		Corporate and Eliminations		Total
Revenues:
Revenues from external customers	$	25,968	$	496	$	1,284	$	—	$	27,748
Intersegment revenues	1		76		84		(161)		—
Total revenues	25,969		572		1,368		(161)		27,748
Cost of sales:
Cost of materials and other	24,000		281		1,130		(162)		25,249

Operating expenses (excluding depreciation and amortization expense reflected below)	1,064		31		119		—		1,214
Depreciation and amortization expense	544		12		20		—		576
Total cost of sales	25,608		324		1,269		(162)		27,039
Other operating expenses	12		—		—		—		12
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—		—		—		176		176
Depreciation and amortization expense	—		—		—		12		12
Operating income by segment	$	349	$	248	$	99	$	(187)	509
Other income, net (e)									102
Interest and debt expense, net of capitalized interest									(150)
Income before income tax expense									461
Income tax expense (f)									169
Net income									292
Less: Net income attributable to noncontrolling interests									130
Net income attributable to Valero Energy Corporation stockholders									$	162

Second Quarter Results -

Average Market Reference Prices and Differentials


	Three Months Ended June 30,
	2022		2021
Refining
Feedstocks (dollars per barrel)
Brent crude oil	$	111.69	$	69.00
Brent less West Texas Intermediate (WTI) crude oil	3.03		2.91
Brent less Alaska North Slope (ANS) crude oil	(0.78)		0.56
Brent less Louisiana Light Sweet (LLS) crude oil	1.54		1.05
Brent less Argus Sour Crude Index (ASCI) crude oil	6.59		3.34
Brent less Maya crude oil	7.91		6.13
LLS crude oil	110.15		67.95
LLS less ASCI crude oil	5.05		2.29
LLS less Maya crude oil	6.37		5.08
WTI crude oil	108.66		66.09

Natural gas (dollars per million British Thermal Units (MMBtu))	7.23		2.93

Product margins (dollars per barrel)
U.S. Gulf Coast:
Conventional Blendstock of Oxygenate Blending (CBOB) gasoline less Brent	31.33		14.43
Ultra-low-sulfur (ULS) diesel less Brent	55.95		12.99
Propylene less Brent	(38.56)		(20.41)
CBOB gasoline less LLS	32.87		15.48
ULS diesel less LLS	57.49		14.04
Propylene less LLS	(37.02)		(19.36)
U.S. Mid-Continent:
CBOB gasoline less WTI	36.08		19.93
ULS diesel less WTI	60.16		18.42
North Atlantic:
CBOB gasoline less Brent	41.58		17.37
ULS diesel less Brent	70.25		15.07
U.S. West Coast:
California Reformulated Gasoline Blendstock of Oxygenate Blending (CARBOB) 87 gasoline less ANS	55.06		27.18
California Air Resources Board (CARB) diesel less ANS	58.37		15.28
CARBOB 87 gasoline less WTI	58.87		29.53
CARB diesel less WTI	62.18		17.63

Second Quarter Results -

Average Market Reference Prices and Differentials (continued)


	Three Months Ended June 30,
	2022		2021
Renewable Diesel
New York Mercantile Exchange ULS diesel (dollars per gallon)	$	4.03	$	2.00
Biodiesel RIN (dollars per RIN)	1.70		1.71
California Low-Carbon Fuel Standard (dollars per metric ton)	104.30		184.82
Chicago Board of Trade (CBOT) soybean oil (dollars per pound)	0.80		0.63

Ethanol
CBOT corn (dollars per bushel)	7.77		6.58
New York Harbor ethanol (dollars per gallon)	2.84		2.38

Total Company, Corporate, and Other

The following table includes selected financial data for the total company, corporate, and other for the second 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 June 30,
	2022		2021		Change
Revenues	$	51,641	$	27,748	$	23,893


Cost of sales (see notes (a) and (c))	45,162		27,039		18,123
General and administrative expenses (excluding depreciation and amortization expense) (see note (d))	233		176		57
Operating income	6,219		509		5,710
Adjusted operating income (see note (g))	6,127		602		5,525
Other income, net (see note (e))	33		102		(69)

Income tax expense (see note (f))	1,342		169		1,173
Net income attributable to noncontrolling interests	75		130		(55)

Revenues increased by $23.9 billion in the second quarter of 2022 compared to the second 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 was partially offset by an increase in cost of sales of $18.1 billion, which was primarily due to increases in crude oil and other feedstock costs, and an increase in general and administrative expenses (excluding depreciation and amortization expense) of $57 million, which was primarily due to an increase of $26 million in certain employee compensation expenses and a charge of $20 million for an environmental reserve adjustment (see note (d)). These changes resulted in a $5.7 billion increase in operating income, from $509 million in the second quarter of 2021 to $6.2 billion in the second quarter of 2022.

