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VALERO ENERGY CORP/TX - Annual Report: 2021 (Form 10-K)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 001-13175
vlo-20211231_g1.jpg
VALERO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware74-1828067
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
One Valero Way
San Antonio, Texas 78249
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (210) 345-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stockVLONew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filer
Smaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The aggregate market value of the voting and non-voting common stock held by non-affiliates was approximately $31.9 billion based on the last sales price quoted as of June 30, 2021 on the New York Stock Exchange, the last business day of the registrant’s most recently completed second fiscal quarter.
As of February 18, 2022, 409,303,630 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
We intend to file with the Securities and Exchange Commission a definitive Proxy Statement for our Annual Meeting of Stockholders scheduled for April 28, 2022, at which directors will be elected. Portions of the 2022 Proxy Statement are incorporated by reference in PART III of this Form 10-K and are deemed to be a part of this report.


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CROSS-REFERENCE SHEET

The following table indicates the headings in the 2022 Proxy Statement where certain information required in PART III of this Form 10-K may be found.
Form 10-K Item No. and Caption
Heading in 2022 Proxy Statement
10.Directors, Executive Officers and
Corporate Governance
“Information Regarding the Board of Directors —
Committees of the Board — Audit Committee —
Meetings and Current Members,” “Proposal No. 1
Election of Directors — Information Concerning
Nominees and Other Directors,” “Proposal No. 1
Election of Directors — Nominees,” “Identification of
Executive Officers,” and “Miscellaneous — Governance
Documents and Codes of Ethics”
11.Executive Compensation
“Information Regarding the Board of Directors —
Committees of the Board — Compensation Committee
—Compensation Committee Interlocks and Insider
Participation,” “Compensation Discussion and
Analysis,” “Executive Compensation,” “Director
Compensation,” “Pay Ratio Disclosure,” and “Certain
Relationships and Related Transactions”
12.
Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters
“Beneficial Ownership of Valero Securities” and
“Equity Compensation Plan Information”
13.
Certain Relationships and Related
Transactions, and
Director Independence
“Certain Relationships and Related Transactions” and
“Information Regarding the Board of Directors —
Independent Directors”
14.Principal Accountant Fees and Services“KPMG LLP Fees”

Copies of all documents incorporated by reference, other than exhibits to such documents, will be provided without charge to each person who receives a copy of this Form 10-K upon written request to Valero Energy Corporation, Attn: Secretary, P.O. Box 696000, San Antonio, Texas 78269-6000.

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The terms “Valero,” “we,” “our,” and “us,” as used in this report, may refer to Valero Energy Corporation, one or more of its consolidated subsidiaries, or all of them taken as a whole. The term “DGD,” as used in this report, may refer to Diamond Green Diesel Holdings LLC, its wholly owned consolidated subsidiary, or both of them taken as a whole. In this Form 10-K, we make certain forward-looking statements, including statements regarding our plans, strategies, objectives, expectations, intentions, and resources under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You should read our forward-looking statements together with our disclosures beginning on page 35 of this report under the heading “CAUTIONARY STATEMENT FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.” Note references in this report to Notes to Consolidated Financial Statements can be found beginning on page 76, under “PART II, ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.”

PART I

ITEMS 1. and 2. BUSINESS AND PROPERTIES

OUR BUSINESS

We are a Fortune 500 company based in San Antonio, Texas. Our corporate offices are at One Valero Way, San Antonio, Texas, 78249, and our telephone number is (210) 345-2000. We were incorporated in Delaware in 1981 under the name Valero Refining and Marketing Company. We changed our name to Valero Energy Corporation in 1997. Our common stock trades on the New York Stock Exchange (NYSE) under the trading symbol “VLO.”

We are a multinational manufacturer and marketer of petroleum-based and low-carbon liquid transportation fuels and petrochemical products, and we sell our products primarily in the United States (U.S.), Canada, the United Kingdom (U.K.), Ireland, and Latin America. We own 15 petroleum refineries located in the U.S., Canada, and the U.K. with a combined throughput capacity of approximately 3.2 million barrels per day (BPD). We are a joint venture member in Diamond Green Diesel Holdings LLC (DGD)1, which owns a renewable diesel plant located in the Gulf Coast region of the U.S. with a production capacity of 700 million gallons per year, and we own 12 ethanol plants located in the Mid-Continent region of the U.S. with a combined production capacity of approximately 1.6 billion gallons per year. We manage our operations through our Refining, Renewable Diesel, and Ethanol segments. See “OUR OPERATIONS” below for additional information about the operations, products, and properties of each of our reportable segments.

OUR COMPREHENSIVE LIQUID FUELS STRATEGY

Overview
We strive to manage our business to responsibly meet the world’s growing demand for reliable and affordable energy. We believe that liquid transportation fuels—both petroleum-based and low-carbon— help meet that demand, and we expect that they will continue to be an essential source of transportation fuels well into the future. Our strategic actions have enabled us to be a low-cost, efficient, and reliable supplier of these liquid transportation fuels to much of the world.

1 DGD is a joint venture with Darling Ingredients Inc. (Darling) and we consolidate DGD’s financial statements. See Note 13 of Notes to Consolidated Financial Statements regarding our accounting for DGD.

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Our petroleum refineries operate in locations with current operating cost and/or other advantages, as described below under “OUR OPERATIONS—Refining,” and we believe our refineries are positioned to meet the strong worldwide demand for our petroleum-based products. Through our refining business, we believe that we have developed expertise in liquid fuels manufacturing and a platform for the marketing and distribution of liquid fuels, and we seek to leverage this expertise and platform to expand and optimize our low-carbon fuels businesses. We expect that low-carbon liquid fuels will continue to be a growing part of the energy mix, and we have made multibillion-dollar investments to develop and grow our low-carbon renewable diesel and ethanol businesses, as described below under “OUR OPERATIONS—Renewable Diesel,” and “—Ethanol.” These businesses have made us one of the world’s largest low-carbon fuels producers and have helped governments across the world achieve their greenhouse gas (GHG) emissions reduction targets. Even so, we continue to seek low-carbon fuel opportunities and to improve our environmental, social, and governance (ESG) practices.

Regulations, Policies, and Standards Driving Low-Carbon Fuel Demand
Governments across the world have issued, or are considering issuing, low-carbon fuel regulations, policies, and standards to help reduce GHG emissions and increase the percentage of low-carbon fuels in the transportation fuel mix. These regulations, policies, and standards include, but are not limited to, the RFS, LCFS, and similar programs (collectively, the Renewable and Low-Carbon Fuel Blending Programs). The RFS and LCFS programs are defined and discussed below under “U.S. Environmental Protection Agency (EPA) Renewable Fuel Standard (RFS) Program” and “California Low Carbon Fuel Standard (LCFS).” While many of these regulations, policies, and standards result in additional costs to our refining business, they have created opportunities for us to develop our renewable diesel and ethanol businesses, and they should continue to help drive the demand for our renewable diesel and ethanol products. We believe that our ability to supply these low-carbon fuels can play an important role in helping achieve GHG emissions reduction targets.

The U.S. and California low-carbon fuel regulations, policies, and standards discussed below currently have the most significant impact on our business. However, other municipal, state, and national governments across the world, including in many of the jurisdictions in which we operate, have issued, or are considering issuing, similar low-carbon fuel regulations, policies, and standards. See “ITEM 1A. RISK FACTORS—Legal, Governmental, and Regulatory Risks—Compliance with, or developments concerning, the Renewable and Low-Carbon Fuel Blending Programs, and other regulations, policies, and standards impacting the demand for low-carbon fuels could adversely affect our performance.” In addition, see Note 1 of Notes to Consolidated Financial Statements regarding our accounting for the costs of the blending programs underCosts of Renewable and Low-Carbon Fuel Blending Programs,” Note 21 for disclosure of the costs of the blending programs under “Renewable and Low-Carbon Fuel Blending Programs Price Risk,” and Note 18 for disclosure of our blender’s tax credits under “Segment Information.”

U.S. Environmental Protection Agency (EPA) Renewable Fuel Standard (RFS) Program
The EPA created the RFS program pursuant to the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007. Under the RFS program, by November 30 of each year, 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. in the next compliance year. The quotas are set by class of renewable fuel (i.e., biomass-based diesel, cellulosic biofuel, advanced biofuel, and total renewable fuel) and are collectively referred to as the renewable volume obligation (RVO). The RVO must be met by obligated parties, who are the producers and importers of the petroleum-based transportation fuels consumed in the U.S. Obligated parties demonstrate compliance annually by retiring the appropriate number of renewable identification numbers (RINs) associated with each class of renewable fuel to

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satisfy their obligations for the previous calendar year. A RIN is effectively a compliance credit that is assigned to each gallon of qualifying renewable fuel produced in, or imported into, the U.S. RINs are obtained by blending renewable fuels into petroleum-based transportation fuels, and obligated parties can also achieve compliance by purchasing RINs in the open market.

We are an obligated party under this program and our Refining segment incurs obligations as a result of being a producer and importer of petroleum-based transportation fuels consumed in the U.S., but we are also a renewable fuels producer and blender under this program and generate RINs as a result of being a producer and blender of renewable diesel, renewable naphtha, and ethanol. Therefore, there is a cost to our refining business from this program because we must purchase RINs to comply with our RVO; however, we also generate revenue from this program because we produce and sell qualifying renewable fuels.

California Low Carbon Fuel Standard (LCFS)
Under California’s Global Warming Solutions Act of 2006, the California Air Resources Board (CARB) was required to undertake a statewide effort to reduce GHG emissions. One of the programs designed to help achieve those reductions is the LCFS program. The LCFS program is designed to reduce GHG emissions by decreasing the carbon intensity (CI) of transportation fuels consumed in the state. Under this program, each fuel is assigned a CI value, which is intended to represent the GHG emissions associated with the feedstocks from which the fuel was produced, the fuel production and distribution activities, and the use of the finished fuel. CIs are determined using a CARB-developed life cycle GHG emissions analysis model, and CI pathways are certified by the CARB after low-carbon fuel producers submit operational data to demonstrate the life cycle GHG emissions. The certified CIs for both low-carbon and petroleum-based fuels are compared to a declining annual benchmark. Fuels below the benchmark generate credits, while fuels above the benchmark generate deficits. The lower the fuel’s CI score compared to the benchmark, the greater number of credits generated. Each producer or importer of fuel must demonstrate that the overall mix of fuels it supplies for use in California meets the CI benchmarks for each compliance period. A producer or importer with a fuel mix that is above the CI benchmark must purchase LCFS credits sufficient to meet the CI benchmark.

We produce and import petroleum-based transportation fuels in California and thus must blend low-CI fuels or purchase credits to meet the CI benchmark. However, fuels produced by our Renewable Diesel and Ethanol segments have CI scores that are lower than traditional petroleum-based transportation fuels, and we benefit from the demand from other regulated entities for these low-carbon products. In addition, the demand for some of these low-carbon transportation fuels tends to drive higher values for those fuels compared to petroleum-based transportation fuels due to their lower CI scores. We seek to pursue opportunities to further lower the CI of many of our products, including our low-carbon fuels. See “Our Low-Carbon Projects” below.

U.S. Federal Tax Incentives
The U.S. federal government has enacted tax incentives to encourage the production of low-carbon fuels and/or reduce GHG emissions. For example, Section 6426 of the Internal Revenue Code of 1986, as amended (the Code), provides a tax credit (generally referred to as the blender’s tax credit) to blenders of certain renewable fuels to encourage the production and blending of those fuels with traditional petroleum-based transportation fuels. Only blenders that have produced a mixture and either sold or used the fuel mixture as fuel are eligible for the blender’s tax credit. The renewable diesel produced by our Renewable Diesel segment is a liquid fuel derived from biomass that meets the EPA’s fuel registration requirements; therefore, renewable diesel that we produce and blend qualifies for this refundable tax credit of one dollar per gallon. Under existing legislation, this credit will not apply to any sale or use of

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renewable diesel for any period after December 31, 2022 unless extended. The Build Back Better Act, as passed by the U.S. House of Representatives on November 19, 2021, would extend this credit through December 31, 2026, but there is no certainty that this legislation will become law or that the provision contained in this legislation authorizing the credit or the amount of the credit will not be revised. However, legislation authorizing this credit has been extended or retroactively extended since its inception in 2004.

In addition, Section 45Q (45Q) of the Code provides federal income tax credits to certain taxpayers who capture and sequester, store, or use qualified carbon oxides (e.g., carbon dioxide) in accordance with the provisions of 45Q. We continually evaluate such federal income tax incentives, and may strategically pursue certain opportunities to optimize the potential benefits therefrom. For instance, the carbon capture and sequestration projects at our ethanol plants discussed below underOur Low-Carbon Projects” should increase the value of the ethanol product produced at those plants by helping decrease its CI score and through the expected generation of 45Q tax credits.

Our Low-Carbon Projects
We have invested $4.2 billion2 to date in our low-carbon fuels businesses, and we expect additional growth opportunities in this area. In 2021, we completed the expansion of DGD’s existing renewable diesel plant (the DGD Plant). The expansion increased the DGD Plant’s renewable diesel production capacity by 410 million gallons per year, bringing DGD’s total renewable diesel production capacity to 700 million gallons per year, and provided DGD with the ability to produce 30 million gallons per year of renewable naphtha. Also in 2021, DGD commenced construction of its second plant. Over the next 15 months, we expect to invest approximately $800 million to complete the construction of DGD’s second plant, which is expected to have a production capacity of 470 million gallons of renewable diesel and 20 million gallons of renewable naphtha per year. See “OUR OPERATIONS—Renewable Diesel” below for additional information about the expansion of our renewable diesel business.

We continue to evaluate and advance investments in economic, low-carbon projects, including projects that are intended to lower the CI of our products. For example, in March 2021, we announced our participation in a large-scale carbon capture and sequestration pipeline system in the Mid-Continent region of the U.S. that is expected to capture, transport, and store carbon dioxide that results from the ethanol manufacturing process at our eight ethanol plants located in Iowa, Minnesota, Nebraska, and South Dakota. We expect to be the anchor shipper with those eight ethanol plants connected to the system. The capture and sequestration of this carbon dioxide should result in the generation of 45Q tax credits and the production of a lower CI ethanol product that we expect to market in low-carbon fuel markets, which is expected to result in a higher value for this product. A third party is expected to construct, own, and operate the system, and we believe that our capital investment to purchase, install, and connect the applicable carbon capture equipment to the system will not be material. Initial service is anticipated to begin in late 2024. Additionally, certain of our other ethanol plants are located near geology believed to be suitable for sequestering carbon dioxide, and we are evaluating stand-alone projects to sequester carbon dioxide that results from the ethanol manufacturing process at those plants. See “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—LIQUIDITY AND CAPITAL RESOURCES—Our Capital Resources
2 Our investment to date in our low-carbon fuels businesses consists of $2.5 billion in capital investments to build our renewable diesel business and $1.7 billion to build our ethanol business. Capital investments in renewable diesel represent 100 percent of the capital investments made by DGD. See also “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—LIQUIDITY AND CAPITAL RESOURCES—Our Capital Resources—Capital Investments,” which is incorporated by reference into this item for our definition of capital investments.

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—Capital Investments” for further discussion of our capital investments associated with low-carbon projects.
ENVIRONMENTAL MANAGEMENT SYSTEMS

We have well-developed management structures that are central to our decision making and risk management, including three programs that support our environmental management as follows:

Our Commitment to Excellence Management System (CTEMS) is a proprietary systematic approach to planning, executing, checking, and acting to improve everyday work activities at many of our refineries and plants. CTEMS has 10 elements: leadership accountability, protecting people and the environment, people and skills development, operations reliability and mechanical integrity, technical excellence and knowledge management, change management, business competitiveness, stakeholder relationships, assurance and review, and continual improvement. Risks related to regulatory issues and physical threats to our refineries and plants are among those assessed as we implement CTEMS.