Adjusted operating income increased by $5.5 billion, from $602 million in the second quarter of 2021 to $6.1 billion in the second quarter of 2022. The components of this $5.5 billion increase in adjusted operating income are discussed by segment in the segment analyses that follow.

“Other income, net” decreased by $69 million in the second quarter of 2022 compared to the second quarter of 2021 primarily due to the effect of the gain of $62 million in the second quarter of 2021 on the sale of a 24.99 percent membership interest in MVP, partially offset by an asset impairment loss of $24 million in the second quarter of 2021 resulting from the cancellation of a pipeline extension project by our nonconsolidated joint venture, Diamond Pipeline LLC. These items are more fully described in note (e).

Income tax expense increased by $1.2 billion in the second quarter of 2022 compared to the second quarter of 2021 primarily as a result of higher income before income tax expense.

Net income attributable to noncontrolling interests decreased by $55 million in the second quarter of 2022 compared to the second quarter of 2021 primarily due to lower earnings associated with DGD. See Note 7 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 second 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 June 30,
	2022		2021		Change




Operating income	$	6,212	$	349	$	5,863
Adjusted operating income (see note (g))	6,122		442		5,680

Refining margin (see note (g))	$	8,089	$	2,050	$	6,039
Operating expenses (excluding depreciation and amortization expense reflected below)	1,402		1,064		338
Depreciation and amortization expense	565		544		21

Throughput volumes (thousand barrels per day) (see note (h))	2,962		2,835		127

Refining segment operating income increased by $5.9 billion in the second quarter of 2022 compared to the second quarter of 2021; however, Refining segment adjusted operating income, which excludes the adjustments in the table in note (g), increased by $5.7 billion in the second quarter of 2022 compared to the second 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 $6.0 billion in the second quarter of 2022 compared to the second 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 41 reflects market reference prices and differentials that we believe had a material impact on the change in our Refining segment margin in the second quarter of 2022 compared to the second 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 $4.0 billion.

◦An increase in gasoline margins had a favorable impact of approximately $2.1 billion.

◦An increase in throughput volumes of 127,000 barrels per day had a favorable impact of approximately $347 million.

◦Lower margins on other products had an unfavorable impact of approximately $265 million.

Refining segment operating expenses (excluding depreciation and amortization expense) increased by $338 million primarily due to higher energy costs of $210 million, higher chemical and catalyst costs of $21 million, higher maintenance expense of $18 million, and an increase in certain employee compensation expenses of $16 million.

Renewable Diesel Segment Results

The following table includes selected financial and operating data of our Renewable Diesel segment for the second 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 June 30,
	2022		2021		Change


Operating income	$	152	$	248	$	(96)


Renewable Diesel margin (see note (g))	$	238	$	291	$	(53)
Operating expenses (excluding depreciation and amortization expense reflected below)	58		31		27
Depreciation and amortization expense	28		12		16

Sales volumes (thousand gallons per day) (see note (h))	2,182		923		1,259

Renewable Diesel segment operating income decreased by $96 million in the second quarter of 2022 compared to the second quarter of 2021. The components of this decrease, along with the reasons for the changes in those components, are outlined below.

Renewable Diesel segment margin decreased by $53 million in the second quarter of 2022 compared to the second 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 42 reflects market reference prices that we believe had a material impact on the change in our Renewable Diesel segment margin in the second quarter of 2022 compared to the second quarter of 2021.

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

◦An increase in the cost of the feedstocks that we process had an unfavorable impact of approximately $563 million.

◦Price risk management activities had an unfavorable impact of approximately $172 million. We recognized a hedge loss of $183 million in the second quarter of 2022 compared to a hedge loss of $11 million in the second quarter of 2021.

◦An increase in sales volumes of 1.3 million gallons per day had a favorable impact of approximately $493 million. The increase in sales volumes 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 $186 million.

Renewable Diesel segment operating expenses (excluding depreciation and amortization expense) increased by $27 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 $16 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 second 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 June 30,
	2022		2021		Change



Operating income	$	101	$	99	$	2
Adjusted operating income (see note (g))	79		99		(20)

Ethanol margin (see note (g))	$	266	$	238	$	28
Operating expenses (excluding depreciation and amortization expense reflected below)	167		119		48
Depreciation and amortization expenses (see note (c))	(3)		20		(23)

Production volumes (thousand gallons per day) (see note (h))	3,861		4,203		(342)

Ethanol segment operating income increased by $2 million in the second quarter of 2022 compared to the second quarter of 2021; however, Ethanol segment adjusted operating income, which excludes the adjustments in the table in note (g), decreased by $20 million in the second quarter of 2022 compared to the second quarter of 2021. The components of this decrease in the adjusted results, along with the reasons for the changes in those components, are outlined below.

Ethanol segment margin increased by $28 million in the second quarter of 2022 compared to the second 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 42 reflects market reference prices that we believe had a material impact on the change in our Ethanol segment margin in the second quarter of 2022 compared to the second quarter of 2021.

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

◦Higher ethanol prices had a favorable impact of approximately $133 million.

◦Higher prices for the co-products that we produce, primarily dry distillers grains (DDGs) and inedible distillers corn oil (DCO), had a favorable impact of approximately $75 million.

◦Higher corn prices had an unfavorable impact of approximately $155 million.

◦A decrease in production volumes of 342,000 gallons per day had an unfavorable impact of approximately $25 million.

Ethanol segment operating expenses (excluding depreciation and amortization expense) increased by $48 million primarily due to higher energy costs.

First Six Months Results -

Financial Highlights By Segment and Total Company

(millions of dollars)


	Six Months Ended June 30, 2022
	Refining		Renewable Diesel		Ethanol		Corporate and Eliminations		Total
Revenues:
Revenues from external customers	$	86,308	$	1,450	$	2,425	$	—	$	90,183
Intersegment revenues	15		982		328		(1,325)		—
Total revenues	86,323		2,432		2,753		(1,325)		90,183
Cost of sales:
Cost of materials and other (a)	74,919		1,968		2,330		(1,322)		77,895

Operating expenses (excluding depreciation and amortization expense reflected below)	2,595		109		302		(1)		3,005
Depreciation and amortization expense (c)	1,114		54		17		—		1,185
Total cost of sales	78,628		2,131		2,649		(1,323)		82,085
Other operating expenses	32		—		2		—		34
General and administrative expenses (excluding depreciation and amortization expense reflected below) (d)	—		—		—		438		438
Depreciation and amortization expense	—		—		—		23		23
Operating income by segment	$	7,663	$	301	$	102	$	(463)	7,603
Other income, net (e)									13
Interest and debt expense, net of capitalized interest									(287)
Income before income tax expense									7,329
Income tax expense									1,594
Net income									5,735
Less: Net income attributable to noncontrolling interests									137
Net income attributable to Valero Energy Corporation stockholders									$	5,598

First Six Months Results -

Financial Highlights By Segment and Total Company (continued)

(millions of dollars)


	Six Months Ended June 30, 2021
	Refining		Renewable Diesel		Ethanol		Corporate and Eliminations		Total
Revenues:
Revenues from external customers	$	45,437	$	848	$	2,269	$	—	$	48,554
Intersegment revenues	4		155		144		(303)		—
Total revenues	45,441		1,003		2,413		(303)		48,554
Cost of sales:
Cost of materials and other (b)	42,022		468		2,054		(303)		44,241

Operating expenses (excluding depreciation and amortization expense reflected below) (b)	2,535		60		275		—		2,870
Depreciation and amortization expense	1,077		24		41		—		1,142
Total cost of sales	45,634		552		2,370		(303)		48,253
Other operating expenses	50		—		—		—		50
General and administrative expenses (excluding depreciation and amortization expense reflected below)	—		—		—		384		384
Depreciation and amortization expense	—		—		—		24		24
Operating income (loss) by segment	$	(243)	$	451	$	43	$	(408)	(157)
Other income, net (e)									147
Interest and debt expense, net of capitalized interest									(299)
Loss before income tax expense									(309)
Income tax expense (f)									21
Net loss									(330)
Less: Net income attributable to noncontrolling interests									212
Net loss attributable to Valero Energy Corporation stockholders									$	(542)