Environmental Excellence and Risk Assessment (EERA) elevates the environmental audit and compliance functions to an environmental excellence vision. Its main goal is to assess the design and effectiveness of environmental performance regarding specific excellence objectives, and to facilitate continuous improvement across the company. EERA defines more than 100 expectations and involves a proprietary five-step process using due diligence on data and field assessments reviewed by a combination of external and internal subject matter experts.

Our Fuels Regulatory Assurance Program provides operational safeguards, software, training, and protocols for uniformity across our refineries and plants to reinforce our compliance with applicable fuels regulations. Building on the success of this system, we are developing a proprietary Low-Carbon Assurance Program designed to provide tools and oversight to assure compliance with the increasingly complex array of low-carbon fuels programs.

OUR OPERATIONS

Our operations are managed through the following reportable segments:

our Refining segment, which includes the operations of our petroleum refineries, the associated activities to market our refined petroleum products, and the logistics assets that support those operations;

our Renewable Diesel segment, which includes the operations of DGD and the associated activities to market renewable diesel; and

our Ethanol segment, which includes the operations of our ethanol plants and the associated activities to market our ethanol and co-products.

Financial information about these segments is presented in Note 18 of Notes to Consolidated Financial Statements, which is incorporated by reference into this item.

See “ITEM 1A. RISK FACTORS—Risks Related to Our Business, Industry, and Operations—Our financial results are affected by volatile margins, which are dependent upon factors beyond our control,

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including the price of crude oil, corn, and other feedstocks and the market price at which we can sell our products,”—“Disruption of our ability to obtain crude oil, waste and renewable feedstocks, corn, and other feedstocks could adversely affect our operations,”—“Technological and industry developments, and evolving investor and market sentiment regarding fossil fuels and GHG emissions, may decrease the demand for our products and could adversely affect our performance,”—“Our investments in joint ventures and other entities decrease our ability to manage risk,” and —“Legal, Governmental, and Regulatory Risks—Compliance with, or developments concerning, the Renewable and Low-Carbon Fuel Blending Programs, and other regulations, policies, and standards impacting the demand for low-carbon fuels could adversely affect our performance,” which are incorporated by reference into this item.

Refining
Refineries
Overview
Our 15 petroleum refineries are located in the U.S., Canada, and the U.K., and they have a combined feedstock throughput capacity of approximately 3.2 million BPD. The following table presents the locations of these refineries and their feedstock throughput capacities as of December 31, 2021.
RefineryLocationThroughput
Capacity (a)
(BPD)
U.S.:
BeniciaCalifornia170,000 
WilmingtonCalifornia135,000 
MerauxLouisiana135,000 
St. CharlesLouisiana340,000 
ArdmoreOklahoma90,000 
MemphisTennessee195,000 
Corpus Christi (b)Texas370,000 
HoustonTexas255,000 
McKeeTexas200,000 
Port ArthurTexas395,000 
Texas CityTexas260,000 
Three RiversTexas100,000 
Canada:
Quebec CityQuebec235,000 
U.K.:
PembrokeWales270,000 
Total3,150,000 
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(a)Throughput capacity represents estimated capacity for processing crude oil, intermediates, and other feedstocks. Total estimated crude oil capacity is approximately 2.6 million BPD.
(b)Represents the combined capacities of two refineries – the Corpus Christi East and Corpus Christi West Refineries.

California
Benicia Refinery. Our Benicia Refinery is located northeast of San Francisco on the Carquinez Straits of San Francisco Bay. It processes sour crude oils into gasoline, diesel, jet fuel, and asphalt. Gasoline production is primarily California Reformulated Blendstock Gasoline for

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Oxygenate Blending (CARBOB), which meets CARB specifications when blended with ethanol. The refinery receives crude oil feedstocks via a marine dock and crude oil pipelines connected to a southern California crude oil delivery system. Most of the refinery’s products are distributed via pipeline and truck rack into northern California markets.

Wilmington Refinery. Our Wilmington Refinery is located near Los Angeles. The refinery processes a blend of heavy and high-sulfur crude oils. The refinery produces CARBOB gasoline, diesel, CARB diesel, jet fuel, and asphalt. The refinery is connected by pipeline to marine terminals and associated dock facilities that move and store crude oil and other feedstocks. Refined petroleum products are distributed via pipeline systems to various third-party terminals in Southern California, Nevada, and Arizona.

Louisiana
Meraux Refinery. Our Meraux Refinery is located approximately 15 miles southeast of New Orleans on the Mississippi River. The refinery processes sour and sweet crude oils into gasoline, diesel, jet fuel, and high-sulfur fuel oil. The refinery receives crude oil at its dock and has access to the Louisiana Offshore Oil Port. Finished products are shipped from the refinery’s dock and through the Colonial Pipeline. The refinery is located about 40 miles from our St. Charles Refinery, allowing for integration of feedstocks and refined petroleum product blending.

St. Charles Refinery. Our St. Charles Refinery is located approximately 25 miles west of New Orleans on the Mississippi River. The refinery processes sour crude oils and other feedstocks into gasoline and diesel. The refinery receives crude oil over docks and has access to the Louisiana Offshore Oil Port. Finished products are shipped over these docks and through our Parkway pipeline and the Bengal pipeline, which ultimately provide access to the Plantation and Colonial pipeline networks.

Oklahoma
Ardmore Refinery. Our Ardmore Refinery is located approximately 100 miles south of Oklahoma City. It processes sweet and sour crude oils into gasoline and diesel. The refinery predominantly receives Permian Basin and Cushing-sourced crude oil via third-party pipelines. Refined petroleum products are transported via rail, trucks, and the Magellan pipeline system.

Tennessee
Memphis Refinery. Our Memphis Refinery is located on the Mississippi River. It processes primarily sweet crude oils. Most of its production is gasoline, diesel, and jet fuels. The refinery’s crude oil supply is primarily delivered by pipeline from Cushing, Oklahoma via the Diamond Pipeline and from North Dakota via the Dakota Access Pipeline. Crude oil can also be received, along with other feedstocks, via barge. Most of the refinery’s products are distributed via truck rack and barges.

Texas
Corpus Christi East and West Refineries. Our Corpus Christi East and West Refineries are located on the Corpus Christi Ship Channel. The East Refinery processes sour crude oil, and the West Refinery processes sweet crude oil, sour crude oil, and residual fuel oil. The feedstocks are delivered by tanker and barge via deepwater docking facilities on the Corpus Christi Ship Channel, and West Texas or South Texas crude oil is delivered via pipelines. The refineries’ physical locations allow for the transfer of various feedstocks and blending components between

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them. The refineries produce gasoline, aromatics, jet fuel, diesel, and asphalt. Truck racks service local markets for gasoline, diesel, jet fuels, liquefied petroleum gases, and asphalt. These and other finished products are also distributed by ship and barge across docks and third-party pipelines.

Houston Refinery. Our Houston Refinery is located on the Houston Ship Channel. It processes sweet crude and intermediate oils into gasoline, jet fuel, and diesel. The refinery receives its feedstocks primarily by various interconnecting pipelines and also has waterborne-receiving capability at deepwater docking facilities on the Houston Ship Channel. The majority of its finished products are delivered to local, mid-continent U.S., and northeastern U.S. markets through various pipelines, including the Colonial and Explorer pipelines.

McKee Refinery. Our McKee Refinery is located in the Texas Panhandle. It processes primarily sweet crude oils into gasoline, diesel, jet fuels, and asphalt. The refinery has access to local and Permian Basin crude oil sources via third-party pipelines. Refined petroleum products are transported primarily via third-party pipelines and rail to markets in Texas, New Mexico, Arizona, Colorado, Oklahoma, and Mexico.

Port Arthur Refinery. Our Port Arthur Refinery is located on the Texas Gulf Coast approximately 90 miles east of Houston. The refinery processes heavy sour crude oils and other feedstocks into gasoline, diesel, and jet fuel. The refinery receives crude oil by rail, marine docks, and pipelines. Finished products are distributed into the Colonial, Explorer, and other pipelines, and across the refinery docks into ships and barges. The refinery’s new coker project is expected to be completed in the first half of 2023.

Texas City Refinery. Our Texas City Refinery is located southeast of Houston on the Houston Ship Channel. The refinery processes crude oils into gasoline, diesel, and jet fuel. The refinery receives its feedstocks by pipeline and by ship or barge via deepwater docking facilities on the Houston Ship Channel. The refinery uses ships and barges, as well as the Colonial, Explorer, and other pipelines for distribution of its products.

Three Rivers Refinery. Our Three Rivers Refinery is located in South Texas between Corpus Christi and San Antonio. It primarily processes sweet crude oils into gasoline, distillates, and aromatics. The refinery receives crude oil from West Texas and South Texas through third-party pipelines and trucks. The refinery distributes its refined petroleum products primarily through third-party pipelines.

Canada
Quebec City Refinery. Our Quebec City Refinery is located in Lévis (near Quebec City). It processes sweet crude oils into gasoline, diesel, jet fuel, heating oil, and low-sulfur fuel oil. The refinery receives crude oil by ship at its deepwater dock on the St. Lawrence River and by pipeline and ship (via the St. Lawrence River from a crude terminal in Montreal) from western Canada. The refinery transports its products through our pipeline from Quebec City to our terminal in Montreal and to various other terminals throughout eastern Canada by rail, ships, trucks, and third-party pipelines.

U.K.
Pembroke Refinery. Our Pembroke Refinery is located in the County of Pembrokeshire in South West Wales. The refinery processes primarily sweet crude oils into gasoline, diesel, jet fuel,

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heating oil, and low-sulfur fuel oil. The refinery receives all of its feedstocks and delivers some of its products by ship and barge via deepwater docking facilities on the Milford Haven Waterway, with its remaining products being delivered through our Mainline pipeline system and by trucks. The refinery’s new cogeneration project was completed and commissioned in the third quarter of 2021.

Feedstock Supply
Our crude oil feedstocks are purchased through a combination of term and spot contracts. Our term supply contracts are at market-related prices and feedstocks are purchased directly or indirectly from various national oil companies as well as international and U.S. oil companies. The contracts generally permit the parties to amend the contracts (or terminate them), effective as of the next scheduled renewal date, by giving the other party proper notice within a prescribed period of time (e.g., 60 days, 6 months) before expiration of the current term. The majority of the crude oil purchased under our term contracts is purchased at the producer’s official stated price (i.e., the “market” price established by the seller for all purchasers) and not at a negotiated price specific to us.

Marketing
Overview
We sell refined petroleum products in both the wholesale rack and bulk markets. These sales include refined petroleum products that are manufactured in our refining operations, as well as refined petroleum products purchased or received on exchange from third parties. Most of our refineries have access to marine transportation facilities, and they interconnect with common-carrier pipeline systems, allowing us to sell products in the U.S., Canada, the U.K., Latin America, and other parts of the world.

Wholesale Rack Sales
We sell our gasoline and distillate products, as well as other products, such as asphalt, lube oils, and natural gas liquids (NGLs), on a wholesale basis through an extensive rack marketing network. The principal purchasers of our refined petroleum products from terminal truck racks are wholesalers, distributors, retailers, and truck-delivered end users throughout the U.S., Canada, the U.K., Ireland, and Latin America.

The majority of our rack volume is sold through unbranded channels. The remainder is sold to distributors and dealers that are members of the Valero-brand family that operate branded sites in the U.S., Canada, the U.K., Ireland, and Mexico. These sites are independently owned and are supplied by us under multi-year contracts. Approximately 7,000 outlets carry our brand names. For branded sites, products are sold under the Valero®, Beacon®, Diamond Shamrock®, and Shamrock® brands in the U.S., the Ultramar® brand in Canada, the Texaco® brand in the U.K. and Ireland, and the Valero® brand in Mexico.

Bulk Sales
We also sell our gasoline and distillate products, as well as other products, such as asphalt, petrochemicals, and NGLs, through bulk sales channels in the U.S. and international markets. Our bulk sales are made to various oil companies, traders, and bulk end users, such as railroads, airlines, and utilities. Our bulk sales are transported primarily by pipelines, barges, and tankers to major tank farms and trading hubs.

Logistics
We own logistics assets (crude oil pipelines, refined petroleum product pipelines, terminals, tanks, marine docks, truck rack bays, and other assets) that support our refining operations. Demand for transportation fuels in Latin America is expected to continue to grow. To support our wholesale rack operations in Latin

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America, we have invested in or grown our access to terminals and transloading facilities in Mexico and Peru. Our U.S. Gulf Coast refineries are well positioned to support export growth to Latin America and other countries around the world.

Renewable Diesel
Our Relationship with DGD
DGD is a joint venture that we consolidate. We entered into the DGD joint venture in 2011 and it began operations in 2013. See Note 13 of Notes to Consolidated Financial Statements regarding our accounting for DGD. We operate the DGD Plant and perform certain management functions for DGD as an independent contractor under an agreement with DGD.

Renewable Diesel Plant
The DGD Plant produces renewable diesel and is located next to our St. Charles Refinery in Norco, Louisiana. Renewable diesel is a low-carbon liquid transportation fuel that is interchangeable with petroleum-based diesel. Renewable diesel is produced from waste and renewable feedstocks using a pre-treatment process and an advanced hydroprocessing-isomerization process. The market value of the renewable diesel can vary based on regional policies, feedstock preferences, and CI scores. Waste feedstocks (predominantly animal fats, used cooking oils, and inedible distillers corn oil) are the preferred feedstocks due to their lower CI scores. While several other companies have made, or have announced interest in making, investments in renewable diesel projects, the DGD Plant is currently one of only a few operational facilities that has the capacity to process 100 percent waste and renewable feedstocks, and this feedstock flexibility currently provides a margin advantage.

The DGD Plant receives waste and renewable feedstocks primarily by rail, trucks, ships, and barges owned by third parties. DGD is party to a raw material supply agreement with Darling under which Darling is obligated to offer to DGD a portion of its feedstock requirements at market pricing, but DGD is not obligated to purchase all or any part of its feedstock from Darling. Therefore, DGD pursues the most optimal feedstock supply available.

DGD began an expansion of the DGD Plant in 2019 and operations commenced in the fourth quarter of 2021. This expansion increased the DGD Plant’s renewable diesel production capacity by 410 million gallons per year, bringing DGD’s total renewable diesel production capacity to 700 million gallons per year, and provided DGD with the ability to produce 30 million gallons per year of renewable naphtha. Renewable naphtha is used to produce renewable gasoline and renewable plastics.

Additionally, in January 2021, DGD began construction of a new 470 million gallons per year renewable diesel plant located next to our Port Arthur Refinery in Port Arthur, Texas. This new plant is expected to commence operations in the first quarter of 2023, and is expected to increase DGD’s total renewable diesel and renewable naphtha production capacities to approximately 1.2 billion gallons per year and 50 million gallons per year, respectively.

Marketing
DGD sells renewable diesel under the Diamond Green Diesel® brand primarily to be blended with petroleum-based diesel and to end users for use in their operations. DGD sells renewable diesel domestically and into international markets, primarily Canada and Europe. Renewable diesel is distributed primarily by rail and ships owned by third parties.


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Ethanol
Ethanol Plants
Our ethanol business began in 2009 with the purchase of our first ethanol plants. We have since grown the business by purchasing additional ethanol plants. Our 12 ethanol plants are located in the Mid-Continent region of the U.S., and they have a combined ethanol production capacity of approximately 1.6 billion gallons per year. Our ethanol plants are dry mill facilities that process corn to produce ethanol and various co-products, including livestock feed (dry distillers grains, or DDGs, and syrup), and inedible corn oil.

The following table presents the locations of our ethanol plants, their annual production capacities for ethanol (in millions of gallons) and DDGs (in tons), and their annual corn processing capacities (in millions of bushels).
StateCityEthanol
Production
Capacity
DDG
Production
Capacity
Corn
Processing
Capacity
IndianaBluffton135355,00047
Linden 135355,00047
Mount Vernon100263,00035
IowaAlbert City (a)135355,00047
Charles City (a)140368,00049
Fort Dodge (a)140368,00049
Hartley (a)140368,00049
Lakota (a) (b)110289,00038
MinnesotaWelcome (a)140368,00049
NebraskaAlbion (a)135355,00047
OhioBloomingburg135355,00047
South DakotaAurora (a)140368,00049
Total1,5854,167,000553
________________________
(a)These plants are expected to participate in the carbon capture and sequestration pipeline system discussed in “Our Low-Carbon Projects” above.
(b)This plant is able to produce USP-grade ethanol (a product that typically has a higher market value than fuel-grade ethanol), which reduces its ethanol production capacity to approximately 55 million gallons per year. USP stands for U.S. Pharmacopeia and is an organization that develops quality and safety standards for medicine, food, and dietary supplements.

The foregoing table excludes data relating to our Jefferson, Wisconsin and Riga, Michigan ethanol plants, which ceased operations in 2021 and 2020, respectively. See Note 7 of Notes to Consolidated Financial Statements regarding our accounting for these ceased operations.

We source our corn supply from local farmers and commercial elevators. We publish on our website a corn bid for local farmers and cooperative dealers to facilitate corn supply transactions. Our plants receive corn primarily by rail and truck.

Marketing
We sell our ethanol under term and spot contracts in bulk markets in the U.S. We also export our ethanol into the global markets. We distribute our ethanol primarily by rail (using some railcars owned by us) and

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third-party trucks, barges, and vessels. We sell DDGs primarily to animal feed customers in the U.S., Mexico, and Asia, which are transported primarily by third-party rail, trucks, and vessels.

Seasonality
Demand for gasoline, diesel, and asphalt is higher during the spring and summer months than during the winter months in most of our markets, primarily due to seasonal increases in highway traffic and construction. The demand for renewable diesel has not significantly fluctuated by season. Ethanol is primarily blended into gasoline, and as a result, ethanol demand typically moves in line with the demand for gasoline.

GOVERNMENT REGULATIONS

We incorporate by reference into this Item the disclosures on government regulations, including environmental regulations, contained in the following sections of this report:

—OUR COMPREHENSIVE LIQUID FUELS STRATEGY—Regulations, Policies, and Standards Driving Low-Carbon Fuel Demand

“ITEM 1A. RISK FACTORS—Legal, Governmental, and Regulatory Risks” and

“ITEM 3. LEGAL PROCEEDINGS—ENVIRONMENTAL ENFORCEMENT MATTERS.”

Capital Expenditures Attributable to Compliance with Government Regulations
Compliance with government regulations, including environmental regulations, did not have a material effect on our capital expenditures in 2021, and we currently do not expect that compliance with these regulations will have material effects on our capital expenditures in 2022.

Other
Because our business is heavily regulated, our costs for compliance with government regulations are significant and can be material, especially costs associated with the Renewable and Low-Carbon Fuel Blending Programs disclosed in Notes 20 and 21 of Notes to Consolidated Financial Statements, which are incorporated by reference into this item.


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HUMAN CAPITAL

We believe that our employees provide a competitive advantage for our success. We seek to foster a culture that supports diversity, equality, and inclusion, and we strive to provide a safe, healthy, and rewarding work environment for our employees with opportunities for professional growth and long-term financial stability.

Headcount
On December 31, 2021, we had 9,813 employees. These employees were located in the following countries:
CountryNumber of
Employees
U.S.8,172 
Canada647 
U.K. and Ireland835 
Mexico and Peru159 
Total9,813 

Of our total employees as of December 31, 2021, 1,764 were covered by collective bargaining or similar agreements, and 9,794 were in permanent full-time positions. See also “ITEM 1A. RISK FACTORS—General Risk Factors—Our business may be negatively affected by work stoppages, slowdowns, or strikes by our employees, as well as new labor legislation issued by regulators.”

Company Culture and Human Capital (People) Strategy
Our company culture and our well-defined expectations of ethics and behavior guide the daily work of our employees and support our efforts to produce exceptional company results. The six values that define our culture are Safety, Accountability, Teamwork, Excellence, Do the Right Thing, and Caring.

Our people strategy and programs are designed and implemented in support of our business and strategic objectives. In building and fostering great teams, we are guided by the following:

We strive to hire and promote top-talent employees with team-oriented work ethics and values;

Our pay, benefits, and support programs are designed to attract and retain excellent employees and to reward innovation, ingenuity, and excellence;

We seek to provide a best-in-class, diverse, and inclusive work environment built on a foundation of respect, accountability, and trust;

We promote a culture of learning intended to drive excellence at all levels of the organization and to foster career-long growth and development opportunities for employees; and

We continually assess employee performance, organizational structures, and succession plans to support operational excellence, efficiency, and effectiveness.

Diversity, Equality, and Inclusion
We believe that having a diverse workforce and inclusive teams provides strengths and advantages for our success, and our board of directors (Board) and management team strive to promote and improve

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diversity, equality, and inclusion. Of our total employees as of December 31, 2021, approximately 30 percent of our global professional employees were female, 11 percent of our hourly employees were female, and 19 percent of total employees were female. Approximately 36 percent of our U.S. employees have self-identified as Hispanic or Latino, Black or African American, Asian, American Indian or Alaskan Native, Native Hawaiian or Other Pacific Islander, or as two or more races. We strive to recruit and retain a diverse workforce and foster a culture of inclusion through various efforts, including targeted recruiting strategies aimed at improving our outreach to underrepresented groups and educational and training programs on diversity-related topics, such as objective hiring and the advantages of a diverse workforce. We are also committed to hiring and retaining veterans and reservists of the U.S. armed forces, who represent 12 percent of our U.S. workforce as of December 31, 2021.

From our intern program to our Board, and at all levels between, we strive to build diverse and inclusive teams. Our intern program class of 2021 was the most diverse in the history of our program, with 39 percent being female and 34 percent representing a racial or ethnic minority, and more than half of the independent members of our Board represent diversity of gender or race/ethnicity. In furtherance of the Board’s diversity goals, the charter for the Nominating/Governance and Public Policy Committee of the Board was amended in 2021 to require that the initial list of candidates from which director nominees are chosen include, but need not be limited to, qualified diverse candidates (known as a “Rooney Rule” amendment).

Safety
We believe that safety and reliability are extremely important, not only for the protection of our employees and to the cultural values we aspire to as a company, but also for operational success, as a decrease in the number of employee safety events and process safety events should generally reduce unplanned shutdowns and increase the operational reliability of our refineries and plants. This, in turn, should also translate into fewer environmental incidents, a safer workplace, lower environmental impacts, and better community relations. We strive to improve safety and reliability by offering year-round safety training programs for our employees and contractors and by seeking to promote the same expectations and culture of safety among all of our workforce. We also seek to enhance our safety compliance by conducting safety audits, quality assurance visits, and comprehensive risk assessments.

In assessing safety performance, we measure our annual total recordable incident rate (TRIR), which includes data with respect to our employees and contractors and is defined as the number of recordable injuries per 200,000 working hours. We also annually measure our Tier 1 Process Safety Event Rate, which is a metric defined by the American Petroleum Institute that looks at process safety events per 200,000 total employee and contractor working hours. We use these measures and believe they are helpful in assessing our safety performance because they evaluate performance relative to the numbers of hours being worked. These metrics are also used by others in our industry, which allows for a more objective comparison of our performance. Our refinery employee and contractor TRIR for 2021 was 0.21 and 0.26, respectively, and our refinery Tier 1 Process Safety Event Rate for 2021 was 0.05. As a result, 2021 was our best year so far in terms of safety performance.

Compensation and Benefits
We believe that it is important to provide our employees with competitive compensation and benefits. The benefits we offer to employees, depending on work location and eligibility status, include, among others, healthcare plans that are generally available to all employees, extended sick leave, new-parent leave, access to financial planning, programs to support dual-working parents at different stages of their careers, caregiver support networks (including an on-site child care center at our headquarters) and support for children and parents with disabilities, a company 401(k) matching program, various company-sponsored

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pension plans, on-site employee wellness centers (also available to eligible dependents at our headquarters), tuition reimbursement programs, fitness center access or a stipend, and employee recognition programs.

We believe that it is important to reward employee performance and have an annual bonus program that rewards achievements of various operational, financial, and strategic objectives. While such objectives include typical financial performance metrics, we believe ESG performance is also important and our annual bonus program rewards achievements in areas such as sustainability, diversity and inclusion, compliance, and corporate citizenship.

Our compensation programs are designed with consideration of fair treatment and equal pay concepts, and are built upon a foundational philosophy of market-competitive and performance-based pay.

Pay equity of our U.S. professional workforce is analyzed biennially by an independent consultant retained by us. Our most recent pay equity analysis, which was performed in 2020, reported that we had a gender pay equity ratio of 99 percent and a minority/nonminority pay equity ratio of 100 percent when considering factors that appropriately differentiate pay, such as time in role and pay grade.

Training and Development
We offer a comprehensive training and development program for our employees in subjects such as engineering and technical excellence, safety, maintenance and machinery/equipment repair, ethics, leadership, and employee performance. Our employee development initiatives include customized professional and technical curriculums, efforts to engage our leadership in the employee’s development process, and providing employee performance discussions. We offer a robust virtual training curriculum, which allows for greater availability and access for employees located across our many facilities and enables just-in-time training.

Wellness
We strive to promote the health and well-being of our employees and their families. Our Total Wellness Program serves as the umbrella program for all aspects of employee wellness and is the program through which many of the benefits referenced above are provided. The heart of our Total Wellness Program is the annual wellness assessment, which is intended to provide a detailed picture of an employee’s current health that may educate and inform health decisions by highlighting risk factors and providing information that can help save lives. Under our Total Wellness Program, educational sessions are also scheduled throughout the year on a variety of topics on health and finances. Our Total Wellness Program also supports the financial wellness of our employees through our financial benefit programs, depending on eligibility status and work location.

We also offer a wide range of support to our employees through our confidential employee assistance program, helping employees and their families manage relationship challenges, counseling needs, and substance abuse and recovery, as well as self-care programs for various behavioral health challenges.

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PROPERTIES

Our principal properties are described in “OUR OPERATIONS” above and that information is incorporated by reference into this item. We believe that our properties are generally adequate for our operations and that our refineries and plants are maintained in a good state of repair. As of December 31, 2021, we were the lessee under a number of cancelable and noncancelable leases for certain properties. Our leases are discussed in Note 6 of Notes to Consolidated Financial Statements, which is incorporated by reference into this item. Financial information about our properties is presented in Note 7 of Notes to Consolidated Financial Statements, which is incorporated by reference into this item.

Our patents relating to our refining operations are not material to us as a whole. The trademarks and tradenames under which we conduct our branded wholesale business — Valero®, Diamond Shamrock®, Shamrock®, Ultramar®, Beacon®, and Texaco®— and other trademarks employed in the marketing of refined petroleum products are integral to our wholesale rack marketing operations. The trademark and tradename under which DGD sells its renewable diesel — Diamond Green Diesel® — is integral to the sales of our Renewable Diesel segment.

AVAILABLE INFORMATION

Our website address is www.valero.com. Information (including any presentation or report) on our website is not part of, and is not incorporated into, this report or any other report we may file with or furnish to the U.S. Securities and Exchange Commission (SEC), whether made before or after the date of this annual report on Form 10-K and irrespective of any general incorporation language therein. Furthermore, references to our website URLs are intended to be inactive textual references only. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other reports, as well as any amendments to those reports, filed with or furnished to the SEC are available on our website (under Investors > Financials > SEC Filings) free of charge, soon after we file or furnish such material.

Additionally, on our website (under Investors > ESG), we post our corporate governance guidelines and other governance policies, codes of ethics, and the charters of the committees of our Board. In this same location, we also publish our 2021 Stewardship and Responsibility Report, which includes our 2021 SASB Report, our report disclosing certain U.S. workforce diversity statistics and data that corresponds to our 2020 U.S. Equal Employment Opportunity Information (EEO-1) Report (filed in 2021), our 2025 and 2035 GHG emissions reductions and offset targets and other disclosures, and our 2021 TCFD Report and Scenario Analysis. These documents are available in print to any stockholder that makes a written request to Valero Energy Corporation, Attn: Secretary, P.O. Box 696000, San Antonio, Texas 78269-6000. Our ESG Overview is also available on our website (under Responsibility > ESG: Environmental, Social and Governance) and disclosures concerning our political engagement, climate lobbying, and trade associations are available on our website (under Investors > ESG). These reports and disclosures are not a part of this annual report on Form 10-K, are not deemed filed with the SEC, and are not to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this annual report on Form 10-K and irrespective of any general incorporation language therein. Furthermore, references to our website URLs are intended to be inactive textual references only.


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ITEM 1A. RISK FACTORS

You should carefully consider the following risk factors in addition to the other information included in this report. Each of these risk factors could adversely affect our business, financial condition, results of operations, and/or liquidity, as well as adversely affect the value of an investment in our common stock or debt securities.

Risks Related to Our Business, Industry, and Operations

Our financial results are affected by volatile margins, which are dependent upon factors beyond our control, including the price of crude oil, corn, and other feedstocks and the market price at which we can sell our products.

Our financial results are affected by the relationship, or margin, between our product prices and the prices for crude oil, corn, and other feedstocks, which can vary based on global, regional, and local market conditions, as well as by type and class of product. Historically, refining and ethanol margins have been volatile, and we believe they will continue to be volatile in the future. We expect that the volume of renewable diesel produced by competitors will increase going forward, and as the market becomes more competitive, or if there are changes in the regulations, policies, and standards affecting the demand for low-carbon fuels, our Renewable Diesel segment may experience increased volatility in product margins. Our cost to acquire feedstocks and the price at which we can ultimately sell products depend upon several factors beyond our control, including regional and global supply of and demand for crude oil, corn, and other feedstocks, gasoline, diesel, other liquid transportation fuels (such as jet fuel, renewable diesel, and ethanol), and other products. These in turn depend on, among other things, the availability and quantity of imports, the production levels of U.S. and international suppliers, levels of product inventories, productivity and growth (or the lack thereof) of U.S. and global economies, U.S. relationships with foreign governments, political affairs, and the extent of governmental regulation. 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 has also had, and may continue to have, a significant impact on the market prices of crude oil and certain of our products. Additionally, the regulations, policies, and standards discussed under “ITEMS 1. and 2. BUSINESS AND PROPERTIES—OUR COMPREHENSIVE LIQUID FUELS STRATEGY—Regulations, Policies, and Standards Driving Low-Carbon Fuel Demand” have had, and may continue to have, a significant impact on the market prices of the feedstocks for, and products produced by, our low-carbon fuels businesses. Any adverse change in these regulations, policies, and standards, including the calculation of CI scores, or in our ability to obtain any approved fuel pathways, could have a material adverse effect on the margins we receive for our low-carbon products in certain markets.

Some of these factors can vary by region and may change quickly, adding to market volatility, while others may have longer-term effects. The longer-term effects of these and other factors on product margins are uncertain. We do not produce crude oil, corn, waste and renewable feedstocks, or other primary feedstocks and must purchase nearly all of the feedstocks we process. We generally purchase our feedstocks long before we process them and sell the resulting products. Price level changes during the period between purchasing feedstocks and selling the resulting products has had, and in the future could continue to have, a significant effect on our financial results. A decline in market prices could negatively impact the carrying value of our inventories.