First Six Months Results -

Average Market Reference Prices and Differentials


	Six Months Ended June 30,
	2022		2021
Refining
Feedstocks (dollars per barrel)
Brent crude oil	$	104.52	$	65.05
Brent less WTI crude oil	2.96		3.09
Brent less ANS crude oil	0.48		0.45
Brent less LLS crude oil	1.06		1.08
Brent less ASCI crude oil	5.76		3.17
Brent less Maya crude oil	8.21		5.42
LLS crude oil	103.46		63.97
LLS less ASCI crude oil	4.70		2.09
LLS less Maya crude oil	7.15		4.34
WTI crude oil	101.56		61.96

Natural gas (dollars per MMBtu)	5.78		11.30

Product margins (dollars per barrel)
U.S. Gulf Coast:
CBOB gasoline less Brent	23.50		12.28
ULS diesel less Brent	41.95		11.59
Propylene less Brent	(33.69)		(0.96)
CBOB gasoline less LLS	24.56		13.36
ULS diesel less LLS	43.01		12.67
Propylene less LLS	(32.63)		0.12
U.S. Mid-Continent:
CBOB gasoline less WTI	26.05		17.38
ULS diesel less WTI	43.72		17.82
North Atlantic:
CBOB gasoline less Brent	29.63		14.47
ULS diesel less Brent	51.36		13.48
U.S. West Coast:
CARBOB 87 gasoline less ANS	41.76		20.87
CARB diesel less ANS	45.32		14.71
CARBOB 87 gasoline less WTI	44.24		23.51
CARB diesel less WTI	47.80		17.35

First Six Months Results -

Average Market Reference Prices and Differentials (continued)


	Six Months Ended June 30,
	2022		2021
Renewable Diesel
New York Mercantile Exchange ULS diesel (dollars per gallon)	$	3.54	$	1.87
Biodiesel RIN (dollars per RIN)	1.57		1.44
California Low-Carbon Fuel Standard (dollars per metric ton)	121.47		190.06
CBOT soybean oil (dollars per pound)	0.74		0.56

Ethanol
CBOT corn (dollars per bushel)	7.24		5.98
New York Harbor ethanol (dollars per gallon)	2.61		2.08

Total Company, Corporate, and Other

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


	Six Months Ended June 30,
	2022		2021		Change
Revenues	$	90,183	$	48,554	$	41,629

Cost of sales (see notes (a) through (c))	82,085		48,253		33,832


General and administrative expenses (excluding depreciation and amortization expense) (see note (d))	438		384		54


Operating income (loss)	7,603		(157)		7,760
Adjusted operating income (see note (g))	7,530		54		7,476
Other income, net (see note (e))	13		147		(134)

Income tax expense (see note (f))	1,594		21		1,573
Net income attributable to noncontrolling interests	137		212		(75)

Revenues increased by $41.6 billion in the first six months of 2022 compared to the first six months of 2021 primarily due to increases in the product prices of the refined petroleum-based transportation fuels associated with sales made by our Refining segment. This increase in revenues was partially offset by an increase in cost of sales of $33.8 billion, which was primarily due to increases in crude oil and other feedstock costs, and an increase in general and administrative expenses (excluding depreciation and amortization expense) of $54 million, which was primarily due to an increase of $34 million in certain employee compensation expenses and a charge of $20 million for an environmental reserve adjustment (see note (d)). These changes resulted in a $7.8 billion increase in operating income, from an operating loss of $157 million in the first six months of 2021 to operating income of $7.6 billion in the first six months of 2022.

Adjusted operating income increased by $7.5 billion, from $54 million in the first six months of 2021 to $7.5 billion in the first six months of 2022. The components of this $7.5 billion increase in adjusted operating income are discussed by segment in the segment analyses that follow.