Economic turmoil, inflation, cybersecurity incidents, and political unrest or hostilities, including the threat of future terrorist attacks, could affect the economies of the U.S. and other countries. Lower levels of

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economic activity could result in declines in energy consumption, including declines in the demand for and consumption of our products, which could cause our revenues and margins to decline and limit our future growth prospects. Refining, renewable diesel, and ethanol margins also can be significantly impacted by the addition of capacity through the expansion of existing facilities or the construction of new refineries or plants. Worldwide refining capacity expansions may result in refining production capacity exceeding refined petroleum product demand, which would have an adverse effect on refining margins.

A significant portion of our profitability is derived from the ability to purchase and process crude oil feedstocks that historically have been cheaper than benchmark crude oils, such as Louisiana Light Sweet (LLS) and Brent crude oils. These crude oil feedstock differentials vary significantly depending on overall economic conditions and trends and conditions within the markets for crude oil and refined petroleum products. Previous declines in such differentials have had, and any future declines would again have, a negative impact on our results of operations.

Technological and industry developments, and evolving investor and market sentiment regarding fossil fuels and GHG emissions, may decrease the demand for our products and could adversely affect our performance.

A reduction in the demand for our products could result from a transition to alternative fuel vehicles by consumers, such as electric vehicles (EVs) and hybrid vehicles, whether as a result of technological or scientific advances, government mandates, or consumer or investor sentiment towards fossil fuels and GHG emissions. New or changing technologies may be developed that make alternative fuel vehicles more affordable or desirable, including improvements in battery and storage technology, increases to EV driving ranges, increased availability of charging stations and other necessary infrastructure, and increased inventory, which may cause some consumers to shift to alternative fuel vehicles, including vehicles that use alternative fuels other than the liquid fuels we produce.

Additionally, there may be new entrants into the renewable fuels industry that could meet demand for lower-carbon transportation fuels and modes of transportation in a more efficient or less costly manner than our technologies and products, which could also have a material adverse effect on our low-carbon fuels businesses. For instance, several other companies have made, or announced interest in making, investments in renewable diesel projects. Should these projects develop, we would face competition from them for feedstocks and customers, which could strain margins on the products we sell and limit the growth and profitability of our low-carbon fuels businesses. It is not possible at this time to predict the ultimate form, timing, or extent of any such developments. However, a reduction in the demand for our products as a result of any of the foregoing events could materially and adversely affect our business, financial condition, results of operations, and liquidity.

Investor and market sentiment towards climate change, fossil fuels, GHG emissions, environmental justice, and other ESG matters could adversely affect our business, cost of capital, and the price of our common stock and debt securities.

There have been efforts in recent years aimed at the investment community, including investment advisors, sovereign wealth funds, pension funds, universities, and other groups, to promote the divestment of securities of energy companies, as well as to pressure lenders and other financial services companies to limit or curtail activities with energy companies. As a result, some financial intermediaries, investors, and other capital markets participants have reduced or ceased lending to, or investing in, companies that operate in industries with higher perceived environmental exposure, such as the energy industry.

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Additionally, pension funds at the U.S. state and municipal level, as well as in other countries and jurisdictions across the world, particularly in Europe, have announced similar plans. If these or similar divestment efforts are continued, the price of our common stock or debt securities, and our ability to access capital markets or to otherwise obtain new investment or financing, may be negatively impacted.

Members of the investment community are also increasing their focus on ESG practices and disclosures, including those related to climate change, GHG emissions targets, business resilience under the assumptions of demand-constrained scenarios, and net-zero ambitions in the energy industry in particular, as well as diversity, equality, and inclusion initiatives, political activities, and governance standards among companies more generally. As a result, we may face negative publicity, increasing pressure regarding our ESG practices and disclosures, and demands for ESG-focused engagement from investors, stakeholders, and other interested parties. This could result in higher costs, disruption and diversion of management attention, an increased strain on our resources, and the implementation of certain ESG practices or disclosures that may present a heightened level of legal and regulatory risk, or that threaten our credibility with other investors and stakeholders. Investors, stakeholders, and other interested parties are also increasingly focusing on issues related to environmental justice. This may result in increased scrutiny, protests, and negative publicity with respect to our business and operations, and those of our counterparties, which could in turn result in the cancellation or delay of projects, the revocation or delay of permits, termination of contracts, lawsuits, regulatory action, and policy change that may adversely affect our business strategy, increase our costs, and adversely affect our reputation and financial performance.

Additionally, members of the investment community may screen companies such as ours for ESG performance before investing in our common stock or debt securities, or lending to us. Credit rating agencies are also increasingly using ESG as a factor in their assessments, which could impact our cost of capital or access to financing. There has also been an acceleration in investor demand for ESG investing opportunities, and many institutional investors have committed to increasing the percentage of their portfolios that are allocated towards ESG-focused investments. As a result, there has been a proliferation of ESG-focused investment funds and market participants seeking ESG-oriented investment products. There has also been an increase in third-party providers of company ESG ratings, and more ESG-focused voting policies among proxy advisory firms, portfolio managers, and institutional investors. Some investors and stakeholders are also increasingly focused on pursuing strategies centered on ESG-related activism.

If we are unable to meet the ESG standards or investment, lending, ratings, or voting criteria and policies set by these parties, we may lose investors, investors may allocate a portion of their capital away from us, we may become a target for ESG-focused activism, our cost of capital may increase, the price of our securities may be negatively impacted, and our reputation may also be negatively affected.

The ongoing COVID-19 pandemic and the related events and circumstances have had, and may continue to have, negative impacts on our business, financial condition, results of operations, and liquidity and those of our customers, suppliers, and other counterparties.

At the onset of the COVID-19 pandemic in March 2020, governmental authorities around the world imposed restrictions, such as stay-at-home orders and other social distancing measures, to slow the spread of COVID-19. Many companies and individuals implemented similar efforts. These measures resulted in significant economic disruption globally as reduced economic activity negatively impacted many businesses, including ours.


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During 2020, we experienced a decline in the demand for most of the liquid transportation fuels that we produce and sell, and thus also a decline in the market prices of those products, due to a decrease in the level of individual movement and travel resulting from the restrictions and general public health concerns. Some governmental authorities began lifting restrictions in the latter part of 2020 and this continued to varying degrees throughout 2021. These actions have contributed to increasing levels of individual movement and travel and a resulting increase in the demand for and market prices of our products. However, some governmental authorities continue to impose some level of restrictions due in part to new outbreaks, including those related to new variants of the virus (such as the delta and omicron variants). Additionally, the lingering effects of the COVID-19 pandemic and variants of the virus continue to negatively impact the level of air travel, global supply chains, and the labor market.

The distribution of vaccines beginning in late 2020 has helped decrease the rates and severity of infection and contributed to the lifting of many restrictions. The ongoing distribution of vaccines may result in the continued lifting of restrictions globally and may be seen as a key factor contributing to the ongoing restoration of public confidence, and thus also to stimulating and increasing global economic activity. However, the risk remains that vaccines may not be distributed widely on a timely basis, they may not be as effective against new variants of the virus, and/or the level of individuals’ willingness to receive a vaccine may not be as strong or as timely as needed. Additionally, some governmental authorities have announced requirements and mandates, including steep fines for noncompliance, on employers concerning workforce vaccination and testing. Many large companies across the world, independent of such government regulations, have also begun implementing vaccine requirements and mandates for their workforces, or as a prerequisite to providing customers certain goods and services in person. These requirements and mandates have evoked mixed reactions and have created additional challenges and costs, both administratively and operationally, for employers (including us and our counterparties) and their workforces. Developments with respect to such requirements and mandates are evolving at a rapid pace and the ultimate impact thereof remains uncertain. The ultimate outcome of the uncertainties and other unforeseen effects of the COVID-19 pandemic could result in many adverse consequences including, but not limited to, reduced availability of critical staff necessary to maintain operations, disruption or delays to supply chains for critical equipment or feedstock, inflation, reduced economic activity and individual movement that negatively impact demand for our products, and increased administrative, compliance, and operational costs.

The ultimate extent of the impact of the COVID-19 pandemic will depend largely on future developments, particularly within the geographic areas where we operate, and the related impact on overall economic activity, all of which are currently unknown and cannot be predicted with certainty at this time. However, the adverse impacts of the economic effects from the COVID-19 pandemic on our business have been and may continue to be significant.

The adverse effects of the COVID-19 pandemic on our business, financial condition, results of operations, and liquidity have also had, and may continue to have, the effect of heightening many of the other risks described in the other risk factors in this section. Such risk factors may be amended or supplemented by subsequent quarterly reports on Form 10-Q and other reports and documents we file with the SEC after the date of this annual report on Form 10-K.

Our operations depend on natural gas and electricity, and such dependency could materially adversely affect our business, financial condition, results of operations, and liquidity.

Our operations depend on the use of natural gas and electricity. We consume a significant volume of natural gas and a significant amount of electricity to operate our refineries and plants, and natural gas and

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electricity prices represent a large cost to our operations. We also purchase other commodities whose price may vary depending on the price of natural gas or electricity. Prices for both natural gas and electricity can be volatile and therefore represent ongoing challenges to our operating results. Additionally, the availability of natural gas and electricity can be affected by weather (such as Winter Storm Uri in 2021), pipeline interruptions, grid outages, and logistics disruptions. As electrification continues to grow, or if there are increased restrictions or costs imposed on the ability of electric utilities to utilize certain energy sources, there will likely be increased strains on, and risk to the integrity and resilience of, electrical grids, and natural gas and electricity supplies around the world, which could negatively affect the cost, reliability, and availability of our natural gas and electricity supplies. Additionally, increased governmental regulations and public opposition to pipeline and electricity generation and transmission projects may result in the underinvestment in, or unavailability of, the logistics assets and infrastructure necessary to obtain natural gas feedstocks and electricity in a reliable and cost-efficient manner.

Although we actively manage these costs through contracting and hedging our exposure to price volatility when appropriate, and by pursuing projects that reduce our reliance on third parties and fortify the resilience of our assets, increases in prices for natural gas and electricity, or disruptions to sources of natural gas and electricity supply, could materially and adversely affect our business, financial condition, results of operations, and liquidity.

Disruption of our ability to obtain crude oil, waste and renewable feedstocks, corn, and other feedstocks could adversely affect our operations.

A significant portion of our refining feedstock requirements is satisfied through supplies originating in the Middle East, Africa, Europe, Asia, North America, and South America. We are, therefore, subject to the political, geographic, and economic risks attendant to doing business with suppliers located in, and supplies originating from, these areas. If one or more of our supply contracts were terminated, or if political events disrupt our traditional feedstock supply, we believe that adequate alternative supplies would be available, but it is possible that we would be unable to find alternative sources of supply. Our refineries and plants without access to waterborne deliveries or offtake must rely on rail, pipeline, or ground transportation and thus may be more susceptible to such risks. If we are unable to obtain adequate volumes or are able to obtain such volumes only at unfavorable prices, our business, financial condition, results of operations, and liquidity could be materially adversely affected, including from reduced sales volumes of products or reduced margins as a result of higher costs. Additionally, the U.S. government can prevent or restrict us from doing business in or with other countries. For instance, U.S. sanctions with respect to Iran and Venezuela limit the ability of U.S. companies to engage in oil transactions involving these countries, and currently there is a possibility of increased sanctions against Russia as well as potential responsive countermeasures. These restrictions, and those of other governments, may limit our access to business opportunities in various countries. Actions by the U.S. and other countries have affected our operations in the past and may continue to do so in the future.

Although Darling, the other joint venture member in DGD, supplies some of DGD’s feedstock at competitive pricing, DGD must still secure a significant amount of its feedstock requirements from other sources. Should Darling’s supply be disrupted or should supply from other sources become limited or only available at unfavorable terms, DGD could be required to develop alternate sources of supply, and it could be required to increase its utilization of feedstocks that produce lower margin products. To the extent the volume of renewable diesel produced by competitors begins to increase, the competition for feedstocks will likely increase, which could place downward pressure on the margins associated with the

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products produced by DGD. Should DGD’s feedstock supply be disrupted, such an event could adversely impact its and our business, financial condition, results of operations, and liquidity.

Our Ethanol segment relies on corn sourced from local farmers and commercial elevators in the Mid-Continent region of the U.S. As a result, the feedstock supply of our Ethanol segment is acutely exposed to the effects that weather and other environmental events occurring in that region can have on the amount or timing of crop production. Crop production can also be affected by governmental policies (such as farming subsidies) and by market factors (such as changes in fertilizer prices). Any reduction or delay in crop production from these or similar events could reduce and disrupt the supply of, or otherwise increase our costs to obtain, feedstocks for our Ethanol segment.

We are subject to risks arising from our operations outside the U.S. and generally to worldwide political and economic developments.

We operate and sell some of our products outside of the U.S., particularly in Canada, Europe, Mexico, Peru, and Latin American countries other than Mexico and Peru. Our business, financial condition, results of operations, and liquidity could be negatively impacted by disruptions in any of these markets, including due to 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 governmental decisions, investigations, regulations, issuances or revocations of permits and other authorizations, and changing regulatory and political environments. The occurrence of any such event could result in commercial restrictions, delay or cancellation of projects, increased costs, and otherwise reduce our profitability in the U.S. and abroad.

We are also required to comply with U.S. and international laws and regulations. Actual or alleged violations of these laws could disrupt our business, cause us to incur significant legal expenses, and result in a material adverse effect on our business, financial condition, results of operations, and liquidity.

We are subject to interruptions and increased costs as a result of our reliance on third-party transportation of crude oil and other feedstocks and the products that we manufacture.

We use the services of third parties to transport feedstocks to our refineries and plants and to transport the products we manufacture to market. If we experience prolonged interruptions of supply or increases in costs to deliver our products to market, or if the ability of the pipelines, vessels, trucks, or railroads to transport feedstocks or products is disrupted because of weather events, cybersecurity incidents, accidents, derailments, collisions, fires, explosions, or governmental or third-party actions, it could have a material adverse effect on our business, financial condition, results of operations, and liquidity.

Competitors that produce their own supply of crude oil feedstocks, own their own retail sites, have greater financial resources, or provide alternative energy sources may have a competitive advantage.

The refining and marketing industry is highly competitive with respect to both feedstock supply and refined petroleum product markets. We compete with many companies for available supplies of crude oil and other feedstocks, and for third-party retail outlets for our refined petroleum products. We do not produce any of our crude oil feedstocks and we do not have a company-owned retail network. Many of our competitors, however, obtain a significant portion of their feedstocks from company-owned production and some have extensive networks of retail sites. Such competitors are at times able to offset losses from refining operations with profits from producing or retailing operations, and they may be better

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positioned to withstand periods of depressed refining margins or feedstock shortages. Some of our competitors also have materially greater financial and other resources than we have. Such competitors may have a greater ability to bear the economic risks inherent in all phases of our industry. In addition, we compete with other industries that provide alternative means to satisfy the energy and fuel requirements of our industrial, commercial, and individual consumers.

A significant interruption in one or more of our refineries or renewable diesel or ethanol plants could adversely affect our business.

Our refineries, renewable diesel plant, and ethanol plants are our principal operating assets. As a result, our operations could be subject to significant interruption if one or more of our refineries or plants were to experience a major accident or mechanical failure, be damaged by severe weather or natural disasters (such as hurricanes) or man-made disasters (such as cybersecurity incidents or acts of terrorism), or otherwise be forced to shut down. If any refinery or plant were to experience an interruption in operations, earnings from the refinery or plant could be materially adversely affected (to the extent not recoverable through insurance) because of lost production and repair costs. Significant interruptions in our refining, renewable diesel, or ethanol systems could also lead to increased volatility in prices for crude oil, waste and renewable feedstocks, corn, and many of our products.

Large capital projects can take many years to complete, and the political and regulatory environments or other market conditions may change or deteriorate over time, negatively impacting project returns.

We may engage in capital projects based on the forecasted project economics, political and regulatory environments, and the expected return on the capital to be employed in the project. Large-scale projects take many years to complete, during which time the political and regulatory environment or other market conditions may change from our forecast. As a result, we may not fully realize our expected returns, which could negatively impact our business, financial condition, results of operations, and liquidity.
Our investments in joint ventures and other entities decrease our ability to manage risk.

We conduct some of our operations through joint ventures in which we may share control over certain economic, legal, and business interests with other joint venture members. We also conduct some of our operations through entities in which we have no equity ownership interest, such as some of the consolidated variable interest entities (VIEs), as described in Note 13 of Notes to Consolidated Financial Statements. The other joint venture members and the third-party equity holders of the VIEs may have economic, business, or legal interests, opportunities, or goals that are inconsistent with or different from our opportunities, goals, and interests, or may have different liquidity needs or financial condition characteristics than our own, be subject to different legal or contractual obligations than we are, or be unable to meet their obligations. For instance, while we operate the DGD Plant and perform certain day-to-day operating and management functions for DGD as an independent contractor, we do not have full control of every aspect of DGD’s business and certain significant decisions concerning DGD, including, among others, the acquisition or disposition of assets above a certain value threshold, making certain changes to DGD’s business plan, raising debt or equity capital, DGD’s distribution policy, and entering into particular transactions, which also require certain approvals from Darling. Additionally, although we consolidate certain VIEs, we do not have full control of every aspect of these VIEs, or the actions taken by their third-party equity holders, some of which may affect our business, legal position, financial condition, results of operations, and liquidity. Failure by us, an entity in which we have a joint venture interest, or the VIEs to adequately manage the risks associated with such entities, and any differences in views among us and other joint venture members or the third-party equity holders in the VIEs, could

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prevent or delay actions that are in the best interest of us, the joint venture, or the VIE, and could have a material adverse effect on our, or the applicable joint venture’s or VIE’s, financial condition, results of operations, and liquidity.

We may incur losses and additional costs as a result of our forward-contract activities and derivative transactions.

We currently use commodity derivative instruments, and we expect to continue their use in the future. If the instruments we use to hedge our exposure to various types of risk are not effective, we may incur losses. In addition, we may be required to incur additional costs in connection with future regulation of derivative instruments to the extent such future regulation is applicable to us.

Legal, Governmental, and Regulatory Risks

Legal, regulatory, and political matters and developments regarding climate change, GHG or other air emissions, fuel efficiency, or the environment may decrease the demand for our petroleum-based products and could adversely affect our performance.

Many state, provincial, and national governments across the world have imposed, and may impose in the future, increases in fuel economy standards, low-carbon fuel standards, restrictions on vehicles using liquid fuel, and other policies or regulations (such as tariffs, tax incentives, or subsidies) aimed at steering the public towards less petroleum-dependent modes of transportation, which could reduce demand for our liquid fuels. For example, in September 2020, the governor of California issued an executive order seeking to require that sales of all new passenger vehicles be zero-emission by 2035 and medium to heavy-duty vehicles be zero-emission by 2045, where feasible. The executive order also requires state agencies to build out sufficient electric vehicle charging infrastructure. Other U.S. and governmental authorities across the world, such as the U.K. and Quebec, have also announced similar plans and/or restrictions with respect to the sale of new internal combustion-engine vehicles.

The U.S. federal government under the current presidential administration has also been aggressive in the scope, magnitude, and number of actions it has taken to regulate climate change, and steer the public towards less petroleum-dependent modes of transportation. For instance, shortly after taking office, the current administration issued a series of executive orders designed to address climate change, as well as an executive order requiring agencies to review environmental actions taken by the previous administration. Additionally, in April 2021, the EPA issued a notice of proposed rulemaking seeking to reinstate California’s prior authority to set vehicle GHG emissions standards, including standards that exceed or conflict with U.S. federal standards. In a parallel action finalized in December 2021, the National Highway Traffic Administration (NHTSA) withdrew its previous regulatory determination in the Safer Affordable Fuel-Efficient Vehicles Rule that California is preempted under the Energy Policy and Conservation Act from regulating fuel economy. Such authority could allow California to impose more stringent requirements on the use of our liquid fuels, such as EV mandates, and could potentially revive other states’ authority to adopt standards similar to California’s standards. If the California waiver is reinstated and California adopts GHG emissions standards different than U.S. federal standards, then, regardless of whether other U.S. states adopt similar standards, the size of the California auto market and the difficulty and expense of designing, manufacturing, and selling alternative vehicle fleets to comply with different standards, such California standards, could become the de facto national standard for vehicles sold for use in the U.S. Further, in August 2021, NHTSA released a new proposed rule that would increase the current corporate average fuel economy (CAFE) and carbon dioxide standards for certain passenger cars and light trucks under the previously adopted Safer Affordable Fuel-Efficient

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Vehicles Rule. Higher CAFE standards and fuel efficiency standards may reduce demand for our petroleum-based products. In December 2021, the current U.S. presidential administration issued an executive order that directs the U.S. federal government to use its scale and procurement power to achieve a number of aspirational net-zero emissions goals, including, among others, 100 percent zero-emission vehicle acquisitions by 2035 and 100 percent zero-emission light-duty vehicle acquisitions by 2027. On December 30, 2021, the EPA finalized its “Revised 2023 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emission Standards,” in which the EPA states that its final rule is projected to reduce gasoline consumption by more than 360 billion gallons by 2050, reaching a 15 percent reduction in annual U.S. gasoline consumption in 2050.

Moreover, in 2005, the Kyoto Protocol to the 1992 United Nations (U.N.) Framework Convention on Climate Change, which establishes a binding set of emission targets for GHGs, became binding on all countries that had ratified it. In 2015, the U.N. Climate Change Conference in Paris resulted in the creation of the Paris Agreement. The Paris Agreement requires countries to review and “represent a progression” in their nationally determined contributions, which set emissions reduction goals every five years beginning in 2020. The terms of the Paris Agreement and the executive orders discussed above are expected to result in additional regulations or changes to existing regulations, which could have a material adverse effect on our business in the U.S. and the U.K., and that of our customers. In addition, incentives to conserve energy or use alternative energy sources in many of the countries where we currently operate, or may operate in the future, could have a negative impact on our business across the world.

These and other legal, regulatory, political, and international accord matters and developments regarding climate change, GHG or other air emissions, fuel efficiency, or the environment, including executive orders that mandate or encourage the use of alternative energy sources or discourage or ban the use of internal combustion engines, may increase consumer preferences for, and adoption of, alternative fuel vehicles and decrease demand for our liquid fuels, although they may also increase demand for our low-carbon fuels. These legal, regulatory, and political developments, as well as other similarly focused laws and regulations, such as, among others, the California and Quebec cap-and-trade programs, the U.K. Emissions Trading Scheme, the U.K. Renewable Transport Fuel Obligation, and CARB’s Control Measure for Ocean-Going Vessels At Berth Rule, could also result in increased costs or capital expenditures to (i) operate and maintain our facilities, (ii) install new emission controls at our facilities, and (iii) administer and manage any emissions or blending programs, including acquiring emission credits, allowances, or allotments.

Many of these legal, regulatory, political, and international accord matters and developments are subject to considerable uncertainty due to a number of factors, including technological and economic feasibility, legal challenges, and potential changes in law, regulation, or policy, and it is not possible at this time to predict the ultimate effects of these matters and developments on us. However, a reduction in the demand for our products or an increase in costs or capital expenditures as a result of any of the foregoing events could materially and adversely affect our business, financial condition, results of operations, and liquidity.

Compliance with, or developments concerning, the Renewable and Low-Carbon Fuel Blending Programs, and other regulations, policies, and standards impacting the demand for low-carbon fuels could adversely affect our performance.

As described under “ITEMS 1. and 2. BUSINESS AND PROPERTIES—OUR COMPREHENSIVE LIQUID FUELS STRATEGY—Regulations, Policies, and Standards Driving Low-Carbon Fuel Demand,” governments across the world have issued, or are considering issuing, low-carbon fuel regulations, policies, and standards to help reduce GHG emissions and increase the percentage of low-

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carbon fuels in the transportation fuel mix. We strategically market our low-carbon fuels based on regional policies, feedstock preferences, CI scores, and our ability to obtain fuel pathways. A significant portion of our low-carbon fuels are sold in California, Canada, and Europe.
Concerning the RFS, on December 7, 2021, the EPA released a proposed rule to retroactively revise the 2020 RVOs, set overdue RVOs for 2021 and 2022, and propose certain other changes to the RFS including, among others, changes to registration, reporting, recordkeeping, and other requirements. Separately, the EPA proposed to deny more than 60 small refinery exemption (SRE) petitions.

We are exposed to the volatility in the market price of RINs, LCFS credits, and other credits, as described in Note 21 of Notes to Consolidated Financial Statements. We cannot predict the future prices of RINs, LCFS credits, or other credits. Prices for RINs, LCFS credits, and other credits are dependent upon a variety of factors, including, as applicable, EPA regulations, regulations of other countries and jurisdictions, the availability of RINs, LCFS credits, and other credits for purchase, transportation fuel production levels, which can vary significantly each quarter, approved CI pathways, and CI scores. The ultimate outcome of the recently proposed RVOs, RFS changes, and SRE denials may also affect prices. If an insufficient number of RINs, LCFS credits, or other credits is available for purchase, if we have to pay significantly higher prices for them, or if we are otherwise unable to meet the EPA’s RFS mandates or our other obligations under the Renewable and Low-Carbon Fuel Blending Programs, our business, financial condition, results of operations, and liquidity could be adversely affected. Furthermore, to the extent fewer SRE waivers are granted in the future or RVO obligations are reallocated or increased, the demand for and the price of RINs may also increase, and our business, financial condition, results of operations, and liquidity could be adversely affected.

In addition to the RFS and LCFS, we operate in multiple jurisdictions that have issued, or are considering issuing, similar low-carbon fuel regulations, policies, and standards. The RFS, LCFS, and similar U.S. state and international low-carbon fuel regulations, policies, and standards are extremely complex, often have different or conflicting requirements or methodologies, and are frequently evolving, requiring us to periodically update our systems and controls to maintain compliance and monitoring, which could require significant expenditures, and presents an increased risk of administrative error. Our low-carbon fuels businesses could be materially and adversely affected if (i) these regulations, policies, and standards are adversely changed, not enforced, or discontinued, (ii) the benefits therefrom are reduced (such as the 45Q tax credit, the blender’s tax credit, and other incentives), (iii) any of the products we produce are deemed not to qualify for compliance therewith, or (iv) we are unable to satisfy or maintain any approved pathways. Such changes could also negatively impact the economic assumptions and projections with respect to many of our low-carbon projects and could have a material adverse impact on the timing of completion, project returns, and other outcomes with respect to such projects.

Compliance with and changes in environmental, health, and safety laws could adversely affect our performance.

Our operations are subject to extensive environmental, health, and safety laws and regulations, including those relating to the discharge of materials into the environment, waste management, pollution prevention measures, GHG emissions, and characteristics and composition of fuels, including gasoline and diesel. Certain of these laws and regulations could impose obligations to conduct assessment or remediation efforts at our refineries and plants, as well as at formerly owned properties or third-party sites where we have taken wastes for disposal or where our wastes may have migrated. The principal environmental risks associated with our operations are emissions into the air, handling of waste, and releases into the soil, surface water, or groundwater. Environmental laws and regulations also may impose liability on us for the

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conduct of third parties or for actions that complied with applicable requirements when taken, regardless of negligence or fault. If we violate or fail to comply with these laws and regulations, we could be fined, sanctioned, or enjoined.

Because environmental, health, and safety laws and regulations are becoming more stringent and new environmental, health, and safety laws and regulations are continuously being enacted or proposed, the level of expenditures required for environmental matters could increase in the future. Current and future legislative action and regulatory initiatives could result in increased difficulty in obtaining permits, changes to operating permits, material changes in operations, increased capital expenditures and operating costs, increased costs of the products we sell, and decreased demand for our products that cannot be assessed with certainty at this time. We may be required to make expenditures to modify operations, discontinue use of certain process units or certain chemicals, or install pollution control equipment that could materially and adversely affect our business, financial condition, results of operations, and liquidity. We may also face liability for personal injury, property damage, natural resource damage, environmental justice impacts, or clean-up costs due to alleged contamination and/or exposure to chemicals or other regulated materials, such as various perfluorinated compounds, per- and polyfluoroalkyl substances, benzene, MTBE, and petroleum hydrocarbons, at or from our current and formerly owned facilities. Such liability or expenditures could materially and adversely affect our business, financial condition, results of operations, and liquidity.

Climate change and “greenwashing” litigation could adversely affect our performance.

We could face increased climate‐related litigation with respect to our operations, disclosures, or products. Governments and private parties across the world, such as California, Vermont, and New York in the U.S., and the Netherlands in Europe, have filed lawsuits or initiated regulatory action against energy companies. The lawsuits allege damages as a result of climate change, and the plaintiffs seek damages and/or abatement under various tort and other theories. Similar lawsuits may be filed in other jurisdictions. Additionally, governments and private parties are also increasingly filing lawsuits or initiating regulatory action based on allegations that certain public statements regarding ESG-related matters and practices by companies are false and misleading “greenwashing” that violate deceptive trade practices and consumer protection statutes. Similar issues can also arise relating to aspirational statements such as net-zero or carbon neutrality targets that are made without an adequate basis to support such statements. While we are currently not a party to any of these lawsuits, they present a high degree of uncertainty regarding the extent to which energy companies face an increased risk of liability stemming from climate change or ESG disclosures and practices.

Any attempt by the U.S. government to withdraw from, re-enter, or materially modify any existing international trade agreements, or enter into any new international trade agreements in the future, could adversely affect our business, financial condition, results of operations, and liquidity.

The previous U.S. presidential administration questioned certain existing and proposed trade agreements. For example, the administration withdrew the U.S. from the Trans-Pacific Partnership. In addition, the previous administration implemented and proposed various trade tariffs, which resulted in foreign governments responding with tariffs on U.S. goods. Changes in U.S. social, political, regulatory, and economic conditions or in laws and policies governing foreign trade, manufacturing, development, and investment could adversely affect our business. For example, the imposition of tariffs or other international trade barriers could affect our ability to obtain feedstocks from international sources, increase our costs, and reduce the competitiveness of our products. Although there is currently uncertainty around the likelihood, timing, and details of many such actions, if the current U.S. administration takes

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action to withdraw from, re-enter, or materially modify any existing international trade agreements, or to enter into any new international trade agreements in the future, our business, financial condition, results of operations, and liquidity could be adversely affected.

Compliance with and changes in tax laws could adversely affect our performance.

We are subject to extensive tax liabilities imposed by multiple jurisdictions, including income taxes, indirect taxes (excise/duty, sales/use, gross receipts, and value-added taxes (VAT)), payroll taxes, franchise taxes, withholding taxes, and ad valorem taxes. New tax laws and regulations and changes in existing tax laws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities in the future. Many of these liabilities are subject to periodic audits by the respective taxing authorities. Although we believe we have used reasonable interpretations and assumptions in calculating our tax liabilities, the final determination of these tax audits and any related proceedings cannot be predicted with certainty. Any adverse outcome of any of such tax audits or related proceedings could result in unforeseen tax-related liabilities that may, individually or in the aggregate, materially affect our cash tax liabilities, and, as a result, our business, financial condition, results of operations, and liquidity. Tax rates in the various jurisdictions in which we operate may change significantly as a result of political or economic factors beyond our control. It is also possible that future changes to tax laws (including tax treaties with any of the jurisdictions in which we operate) could impact our ability to realize the tax savings recorded to date. Additionally, our future effective tax rates could be adversely affected by changes in tax laws (including tax treaties) or their interpretations.

The phase-out or replacement of the London Interbank Offered Rate (LIBOR) with an alternative reference rate may adversely affect financial markets and the interest rates we pay on any floating-rate debt.