“Other income, net” decreased by $134 million in the first six months of 2022 compared to the first six months of 2021 primarily due to a charge of $50 million in the first six months of 2022 from the early retirement of debt and the effect of the gain of $62 million in the first six months of 2021 on the sale of a 24.99 percent membership interest in MVP, partially offset by an asset impairment loss of $24 million in the first six months of 2021 resulting from the cancellation of a pipeline extension project by our nonconsolidated joint venture, Diamond Pipeline LLC. These items are more fully described in note (e).

Income tax expense increased by $1.6 billion in the first six months of 2022 compared to the first six months of 2021 primarily as a result of higher income before income tax expense.

Net income attributable to noncontrolling interests decreased by $75 million in the first six months of 2022 compared to the first six months of 2021 primarily due to lower earnings associated with DGD.

Refining Segment Results

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


	Six Months Ended June 30,
	2022		2021		Change
Operating income (loss)	$	7,663	$	(243)	$	7,906
Adjusted operating income (loss) (see note (g))	7,591		(32)		7,623

Refining margin (see note (g))	$	11,300	$	3,580	$	7,720

Operating expenses (excluding depreciation and amortization expense reflected below) (see note (b))	2,595		2,535		60

Depreciation and amortization expense	1,114		1,077		37

Throughput volumes (thousand barrels per day) (see note (h))	2,881		2,624		257

Refining segment operating income increased by $7.9 billion in the first six months of 2022 compared to the first six months of 2021; however, Refining segment adjusted operating income, which excludes the adjustments in the table in note (g), increased by $7.6 billion in the first six months of 2022 compared to the first six months of 2021. This increase in the adjusted results was primarily due to higher Refining segment margin.

Refining segment margin increased by $7.7 billion in the first six months of 2022 compared to the first six months 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 49 reflects market reference prices and differentials that we believe had a material impact on the change in our Refining segment margin in the first six months of 2022 compared to the first six months 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 $4.9 billion.
An increase in gasoline margins had a favorable impact of approximately $2.2 billion.
An increase in throughput volumes of 257,000 barrels per day had a favorable impact of approximately $1.0 billion.
Lower margins on other products had an unfavorable impact of approximately $463 million.

Renewable Diesel Segment Results

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


	Six Months Ended June 30,
	2022		2021		Change
Operating income	$	301	$	451	$	(150)


Renewable Diesel margin (see note (g))	$	464	$	535	$	(71)
Operating expenses (excluding depreciation and amortization expense reflected below)	109		60		49
Depreciation and amortization expense	54		24		30

Sales volumes (thousand gallons per day) (see note (h))	1,961		895		1,066

Renewable Diesel segment operating income decreased by $150 million in the first six months of 2022 compared to the first six months of 2021. The components of this decrease, along with the reasons for the changes in those components, are outlined below.

Renewable Diesel segment margin decreased by $71 million in the first six months of 2022 compared to the first six months 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 50 reflects market reference prices that we believe had a material impact on the change in our Renewable Diesel segment margin in the first six months of 2022 compared to the first six months of 2021.

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

◦An increase in the cost of the feedstocks that we process had an unfavorable impact of approximately $968 million.

◦Price risk management activities had an unfavorable impact of $268 million. We recognized a hedge loss of $302 million in the first six months of 2022 compared to a hedge loss of $34 million in the first six months of 2021.

◦An increase in sales volumes of 1.1 million gallons per day had a favorable impact of approximately $780 million. The increase in sales volumes was primarily due to the additional production capacity resulting from the expansion of the DGD Plant that commenced operations in the fourth quarter of 2021.

◦Higher Renewable Diesel prices had a favorable impact of approximately $369 million.

Renewable Diesel segment operating expenses (excluding depreciation and amortization expense) increased by $49 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 $30 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 six months of 2022 and 2021. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.


	Six Months Ended June 30,
	2022		2021		Change
Operating income	$	102	$	43	$	59
Adjusted operating income (see note (g))	81		43		38

Ethanol margin (see note (g))	$	423	$	359	$	64
Operating expenses (excluding depreciation and amortization expense reflected below) (see note (b))	302		275		27
Depreciation and amortization expense (see note (c))	17		41		(24)

Production volumes (thousand gallons per day) (see note (h))	3,953		3,884		69

The Ethanol segment operating income increased by $59 million in the first six months of 2022 compared to the first six months of 2021; however, Ethanol segment adjusted operating income, which excludes the adjustments in the table in note (g), increased by $38 million in the first six months of 2022 compared to the first six months 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 $64 million in the first six months of 2022 compared to the first six months 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 50 reflects market reference prices that we believe had a material impact on the change in our Ethanol segment margin in the first six months of 2022 compared to the first six months of 2021.