On March 5, 2021, the Financial Conduct Authority in the U.K. issued an announcement on the future cessation or loss of representativeness of LIBOR benchmark settings currently published by ICE Benchmark Administration. That announcement confirmed that LIBOR would either cease to be provided by any administrator or would no longer be representative after December 31, 2021 for all non-U.S. dollar LIBOR reference rates and for certain short-term U.S. dollar LIBOR reference rates, and after June 30, 2023 for other reference rates. In the future, we may need to renegotiate our financial agreements, including, but not limited to, our $4.0 billion revolving credit facility, or incur other indebtedness, and we may be required to select and use a replacement reference rate for such debt. Such replacement reference rate could include the secured overnight financing rate, also known as SOFR, published by the Federal Reserve Bank of New York. The phase-out of LIBOR or the use of any replacement reference rate may negatively impact the terms of, and our ability to refinance, such indebtedness and could also adversely affect the interest rate payable on, and the liquidity and value of, such indebtedness. In addition, the overall financial market and the ability to raise future indebtedness in a cost-effective manner may be disrupted as a result of the phase-out or replacement of LIBOR. Disruption in the financial market could have an adverse effect on our business, financial condition, results of operations, and liquidity.

Cyber Security and Privacy Related Risks

A significant interruption related to our information technology systems could adversely affect our business.

Our information technology systems and network infrastructure may be subject to unauthorized access or attack, including ransomware attacks, which could result in (i) a loss of intellectual property, proprietary

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information, or employee, customer or vendor data; (ii) public disclosure of sensitive information; (iii) increased costs to prevent, respond to, or mitigate cybersecurity events, such as deploying additional personnel and protection technologies, training employees, and engaging third-party experts and consultants; (iv) systems interruption; (v) disruption of our business operations; (vi) remediation costs for repairs of system damage; (vii) reputational damage that adversely affects customer or investor confidence; and (viii) damage to our competitiveness, the price of our common stock or debt securities, and long-term stockholder value. A breach could also originate from or compromise our customers’, vendors’, or other third-party networks outside of our control that could impact our business and operations, as occurred with the Colonial Pipeline cybersecurity incident in May 2021. A breach may also result in legal claims or proceedings against us by our stockholders, employees, customers, vendors, and governmental authorities (U.S. and international). There can be no assurance that our infrastructure protection technologies and disaster recovery plans can prevent technology systems breaches, cyber and ransomware attacks, or systems failures, any of which could have a material adverse effect on our business, financial condition, results of operations, and liquidity. Furthermore, the continuing and evolving threat of cybersecurity incidents has resulted in increased regulatory focus on prevention, such as the directive issued by the U.S. Transportation Security Administration following the Colonial Pipeline cybersecurity incident. To the extent we experience increased regulatory requirements, we may be required to expend significant additional resources to comply therewith or incur fines for noncompliance.

Increasing regulatory focus on data privacy and security issues and expanding or changing laws could expose us to increased liability, subject us to lawsuits, investigations, and other liabilities and restrictions on our operations that could significantly and adversely affect our business.

Along with our own data and information in the normal course of our business, we collect and retain certain data that is subject to specific laws and regulations. The transfer and use of this data both domestically and across international borders is becoming increasingly complex. This data is subject to governmental regulation at the federal, state, international, provincial, and local levels in many areas of our business, including data privacy and security laws such as the California Consumer Privacy Act (CCPA), the U.K. General Data Protection Regulation (GDPR), and Quebec’s recently enacted Bill 64 (Bill 64), which amends the province’s main statute regulating the collection of information.

The CCPA, which came into effect on January 1, 2020, gives California residents specific rights in relation to their personal information, requires that companies take certain actions, including notifications for security incidents, and may apply to activities regarding personal information that is collected by us, directly or indirectly, from California residents. The recently adopted California Privacy Rights Act also expands the compliance requirements of, and authority to enforce, the CCPA. As the interpretation and enforcement of the CCPA continues to evolve, there may be a range of new compliance obligations and scrutiny, with the possibility for significant financial penalties for noncompliance that may materially adversely affect our business, financial condition, results of operations, and liquidity.

The GDPR applies to activities related to personal data that may be conducted by us, directly or indirectly through vendors and subcontractors, from an establishment in the U.K. The future of the GDPR remains in flux for political reasons. As interpretations and enforcement of the GDPR evolve, they could create a range of new compliance obligations, which could cause us to incur additional costs. Those costs could become even more severe if interpretations or enforcement of the GDPR deviate in the future. In both cases, failure to comply could result in significant penalties of up to a maximum of 4 percent of our global turnover that may materially adversely affect our business, reputation, financial condition, results of operations, and liquidity. Our business and operations may also be impacted if the U.K. Parliament approves new standard contractual clauses (SCCs) for the international transfer of personal data outside of

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the U.K. If adopted on March 21, 2022, the new SCCs may apply to our existing contracts involving the international transfer of personal data that is restricted under the GDPR, requiring us to renegotiate any nonconforming contracts by September 21, 2022, which could be expensive and could divert senior management’s attention from our business.

Bill 64, which was adopted in September 2021, is intended to modify the obligations of public bodies and private sector enterprises by modernizing the framework applicable to the protection of personal information. Most provisions of Bill 64 will take effect over the course of the next three years, with some provisions taking effect in September 2022. Bill 64 largely focuses on increasing the number of individual privacy rights and imposes a range of compliance and procedural obligations, with the possibility for significant penalties and private rights of action for noncompliance that may materially adversely affect our business, financial condition, results of operations, and liquidity.

The CCPA, the GDPR, and Bill 64, as well as other data privacy laws that may become applicable to us, pose increasingly complex compliance challenges, as well as monitoring and control obligations, that could raise our costs, and place increased demand on company resources. Any failure by us to comply with these laws and regulations, including as a result of a security or privacy breach, could result in significant penalties and liabilities for us. Further, if we acquire a company that has violated or is not in compliance with these laws and regulations, we may incur significant liabilities and penalties as a result.

General Risk Factors

Uncertainty and illiquidity in credit and capital markets can impair our ability to obtain credit and financing on acceptable terms, and can adversely affect the financial strength of our business counterparties.

Our ability to obtain credit and capital depends in large measure on capital markets and liquidity factors that we do not control. Our ability to access credit and capital markets may be restricted at a time when we would like, or need, to access those markets, which could have an impact on our flexibility to react to changing economic and business conditions. In addition, the cost and availability of debt and equity financing may be adversely impacted by unstable or illiquid market conditions. Protracted uncertainty and illiquidity in these markets also could have an adverse impact on our lenders, commodity hedging counterparties, or our customers, causing them to fail to meet their obligations to us. In addition, decreased returns on pension fund assets may also materially increase our pension funding requirements.

Our access to credit and capital markets also depends on the credit ratings assigned to our debt by independent credit rating agencies. We currently maintain investment-grade ratings by Standard & Poor’s Ratings Services, Moody’s Investors Service, and Fitch Ratings on our senior unsecured debt. Ratings from credit agencies are not recommendations to buy, sell, or hold our securities. Each rating should be evaluated independently of any other rating. We cannot provide assurance that any of our current ratings will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in its judgment, circumstances so warrant. Specifically, if rating agencies were to downgrade our long-term rating, particularly below investment grade, our borrowing costs may increase, which could adversely affect our ability to attract potential investors and our funding sources could decrease. In addition, we may not be able to obtain favorable credit terms from our suppliers or they may require us to provide collateral, letters of credit, or other forms of security, which would increase our operating costs. As a result, a downgrade below investment grade in our credit ratings could have a material adverse impact on our business, financial condition, results of operations, and liquidity.


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From time to time, our cash needs may exceed our internally generated cash flow, and our business could be materially and adversely affected if we were unable to obtain necessary funds from financing activities. From time to time, we may need to supplement our cash generated from operations with proceeds from financing activities. We have existing revolving credit facilities, committed letter of credit facilities, and an accounts receivable sales facility intended to provide us with available financing to meet our ongoing cash needs. In addition, we rely on the counterparties to our derivative instruments to fund their obligations under such arrangements. Uncertainty and illiquidity in financial markets may materially impact the ability of the participating financial institutions and other counterparties to fund their commitments to us under our various financing facilities or our derivative instruments, which could have a material adverse effect on our business, financial condition, results of operations, and liquidity.

Severe weather events may have an adverse effect on our assets and operations.

Severe weather events, such as storms, hurricanes, droughts, or floods, could have an adverse effect on our operations and could increase our costs. For instance, severe weather events can have an impact on crops production and reduce the supply of, or increase our costs to obtain, feedstocks for our Ethanol and Renewable Diesel segments. If climate changes result in more intense or frequent severe weather events, the physical and disruptive effects could have a material adverse impact on our operations and assets.

Our business may be negatively affected by work stoppages, slowdowns, or strikes by our employees, as well as new labor legislation issued by regulators.

Certain employees at five of our U.S. refineries, as well as at each of our Canadian and U.K. refineries, are covered by collective bargaining or similar agreements, which generally have unique and independent expiration dates. To the extent we are in negotiations for labor agreements expiring in the future, there is no assurance an agreement will be reached without a strike, work stoppage, or other labor action. Any prolonged strike, work stoppage, or other labor action at our facilities or at facilities owned or operated by third parties that support our operations could have an adverse effect on our business, financial condition, results of operations, and liquidity. In addition, future U.S. federal, state, or international labor legislation could result in labor shortages and higher costs, especially during critical maintenance periods.

We are subject to operational risks and our insurance may not be sufficient to cover all potential losses arising from operating hazards. Failure to obtain or maintain adequate insurance coverage could materially and adversely affect our business, financial condition, results of operations, and liquidity.

Our operations are subject to various hazards common to the industry, including explosions, fires, toxic emissions, maritime hazards, and natural catastrophes. As protection against these hazards, we maintain insurance coverage against some, but not all, potential losses and liabilities. We may not be able to maintain or obtain insurance of the type and amount we need, or at acceptable rates. As a result of market conditions, premiums, and deductibles for certain insurance policies could increase substantially. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. For example, coverage for hurricane damage is very limited, and coverage for terrorism risks includes very broad exclusions. If we incur a significant loss or liability for which we are not fully insured, it could have a material adverse effect on our business, financial condition, results of operations, and liquidity.

Our insurance program includes a number of insurance carriers. Significant disruptions in financial markets could lead to a deterioration in the financial condition of many financial institutions, including insurance companies. We can provide no assurance that we will be able to obtain the full amount of our insurance coverage for insured events.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 3. LEGAL PROCEEDINGS

LITIGATION

We incorporate by reference into this Item our disclosures made in Note 1 of Notes to Consolidated Financial Statements under “Legal Contingencies.”

ENVIRONMENTAL ENFORCEMENT MATTERS

While it is not possible to predict the outcome of the following environmental proceedings, if any one or more of them were decided against us, we believe that there would be no material effect on our financial condition, results of operations, and liquidity. We are reporting these proceedings to comply with SEC regulations, which require us to disclose certain information about proceedings arising under U.S. federal, state, or local provisions regulating the discharge of materials into the environment or protecting the environment if we reasonably believe that such proceedings have the potential to result in monetary sanctions of $300,000 or more.

EPA (Benicia Refinery). In our annual report on Form 10-K for the year ended December 31, 2020, we reported that the EPA had issued a Notice of Potential Violations and Opportunity to Confer related to a series of inspections conducted by the EPA in 2019 arising out of a 2019 emissions event. We are working with the EPA to resolve this matter.

Attorney General of the State of Texas (Texas AG) (Corpus Christi Asphalt Plant). In our quarterly report on Form 10-Q for the quarter ended March 31, 2019, we reported that we had received a letter and draft Agreed Final Judgment from the Texas AG related to a contaminated water backflow incident that related to the Valero Corpus Christi Asphalt Plant. We have reached a final agreement with the Texas AG resolving the matter upon entry of the Agreed Final Judgment with the court.

Texas AG (Port Arthur Refinery). In our quarterly report on Form 10-Q for the quarter ended June 30, 2019, we reported that the Texas AG had filed suit against our Port Arthur Refinery in the 419th Judicial District Court of Travis County, Texas, Cause No. D-1-GN-19-004121, for alleged violations of the Clean Air Act seeking injunctive relief and penalties. We are working with the Texas AG to resolve this matter.

Bay Area Air Quality Management District (BAAQMD) (Benicia Refinery). In our quarterly report on Form 10-Q for the quarter ended September 30, 2021, we reported that we had received a Violation Notice from the BAAQMD related to atmospheric emissions at our Benicia Refinery. We are working with the BAAQMD to resolve this matter.

Texas Commission on Environmental Quality (TCEQ) (Corpus Christi East Refinery). In our quarterly report on Form 10-Q for the quarter ended September 30, 2021, we reported that we had received a Notice of Enforcement from the TCEQ relating to Title V permit deviations at our Corpus Christi East Refinery. We are working with the TCEQ to resolve this matter.


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ITEM 4. MINE SAFETY DISCLOSURES

None.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on the NYSE under the trading symbol “VLO.”

As of January 31, 2022, there were 4,813 holders of record of our common stock.

Dividends are considered quarterly by the Board, may be paid only when approved by the Board, and will depend on our financial condition, results of operations, cash flows, prospects, industry conditions, capital requirements, and other factors and restrictions our board deems relevant. There can be no assurance that we will pay a dividend in the future at the rates we have paid historically, or at all.

The following table discloses purchases of shares of our common stock made by us or on our behalf during the fourth quarter of 2021.
PeriodTotal Number
of Shares
Purchased
Average
Price Paid
per Share
Total Number of
Shares Not
Purchased as Part of
Publicly Announced
Plans or Programs (a)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Plans or
Programs (b)
October 20213,083 $80.40 3,083 — $1.4 billion
November 2021147,445 $76.04 147,445 — $1.4 billion
December 20217,928 $69.68 7,928 — $1.4 billion
Total158,456 $75.81 158,456 — $1.4 billion
________________________
(a)The shares reported in this column represent purchases settled in the fourth quarter of 2021 relating to (i) our purchases of shares in open-market transactions to meet our obligations under stock-based compensation plans and (ii) our purchases of shares from our employees and non-employee directors in connection with the exercise of stock options, the vesting of restricted stock, and other stock compensation transactions in accordance with the terms of our stock-based compensation plans.
(b)On January 23, 2018, we announced that our Board authorized our purchase of up to $2.5 billion of our outstanding common stock (the 2018 Program), with no expiration date. As of December 31, 2021, we had $1.4 billion remaining available for purchase under the 2018 Program. We have not purchased any shares of our common stock under the 2018 Program since mid-March 2020, and we will evaluate the timing of repurchases when appropriate. We have no obligation to make purchases under the 2018 Program.


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The following performance graph is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated by reference into any of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, respectively.

This performance graph and the related textual information are based on historical data and are not indicative of future performance. The following line graph compares the cumulative total return3 on an investment in our common stock against the cumulative total return of the S&P 500 Composite Index and an index of peers (that we selected) for the five-year period commencing December 31, 2016 and ending December 31, 2021. Our selected peer group comprises the following ten members: ConocoPhillips; CVR Energy, Inc.; Delek US Holdings, Inc.; the Energy Select Sector SPDR Fund; EOG Resources, Inc.; HollyFrontier Corporation; Marathon Petroleum Corporation; Occidental Petroleum Corporation; PBF Energy Inc.; and Phillips 66. The Energy Select Sector SPDR Fund (XLE) serves as a proxy for stock price performance of the energy sector and includes energy companies with which we compete for capital. We believe that our peer group represents a group of companies for making head-to-head performance comparisons in a competitive operating environment that is primarily characterized by U.S.-based companies that have business models predominantly consisting of downstream refining operations, together with similarly sized energy companies that share operating similarities to us, and that are in adjacent segments of the oil and gas industry.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN3
Among Valero, the S&P 500 Index, and Peer Group
vlo-20211231_g2.jpg
As of December 31,
201620172018201920202021
Valero common stock$100.00 $139.98 $117.98 $153.80 $99.04 $138.98 
S&P 500 index100.00 121.83 116.49 153.17 181.35 233.41 
Peer Group100.00 114.94 107.11 110.73 68.00 110.49 
3 Assumes that an investment in Valero common stock, the S&P 500 index, and our peer group was $100 on December 31, 2016. Cumulative total return is based on share price appreciation plus reinvestment of dividends from December 31, 2016 through December 31, 2021.