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

◦Higher ethanol prices had a favorable impact of approximately $287 million.

◦Higher prices for the co-products that we produce, primarily DDGs and inedible DCO, had a favorable impact of approximately $85 million.

◦Higher corn prices had an unfavorable impact of approximately $319 million.

Ethanol segment operating expenses (excluding depreciation and amortization expense) increased by $27 million primarily due to higher chemical and catalyst costs of $12 million and higher energy costs of $10 million.

The following notes relate to references on pages 35 through 53.

(a)Under the RFS program, the EPA is required to set annual quotas for the volume of renewable fuels that obligated parties, such as us, must blend into petroleum-based transportation fuels consumed in the U.S. The quotas are used to determine an obligated party’s renewable volume obligation (RVO). The EPA released a final rule on June 3, 2022 that, among other things, reduced the quotas for 2020 and, for the first time, established quotas for 2021 and 2022.

In 2020, we recognized the cost of the RVO using the 2020 quotas set by the EPA at that time, and in 2021 and the three months ended March 31, 2022, we recognized the cost of the RVO using our estimates of the quotas. As a result of the final rule released by the EPA on June 3, 2022 as noted above, we recognized a benefit of $104 million in the three and six months ended June 30, 2022 primarily related to the modification of the 2020 quotas. The impacts to the estimated cost of the RVO recognized by us in 2021 and the three months ended March 31, 2022 were not significant; however, there were impacts in the 2021 quarterly periods as follows: (i) benefit of $80 million for the three months ended March 31, 2021; (ii) benefit of $81 million for the three months ended June 30, 2021; (iii) benefit of $58 million for the three months ended September 30, 2021; and (iv) charge of $220 million related to the three months ended December 31, 2021.

(b)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 six months ended June 30, 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 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

(c)In June 2022, we sold our ethanol plant located in Jefferson, Wisconsin, which ceased operations and was written down to estimated salvage value in 2021, for $32 million. Depreciation and amortization expense for the three and six months ended June 30, 2022 includes a gain on the sale of $23 million.

(d)General and administrative expenses (excluding depreciation and amortization expense) for the three and six months ended June 30, 2022 includes a charge of $20 million for an environmental reserve adjustment associated with a non-operating site.

(e)“Other income, net” includes the following:

◦a charge of $50 million in the six months ended June 30, 2022 from the early retirement of approximately $1.4 billion aggregate principal amount of various series of our senior notes;

◦a gain of $62 million in the three and six months ended June 30, 2021 on the sale of a 24.99 percent membership interest in MVP for $270 million; and

◦a charge of $24 million in the three and six months ended June 30, 2021 representing our portion of the asset impairment loss recognized by Diamond Pipeline LLC, a nonconsolidated joint venture with a subsidiary of Plains All American Pipeline, L.P., resulting from the joint venture’s cancellation of its pipeline extension project.

(f)Certain statutory income tax rate changes (primarily an increase in the U.K. rate from 19 percent to 25 percent effective in 2023) were enacted during the second quarter of 2021 that resulted in the remeasurement of our deferred tax liabilities. Under GAAP, we are required to recognize the effect of a change in tax law in the period of enactment. As a result, we recognized deferred income tax expense of $64 million in the three and six months ended June 30, 2021, which represented the net increase in our deferred tax liabilities resulting from the changes in the income tax rates.

(g)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 these measures 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. 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 (a)), operating expenses (excluding depreciation and amortization expense), depreciation and amortization expense, and other operating expenses, as reflected in the table below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Reconciliation of Refining operating income (loss) to Refining margin
Refining operating income (loss)	$	6,212	$	349	$	7,663	$	(243)
Adjustments:
Modification of RVO (see note (a))	(104)		81		(104)		161

Operating expenses (excluding depreciation and amortization expense) (see note (b))	1,402		1,064		2,595		2,535
Depreciation and amortization expense	565		544		1,114		1,077
Other operating expenses	14		12		32		50
Refining margin	$	8,089	$	2,050	$	11,300	$	3,580