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ITEM 6. [RESERVED]

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is management’s perspective of our current financial condition and results of operations, and should be read in conjunction with “ITEM 1A. RISK FACTORS” and “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” included in this report. This discussion and analysis includes the years ended December 31, 2021 and 2020 and comparisons between such years. The discussions for the year ended December 31, 2019 and comparisons between the years ended December 31, 2020 and 2019 have been omitted from this annual report on Form 10-K for the year ended December 31, 2021, as such information can be found in “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” in our annual report on Form 10-K for the year ended December 31, 2020, which was filed on February 23, 2021.

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

This report, 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;
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;

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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 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

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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;
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 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

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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 “ITEM 1A. RISK FACTORS” in this report.

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 annual report on Form 10-K 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 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 U.S. generally accepted accounting principles (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 years, to help assess our cash flows, and because we believe they provide useful information as discussed further below. See the tables in note (e) beginning on page 51 for reconciliations of adjusted operating income (loss) (including adjusted operating

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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 (e), we disclose the reasons why we believe our use of such non-GAAP financial measures provides useful information. See the table on page 60 for a reconciliation of capital investments attributable to Valero to its most directly comparable GAAP financial measure. On page 59, we disclose the reasons why we believe our use of this non-GAAP financial measure provides useful information.

IMPACT OF THE COVID-19 PANDEMIC TO OUR BUSINESS

The COVID-19 pandemic has negatively impacted our business. Although we experienced improvements in our business in 2021 compared to the significant negative effects from the pandemic in 2020, the long-term implications of the pandemic on our results of operations and financial position remain uncertain. Information about the uncertainties of the COVID-19 pandemic on our business is discussed in ITEM 1A. RISK FACTORSThe ongoing COVID-19 pandemic and the related events and circumstances have had, and may continue to have, negative impacts on our business, financial condition, results of operations, and liquidity and those of our customers, suppliers, and other counterparties.” and Note 2 of Notes to Consolidated Financial Statements.

OVERVIEW AND OUTLOOK

Overview
Business Operations Update
Our business continued to recover throughout 2021 after experiencing significant negative effects from a decrease in demand and market prices for most of our products in 2020 as a result of the COVID-19 pandemic. The outbreak of COVID-19 and its development into a pandemic in March 2020 disrupted the global economy and significantly reduced the demand and market prices for most of our products, primarily gasoline and diesel. However, by mid-2020, we began experiencing increased demand and higher market prices for most of our products, and these improvements continued throughout 2021 along with the ongoing recovery of the global economy as worldwide efforts to address the virus progressed, including the development and distribution of multiple COVID-19 vaccines and therapeutics. Gasoline and diesel demand returned to pre-pandemic levels during 2021 in most of the regions where we operate, and at times during 2021, we experienced demand for diesel in excess of pre-pandemic levels. Jet fuel demand also improved in 2021, although at a slower pace than other products we produce relative to pre-pandemic levels. These improvements in demand and an associated increase in refining margins were primary contributors to us reporting $930 million of net income attributable to Valero stockholders for the year ended December 31, 2021. Our operating results for 2021, including operating results by segment, are described in the following summary, and detailed descriptions can be found below under “RESULTS OF OPERATIONS.”

Our improved 2021 results, however, were negatively impacted by estimated excess energy costs of $579 million ($467 million after taxes) as a result of a significant increase in the cost of electricity and natural gas at certain of our refineries and ethanol plants arising out of Winter Storm Uri in February 2021. In addition, our operations were negatively impacted by Hurricane Ida in August 2021, which caused us to shut down two refineries and our renewable diesel plant in Louisiana in preparation for the storm. Although the refineries and the plant sustained minimal damage from the hurricane, we were delayed from restarting operations until electrical supply and other utilities were restored and from shipping product to our customers until the Mississippi River was reopened to ship and barge traffic.


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As a result of our improved business and overall market conditions, our operations generated $5.9 billion of cash in 2021, which included the receipt of our 2020 U.S. federal income tax refund of $962 million in May 2021. This cash was used to make $2.5 billion of capital investments in our business and return $1.6 billion to our stockholders through dividend payments. In addition, we reduced our long-term debt by $1.3 billion in 2021 through a series of debt reduction and refinancing transactions, as described in Note 10 of Notes to Consolidated Financial Statements. As a result of this and other activity, our cash and cash equivalents increased by $809 million during 2021, from $3.3 billion as of December 31, 2020 to $4.1 billion as of December 31, 2021. We had $9.3 billion in liquidity as of December 31, 2021. 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 below under “LIQUIDITY AND CAPITAL RESOURCES.”

Results for the Year Ended December 31, 2021
For 2021, we reported net income attributable to Valero stockholders of $930 million compared to a net loss attributable to Valero stockholders of $1.4 billion for 2020. The increase of $2.4 billion was primarily due to higher operating income of $3.7 billion, partially offset by higher income tax expense of $1.2 billion. The details of our operating income (loss) and adjusted operating income (loss) by segment and in total are reflected below. Adjusted operating income (loss) excludes the adjustments reflected in the tables in note (e) on page 51.
Year Ended December 31,
20212020Change
Refining segment:
Operating income (loss)$1,862 $(1,342)$3,204 
Adjusted operating income (loss)1,945 (1,105)3,050 
Renewable Diesel segment:
Operating income709 638 71 
Adjusted operating income712 638 74 
Ethanol segment:
Operating income (loss)473 (69)542 
Adjusted operating income (loss)522 (36)558 
Total company:
Operating income (loss)2,130 (1,579)3,709 
Adjusted operating income (loss)2,265 (1,309)3,574 
While our operating income increased by $3.7 billion in 2021 compared to 2020, adjusted operating income increased by $3.6 billion primarily due to the following:

Refining segment. Refining segment adjusted operating income increased by $3.1 billion primarily due to higher gasoline and distillate (primarily diesel) margins and higher throughput volumes, partially offset by the higher cost of compliance credits, lower discounts on crude oils, and estimated excess energy costs arising from Winter Storm Uri.

Renewable Diesel segment. Renewable Diesel segment adjusted operating income increased by $74 million primarily due to higher renewable diesel prices and higher sales volumes, partially offset by 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).

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Ethanol segment. Ethanol segment adjusted operating income increased by $558 million primarily due to higher ethanol and corn related co-product prices and higher production volumes, partially offset by higher corn prices and estimated excess energy costs arising from Winter Storm Uri.
Outlook
As previously discussed, many uncertainties remain with respect to the COVID-19 pandemic, and while it is difficult to predict the ultimate economic impacts that the pandemic will have on us and how quickly we can (or ultimately will) fully recover once the pandemic subsides, we have noted several factors below that have impacted or may impact our results of operations during the first quarter of 2022.

Gasoline and diesel demand has returned to pre-pandemic levels and is expected to follow typical seasonal patterns. Jet fuel demand continues to improve slowly but remains below pre-pandemic levels.

Sour crude oil discounts are expected to continue to improve as OPEC increases its production of sour crude oils in response to anticipated continued growth in global crude oil demand.

Renewable diesel margins are expected to moderate from the levels achieved in 2021. Following the start-up of the expansion of the DGD Plant in the fourth quarter of 2021, renewable diesel production capacity increased by 410 million gallons per year, from 290 million gallons to 700 million gallons per year.

Ethanol margins are expected to decline from the record high levels achieved in 2021 as ethanol inventory levels rise throughout the U.S. market.


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RESULTS OF OPERATIONS

The following tables, including the reconciliations of non-GAAP financial measures to their most directly comparable GAAP financial measures in note (e), 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 50 through 53.

Financial Highlights by Segment and Total Company
(millions of dollars)
Year Ended December 31, 2021
RefiningRenewable
Diesel
EthanolCorporate
and
Eliminations
Total
Revenues:
Revenues from external customers$106,947 $1,874 $5,156 $— $113,977 
Intersegment revenues14 468 433 (915)— 
Total revenues106,961 2,342 5,589 (915)113,977 
Cost of sales:
Cost of materials and other (a)97,759 1,438 4,428 (911)102,714 
Operating expenses (excluding depreciation and
amortization expense reflected below) (a)
5,088 134 556 (2)5,776 
Depreciation and amortization expense2,169 58 131 — 2,358 
Total cost of sales105,016 1,630 5,115 (913)110,848 
Other operating expenses83 — 87 
General and administrative expenses (excluding
depreciation and amortization expense reflected
below)
— — — 865 865 
Depreciation and amortization expense— — — 47 47 
Operating income by segment$1,862 $709 $473 $(914)2,130 
Other income, net (c)16 
Interest and debt expense, net of capitalized
interest
(603)
Income before income tax expense1,543 
Income tax expense (d)255 
Net income1,288 
Less: Net income attributable to noncontrolling
interests
358 
Net income attributable to
Valero Energy Corporation stockholders
$930 



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Financial Highlights by Segment and Total Company (continued)
(millions of dollars)
Year Ended December 31, 2020
RefiningRenewable
Diesel
EthanolCorporate
and
Eliminations
Total
Revenues:
Revenues from external customers
$60,840 $1,055 $3,017 $— $64,912 
Intersegment revenues
212 226 (446)— 
Total revenues
60,848 1,267 3,243 (446)64,912 
Cost of sales:
Cost of materials and other (b)56,093 500 2,784 (444)58,933 
Lower of cost or market (LCM) inventory
valuation adjustment
(19)— — — (19)
Operating expenses (excluding depreciation and
amortization expense reflected below)
3,944 85 406 — 4,435 
Depreciation and amortization expense
2,138 44 121 — 2,303 
Total cost of sales
62,156 629 3,311 (444)65,652 
Other operating expenses34 — — 35 
General and administrative expenses (excluding
depreciation and amortization expense reflected
below)
— — — 756 756 
Depreciation and amortization expense— — — 48 48 
Operating income (loss) by segment$(1,342)$638 $(69)$(806)(1,579)
Other income, net132 
Interest and debt expense, net of capitalized
interest
(563)
Loss before income tax benefit(2,010)
Income tax benefit(903)
Net loss(1,107)
Less: Net income attributable to noncontrolling
interests
314 
Net loss attributable to
Valero Energy Corporation stockholders
$(1,421)



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Average Market Reference Prices and Differentials
Year Ended December 31,
20212020
Refining
Feedstocks (dollars per barrel)
Brent crude oil$70.79 $43.15 
Brent less West Texas Intermediate (WTI) crude oil2.83 3.84 
Brent less Alaska North Slope (ANS) crude oil0.35 0.82 
Brent less LLS crude oil1.33 1.91 
Brent less Argus Sour Crude Index (ASCI) crude oil3.92 3.26 
Brent less Maya crude oil6.48 6.89 
LLS crude oil69.46 41.24 
LLS less ASCI crude oil2.59 1.35 
LLS less Maya crude oil5.15 4.98 
WTI crude oil67.97 39.31 
Natural gas (dollars per million British Thermal Units)7.85 2.00
Products (dollars per barrel)
U.S. Gulf Coast:
Conventional Blendstock of Oxygenate Blending (CBOB)
gasoline less Brent
13.66 2.97 
Ultra-low-sulfur (ULS) diesel less Brent13.75 7.11 
Propylene less Brent(6.43)(12.12)
CBOB gasoline less LLS14.99 4.88 
ULS diesel less LLS15.08 9.02 
Propylene less LLS(5.10)(10.22)
U.S. Mid-Continent:
CBOB gasoline less WTI17.36 6.96 
ULS diesel less WTI18.70 12.11 
North Atlantic:
CBOB gasoline less Brent16.89 5.50 
ULS diesel less Brent15.91 9.17 
U.S. West Coast:
CARBOB 87 gasoline less ANS24.17 10.33 
CARB diesel less ANS17.60 12.42 
CARBOB 87 gasoline less WTI26.64 13.36 
CARB diesel less WTI20.08 15.44 

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Average Market Reference Prices and Differentials, (continued)
Year Ended December 31,
20212020
Renewable Diesel
New York Mercantile Exchange ULS diesel
(dollars per gallon)
$2.07 $1.25 
Biodiesel RIN (dollars per RIN)1.49 0.64 
California LCFS (dollars per metric ton)177.78 200.12 
Chicago Board of Trade (CBOT) soybean oil (dollars per pound)0.58 0.32 
Ethanol
CBOT corn (dollars per bushel)5.80 3.64 
New York Harbor ethanol (dollars per gallon)2.49 1.36 

2021 Compared to 2020
Total Company, Corporate, and Other
The following table includes selected financial data for the total company, corporate, and other for 2021 and 2020. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.
Year Ended December 31,
20212020Change
Revenues$113,977 $64,912 $49,065 
Cost of materials and other (see notes (a) and (b))102,714 58,933 43,781 
Operating expenses (excluding depreciation and
amortization expense) (see note (a))
5,776 4,435 1,341 
Last-in, first-out (LIFO) liquidation adjustment (see note (b))— 224 (224)
General and administrative expenses (excluding depreciation
and amortization expense)
865 756 109 
Operating income (loss)2,130 (1,579)3,709 
Adjusted operating income (loss) (see note (e))2,265 (1,309)3,574 
Other income, net (see note (c))16 132 (116)
Interest and debt expense, net of capitalized interest(603)(563)(40)
Income tax expense (benefit) (see note (d))255 (903)1,158 
Net income attributable to noncontrolling interests 358 314 44 

Revenues increased by $49.1 billion in 2021 compared to 2020 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 materials and other of $43.8 billion primarily due to increases in crude oil and other feedstock costs; higher operating expenses (excluding depreciation and amortization expense) of $1.3 billion, which includes the impact of estimated excess energy costs of $532 million arising out of Winter Storm Uri; and an increase in general and administrative expenses (excluding depreciation and amortization expense) of $109 million primarily due to an increase in certain employee compensation expenses of $69 million, higher advertising expenses of $15 million, and higher charitable contributions of $12 million. The increase in cost of materials and other was partially offset by the favorable effect from a $224 million LIFO liquidation adjustment in 2020.

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These changes resulted in a $3.7 billion increase in operating income, from an operating loss of $1.6 billion in 2020 to operating income of $2.1 billion in 2021.

Adjusted operating income increased by $3.6 billion, from an adjusted operating loss of $1.3 billion in 2020 to adjusted operating income of $2.3 billion in 2021. The components of this $3.6 billion increase in adjusted operating income are discussed by segment in the segment analyses that follow.

“Other income, net” decreased by $116 million in 2021 compared to 2020 primarily due to a charge of $193 million from the early redemption and retirement of debt and an asset impairment loss of $24 million resulting from the cancellation of a pipeline extension project by our nonconsolidated joint venture, Diamond Pipeline LLC, partially offset by the gain of $62 million on the sale of a 24.99 percent membership interest in MVP Terminalling, LLC (MVP). These items occurred in 2021 and are more fully described in note (c).

“Interest and debt expense, net of capitalized interest” increased by $40 million in 2021 compared to 2020 primarily due to the effect of 2021 reflecting a full year of interest expense associated with $4.0 billion aggregate principal amount of debt we issued in public debt offerings in 2020. See Note 10 of Notes to Consolidated Financial Statements for additional information.