**◦**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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Reconciliation of Renewable Diesel operating income to Renewable Diesel margin
Renewable Diesel operating income	$	152	$	248	$	301	$	451
Adjustments:

Operating expenses (excluding depreciation and amortization expense)	58		31		109		60
Depreciation and amortization expense	28		12		54		24

Renewable Diesel margin	$	238	$	291	$	464	$	535

**◦**Ethanol margin is defined as Ethanol segment operating income 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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Reconciliation of Ethanol operating income to Ethanol margin
Ethanol operating income	$	101	$	99	$	102	$	43
Adjustments:

Operating expenses (excluding depreciation and amortization expense) (see note (b))	167		119		302		275
Depreciation and amortization expense (see note (c))	(3)		20		17		41
Other operating expenses	1		—		2		—
Ethanol margin	$	266	$	238	$	423	$	359

**◦**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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Reconciliation of Refining operating income (loss) to adjusted Refining operating income (loss)
Refining operating income (loss)	$	6,212	$	349	$	7,663	$	(243)
Adjustments:
Modification of RVO (see note (a))	(104)		81		(104)		161

Other operating expenses	14		12		32		50
Adjusted Refining operating income (loss)	$	6,122	$	442	$	7,591	$	(32)

**◦**Adjusted Ethanol operating income is defined as Ethanol segment operating income excluding the gain on sale of ethanol plant and other operating expenses, as reflected in the table below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Reconciliation of Ethanol operating income to adjusted Ethanol operating income
Ethanol operating income	$	101	$	99	$	102	$	43
Adjustments:


Gain on sale of ethanol plant (see note (c))	(23)		—		(23)		—
Other operating expenses	1		—		2		—
Adjusted Ethanol operating income	$	79	$	99	$	81	$	43

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Reconciliation of total company operating income (loss) to adjusted operating income
Total company operating income (loss)	$	6,219	$	509	$	7,603	$	(157)
Adjustments:
Modification of RVO (see note (a))	(104)		81		(104)		161

Gain on sale of ethanol plant (see note (c))	(23)		—		(23)		—
Environmental reserve adjustment (see note (d))	20		—		20		—
Other operating expenses	15		12		34		50
Adjusted operating income	$	6,127	$	602	$	7,530	$	54

(h)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 six months of 2022, our liquidity was favorably impacted by the cash generated by our operations, which was partially used to complete various debt reduction and refinancing transactions that reduced our debt by $1.05 billion, as described in Note 5 of Condensed Notes to Consolidated Financial Statements. Overall, our liquidity increased by $495 million during the first six months of 2022, from $9.3 billion as of December 31, 2021 to $9.8 billion as of June 30, 2022.

Our Liquidity

Our liquidity consisted of the following as of June 30, 2022 (in millions):


Available capacity from our committed facilities (a):
Valero Revolver	$	3,088
Canadian Revolver (b)	113
Accounts receivable sales facility	1,300
Letter of credit facility	50
Total available capacity	4,551
Cash and cash equivalents (c)	5,207
Total liquidity	$	9,758

(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 5 of Condensed Notes to Consolidated Financial Statements, the availability under our Canadian Revolver as of June 30, 2022 in Canadian dollars was C$145 million.

(c)Excludes $185 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 5 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):


	Six Months Ended June 30,
	2022		2021
Cash flows provided by (used in):
Operating activities	$	6,433	$	1,956
Investing activities	(1,460)		(836)
Financing activities:
Debt issuances and borrowings	1,844		16
Repayments of debt and finance lease obligations (including premiums paid on early retirement of debt)	(3,026)		(66)
Other financing activities	(2,460)		(816)
Financing activities	(3,642)		(866)
Effect of foreign exchange rate changes on cash	(61)		5
Net increase in cash and cash equivalents	$	1,270	$	259

Cash Flows for the Six Months Ended June 30, 2022

In the first six months of 2022, we used $6.4 billion of cash generated by our operations and $1.8 billion in debt issuances and borrowings to make $1.5 billion of investments in our business, repay $3.0 billion of debt and finance lease obligations (including premiums paid on the early retirement of debt), fund $2.5 billion of other financing activities, and increase our available cash on hand by $1.3 billion. The debt issuance, borrowings, and repayments are described in Note 5 of Condensed Notes to Consolidated Financial Statements.

As previously noted, our operations generated $6.4 billion of cash in the first six months of 2022, driven primarily by net income of $5.7 billion and noncash charges to income of $826 million, partially offset by an unfavorable change in working capital of $128 million. Noncash charges primarily included $1.2 billion of depreciation and amortization expense, partially offset by a $333 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 12 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 primarily consisted of $1.5 billion in capital investments, as defined below under “Capital Investments,” of which $471 million related to capital investments by DGD and $19 million related to capital expenditures of VIEs other than DGD.

Other financing activities of $2.5 billion consisted primarily of $1.9 billion for the purchase of common stock for treasury and $800 million in dividend payments, partially offset by $240 million in contributions from the other joint venture member in DGD.

Cash Flows for the Six Months Ended June 30, 2021

In the first six months of 2021, we used $2.0 billion of our cash generated by our operations to make $836 million of investments in our business, repay $66 million of debt and finance lease obligations, fund $816 million of other financing activities, and increase our available cash on hand by $259 million.

As previously noted, our operations generated $2.0 billion of cash in the first six months of 2021, driven primarily by a positive change in working capital of $1.3 billion and noncash charges to income of $1.0 billion, partially offset by increased energy costs at certain of our refineries and ethanol plants due to effects arising out of Winter Storm Uri. See note (b) on page 54 regarding the effects of Winter Storm Uri. Noncash charges primarily included $1.2 billion of depreciation and amortization expense, partially offset by a $136 million deferred income tax benefit and a $62 million gain on the sale of a partial interest in MVP, as described in Note 7 of Condensed Notes to Consolidated Financial Statements. Details regarding the components of the change in working capital, along with the reasons for the changes in those components, are described in Note 12 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 $836 million consisted of $1.1 billion in capital investments, of which $399 million related to capital investments by DGD and $35 million related to capital expenditures of VIEs other than DGD. These activities were partially offset by $270 million received from the sale of a partial interest in MVP, as described in Note 7 of Condensed Notes to Consolidated Financial Statements.

Other financing activities of $816 million consisted primarily of $801 million in dividend payments and $15 million for the purchase of common stock for treasury.

Our Capital Resources

Our material cash requirements as of June 30, 2022 primarily consisted 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 6. 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 7 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.


		Six Months Ended June 30,
	2022			2021
Reconciliation of capital investments to capital investments attributable to Valero
Capital expenditures (excluding VIEs)		$	324		$	261
Capital expenditures of VIEs:
DGD		458			398
Other VIEs		19			35
Deferred turnaround and catalyst cost expenditures (excluding VIEs)		681			426
Deferred turnaround and catalyst cost expenditures of DGD		13			1
Investments in nonconsolidated joint ventures		1			9
Capital investments		1,496			1,130
Adjustments:
DGD’s capital investments attributable to the other joint venture member		(235)			(199)
Capital expenditures of other VIEs		(19)			(35)
Capital investments attributable to Valero		$	1,242		$	896

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 June 30, 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 six months ended June 30, 2022, as described in Note 5 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 six months ended June 30, 2022.

We raised $4.0 billion of incremental debt in 2020 due to the negative impacts of the COVID-19 pandemic on our business. During the three months ended June 30, 2022, we reduced debt through the acquisition of the $300 million GO Zone Bonds. This transaction, combined with debt reduction and refinancing transactions completed in the second half of 2021 and the first quarter of 2022, have collectively reduced our debt by $2.3 billion. We will continue to evaluate further deleveraging opportunities.

Other Matters Impacting Liquidity and Capital Resources

Treasury Stock Purchases

During the three and six months ended June 30, 2022, we purchased for treasury 14,211,408 shares for $1.7 billion and 15,757,281 shares for $1.9 billion, respectively. We completed all authorized share purchases under the 2018 Program during the three months ended June 30, 2022. On July 7, 2022, our Board authorized our purchase of up to an additional $2.5 billion of shares under the 2022 Program with no expiration date. We will continue to evaluate the timing of purchases 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.

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.

Cash Held by Our Foreign Subsidiaries

As of June 30, 2022, $2.7 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. There have been no changes to the critical accounting policies disclosed in our annual report on Form 10-K for the year ended December 31, 2021.

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