Income tax expense increased by $1.2 billion in 2021 compared to 2020 primarily as a result of higher income before income tax expense. In addition, the increase in income tax expense was impacted by a $64 million charge, which resulted from certain statutory tax rate changes in 2021, as discussed in note (d), as well as a higher benefit in 2020 of $304 million associated with the U.S. federal tax net operating loss for 2020, which was carried back to 2015 when the U.S. federal statutory rate was 35 percent. See Note 16 of Notes to Consolidated Financial Statements for additional information on these tax matters.

Net income attributable to noncontrolling interests increased by $44 million in 2021 compared to 2020 primarily due to higher earnings associated with DGD, a consolidated joint venture. See Note 13 of 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 2021 and 2020. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.
Year Ended December 31,
20212020Change
Operating income (loss)$1,862 $(1,342)$3,204 
Adjusted operating income (loss) (see note (e))1,945 (1,105)3,050 
Refining margin (see note (e))$9,202 $4,977 $4,225 
Operating expenses (excluding depreciation and amortization
expense reflected below) (see note (a))
5,088 3,944 1,144 
Depreciation and amortization expense2,169 2,138 31 
Throughput volumes (thousand BPD) (see note (f))2,787 2,555 232 


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Refining segment operating income increased by $3.2 billion in 2021; however, Refining segment adjusted operating income, which excludes the adjustments in the table in note (e), increased by $3.1 billion in 2021 compared to 2020. 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 $4.2 billion in 2021 compared to 2020.

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 44 reflects market reference prices and differentials that we believe had a material impact on the change in our Refining segment margin in 2021 compared to 2020.

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

An increase in gasoline margins had a favorable impact of approximately $3.8 billion.

An increase in distillate (primarily diesel) margins had a favorable impact of approximately $1.7 billion.

An increase in throughput volumes of 232,000 BPD had a favorable impact of approximately $766 million. As noted above in “OVERVIEW AND OUTLOOK—Overview—Business Operations Update,” we continued to recover from the negative impacts of the COVID-19 pandemic throughout 2021 and have increased production of most of our products at our refineries to align with improvements in demand.

An increase in the cost of credits (primarily RINs) needed to comply with the Renewable and Low-Carbon Fuels Blending Programs had an unfavorable impact of $1.3 billion.

Lower discounts on crude oils had an unfavorable impact of approximately $710 million.
Refining segment operating expenses (excluding depreciation and amortization expense) increased by $1.1 billion primarily due to higher energy costs of $845 million, which includes the effect of estimated excess energy costs arising out of Winter Storm Uri of $478 million (see note (a)), and an increase in certain employee compensation expenses of $138 million.


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Renewable Diesel Segment Results
The following table includes selected financial and operating data of our Renewable Diesel segment for 2021 and 2020. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.
Year Ended December 31,
20212020Change
Operating income$709 $638 $71 
Adjusted operating income (see note (e))712 638 74 
Renewable Diesel margin (see note (e))$904 $767 $137 
Operating expenses (excluding depreciation and amortization
expense reflected below)
134 85 49 
Depreciation and amortization expense58 44 14 
Sales volumes (thousand gallons per day) (see note (f))1,014 787 227 

Renewable Diesel segment operating income increased by $71 million in 2021; however, Renewable Diesel segment adjusted operating income, which excludes the adjustment in the table in note (e), increased by $74 million in 2021 compared to 2020. The components of this increase in the adjusted results, along with the reasons for the changes in those components, are outlined below.

Renewable Diesel segment margin increased by $137 million in 2021 compared to 2020.

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 45 reflects market reference prices that we believe had a material impact on the change in our Renewable Diesel segment margin in 2021 compared to 2020.

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

Higher renewable diesel prices had a favorable impact of approximately $768 million.

An increase in sales volumes of 227,000 gallons per day had a favorable impact of approximately $202 million. The increase in sales volume 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.

An increase in the cost of the feedstocks we process had an unfavorable impact of approximately $731 million.

Price risk management activities had an unfavorable impact of $80 million. We recognized a hedge loss of $46 million in 2021 compared to a hedge gain of $34 million in 2020.

Renewable Diesel segment operating expenses (excluding depreciation and amortization expense) increased by $49 million primarily due to higher chemical and catalyst costs of $14 million,

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higher outside services of $11 million, an increase in certain employee compensation expenses of $11 million, and higher energy costs of $4 million.

Ethanol Segment Results
The following table includes selected financial and operating data of our Ethanol segment for 2021 and 2020. The selected financial data is derived from the Financial Highlights by Segment and Total Company tables, unless otherwise noted.
Year Ended December 31,
20212020Change
Operating income (loss)$473 $(69)$542 
Adjusted operating income (loss) (see note (e))522 (36)558 
Ethanol margin (see note (e))$1,161 $461 $700 
Operating expenses (excluding depreciation and amortization
expense reflected below) (see note (a))
556 406 150 
Depreciation and amortization expense131 121 10 
Production volumes (thousand gallons per day) (see note (f))3,949 3,588 361 

Ethanol segment operating income increased by $542 million in 2021; however, Ethanol segment adjusted operating income, which excludes the adjustments in the table in note (e), increased by $558 million in 2021 compared to 2020. The components of this increase in the adjusted results, along with the reasons for the changes in these components, are outlined below.

Ethanol segment margin increased by $700 million in 2021 compared to 2020.

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 45 reflects market reference prices that we believe had a material impact on the change in our Ethanol segment margin in 2021 compared to 2020.

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

Higher ethanol prices had a favorable impact of approximately $1.4 billion.

Higher prices on the co-products that we produce, primarily DDGs, had a favorable impact of approximately $270 million.

An increase in production volumes of 361,000 gallons per day had a favorable impact of approximately $114 million. As noted above in “OVERVIEW AND OUTLOOK—Overview—Business Operations Update,” we continued to recover from the impacts of the COVID-19 pandemic throughout 2021 and have increased the aggregate production of ethanol across our plants to align with improvements in demand.

Higher corn prices had an unfavorable impact of approximately $1.1 billion.


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Ethanol segment operating expenses (excluding depreciation and amortization expense) increased by $150 million primarily due to higher energy costs, which includes the effect of estimated excess energy costs arising out of Winter Storm Uri of $54 million (see note (a)).

________________________
The following notes relate to references on pages 42 through 50.

(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 income for the year ended December 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 year ended December 31, 2021 as follows (in millions):

RefiningRenewable
Diesel
EthanolTotal
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)Cost of materials and other for the year ended December 31, 2020 includes a charge of $224 million related to the liquidation of LIFO inventory layers attributable to our Refining and Ethanol segments. Our inventory levels decreased throughout 2020 due to lower production resulting from lower demand for our products caused by the negative economic impacts of COVID-19 on our business. As a result, our inventory levels at December 31, 2020 were below their December 31, 2019 levels. Of the $224 million charge recognized for the year ended December 31, 2020, $222 million and $2 million is attributable to our Refining and Ethanol segments, respectively.

(c)“Other income, net” for the year ended December 31, 2021 includes the following:

a gain of $62 million on the sale of a 24.99 percent membership interest in MVP, a nonconsolidated joint venture with a subsidiary of Magellan Midstream Partners, L.P., for $270 million;

a charge of $24 million 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; and

a charge of $193 million from the early redemption and retirement of approximately $2.1 billion aggregate principal amount of various series of our senior notes during the year ended December 31, 2021.

(d)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 year ended December 31, 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 during the year ended December 31, 2021, which represents the net increase in our deferred tax liabilities resulting from the changes in the tax rates.


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(e)We use certain financial measures (as noted below) that are not defined under GAAP and are considered to be non-GAAP financial 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 through the exclusion of 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 financial measures are as follows:

Refining margin is defined as Refining segment operating income (loss) excluding the LIFO liquidation adjustment, the LCM inventory valuation adjustment, operating expenses (excluding depreciation and amortization expense), depreciation and amortization expense, and other operating expenses, as reflected in the table below.
Year Ended December 31,
20212020
Reconciliation of Refining operating income (loss)
to Refining margin
Refining operating income (loss)$1,862 $(1,342)
Adjustments:
LIFO liquidation adjustment (see note (b))— 222 
LCM inventory valuation adjustment— (19)
Operating expenses (excluding depreciation and
amortization expense) (see note (a))
5,088 3,944 
Depreciation and amortization expense
2,169 2,138 
Other operating expenses83 34 
Refining margin$9,202 $4,977 

Renewable Diesel margin is defined as Renewable Diesel 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.

Year Ended December 31,

20212020
Reconciliation of Renewable Diesel operating income
to Renewable Diesel margin
Renewable Diesel operating income$709 $638 
Adjustments:
Operating expenses (excluding depreciation and
amortization expense)
134 85 
Depreciation and amortization expense58 44 
Other operating expenses— 
Renewable Diesel margin$904 $767 


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Ethanol margin is defined as Ethanol segment operating income (loss) excluding the LIFO liquidation adjustment, operating expenses (excluding depreciation and amortization expense), depreciation and amortization expense, and other operating expenses, as reflected in the table below.
Year Ended December 31,
20212020
Reconciliation of Ethanol operating income (loss)
to Ethanol margin
Ethanol operating income (loss)$473 $(69)
Adjustments:
LIFO liquidation adjustment (see note (b))— 
Operating expenses (excluding depreciation and
amortization expense) (see note (a))
556 406 
Depreciation and amortization expense131 121 
Other operating expenses
Ethanol margin
$1,161 $461 

Adjusted Refining operating income (loss) is defined as Refining segment operating income (loss) excluding the LIFO liquidation adjustment, the LCM inventory valuation adjustment, and other operating expenses, as reflected in the table below.
Year Ended December 31,
20212020
Reconciliation of Refining operating income (loss)
to adjusted Refining operating income (loss)
Refining operating income (loss)$1,862 $(1,342)
Adjustments:
LIFO liquidation adjustment (see note (b))— 222 
LCM inventory valuation adjustment— (19)
Other operating expenses83 34 
Adjusted Refining operating income (loss)$1,945 $(1,105)

Adjusted Renewable Diesel operating income is defined as Renewable Diesel segment operating income excluding other operating expenses, as reflected in the table below.
Year Ended December 31,
20212020
Reconciliation of Renewable Diesel operating income
to adjusted Renewable Diesel operating income
Renewable Diesel operating income$709 $638 
Adjustment: Other operating expenses— 
Adjusted Renewable Diesel operating income$712 $638 


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Adjusted Ethanol operating income (loss) is defined as Ethanol segment operating income (loss) excluding the changes in estimated useful lives of two of our ethanol plants, the LIFO liquidation adjustment, and other operating expenses, as reflected in the table below.
Year Ended December 31,
20212020
Reconciliation of Ethanol operating income (loss)
to adjusted Ethanol operating income (loss)
Ethanol operating income (loss)$473 $(69)
Adjustments:
Changes in estimated useful lives of two ethanol plants48 30 
LIFO liquidation adjustment (see note (b))— 
Other operating expenses
Adjusted Ethanol operating income (loss)$522 $(36)

Adjusted operating income (loss) is defined as total company operating income (loss) excluding the LIFO liquidation adjustment, the LCM inventory valuation adjustment, the changes in estimated useful lives of two of our ethanol plants, and other operating expenses, as reflected in the table below.
Year Ended December 31,
20212020
Reconciliation of total company operating income (loss)
to adjusted operating income (loss)
Total company operating income (loss)$2,130 $(1,579)
Adjustments:
LIFO liquidation adjustment (see note (b))— 224 
LCM inventory valuation adjustment— (19)
Changes in estimated useful lives of two ethanol plants48 30 
Other operating expenses87 35 
Adjusted operating income (loss)$2,265 $(1,309)

(f)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.


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LIQUIDITY AND CAPITAL RESOURCES

Overview
Our liquidity was positively impacted by the cash generated by our operations in 2021 notwithstanding the lingering impacts of the COVID-19 pandemic, excess energy costs arising out of Winter Storm Uri, and the effects of Hurricane Ida, as described in “OVERVIEW AND OUTLOOKOverviewBusiness Operations Update.”

We completed debt reduction and refinancing transactions in 2021 that reduced our long-term debt by $1.3 billion. Our refinancing transactions included the issuance of $500 million of 2.800 percent Senior Notes due December 1, 2031 and $950 million of 3.650 percent Senior Notes due December 1, 2051. Proceeds from these issuances and cash on hand were used to repurchase and retire, or redeem approximately $2.1 billion of various series of our senior notes. In addition, we redeemed our $575 million Floating Rate Senior Notes due September 15, 2023.

In February 2022, we completed additional debt reduction and refinancing transactions that reduced our long-term debt by an additional $750 million. These additional refinancing transactions included the issuance of $650 million of 4.000 percent Senior Notes due June 1, 2052. Proceeds from this issuance and cash on hand were used to repurchase and retire approximately $1.4 billion of various series of our senior notes.

Our Liquidity
Our liquidity consisted of the following as of December 31, 2021 (in millions):
Available capacity from our committed facilities (a):
Valero Revolver$3,712 
Canadian Revolver (b)115 
Accounts receivable sales facility1,300 
Letter of credit facility50 
Total available capacity5,177 
Cash and cash equivalents (c)4,086 
Total liquidity
$9,263 
_______________________
(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 10 of Notes to Consolidated Financial Statements, the availability under our Canadian Revolver as of December 31, 2021 in Canadian dollars was C$145 million.
(c)Excludes $36 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 10 of Notes to Consolidated Financial Statements.


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Our debt and financing agreements do not have rating agency triggers that would automatically require us to post additional collateral. However, in the event of certain downgrades of our senior unsecured debt by the ratings agencies, the cost of borrowings under some of our bank credit facilities and other arrangements may increase. As of December 31, 2021, all of our ratings on our senior unsecured debt, including debt guaranteed by us, were at or above investment grade level as follows:
Rating AgencyRating
Moody’s Investors ServiceBaa2 (negative outlook)
Standard & Poor’s Ratings ServicesBBB (stable outlook)
Fitch RatingsBBB (stable outlook)

We cannot provide assurance that these ratings will remain in effect for any given period of time or that one or more of these ratings will not be lowered or withdrawn entirely by a rating agency. We note that these credit ratings are not recommendations to buy, sell, or hold our securities. Each rating should be evaluated independently of any other rating. Any future reduction below investment grade or withdrawal of one or more of our credit ratings could have a material adverse impact on our ability to obtain short- and long-term financing and the cost of such financings.

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):
Year Ended December 31,
20212020
Cash flows provided by (used in):
Operating activities$5,859 $948 
Investing activities(2,159)(2,425)
Financing activities:
Debt issuances and borrowings1,828 4,570 
Repayments of debt and finance lease obligations
(including premiums on early redemption and
retirement of debt)
(3,214)(495)
Other financing activities(1,460)(1,998)
Financing activities(2,846)2,077 
Effect of foreign exchange rate changes on cash(45)130 
Net increase in cash and cash equivalents$809 $730 

Cash Flows for the Year Ended December 31, 2021
In 2021, we used $5.9 billion of cash generated by our operations and $1.8 billion in debt issuances and borrowings to make $2.2 billion of investments in our business, repay $3.2 billion of debt and finance lease obligations (including premiums on the early redemption and retirement of debt), fund $1.5 billion

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of other financing activities, and increase our available cash on hand by $809 million. The debt issuances, borrowings, and repayments are described in Note 10 of Notes to Consolidated Financial Statements.

As previously noted, our operations generated $5.9 billion of cash in 2021, driven primarily by noncash charges to income of $2.3 billion, a positive change in working capital of $2.2 billion, and net income of $1.3 billion. Noncash charges primarily included $2.4 billion of depreciation and amortization expense and a $193 million loss on the early redemption and retirement of debt, partially offset by a $126 million deferred income tax benefit and a $62 million gain on the sale of a partial interest in MVP, as described in Note 13 of 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 19 of 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 $2.2 billion consisted of $2.5 billion in capital investments, as defined below under “Capital Investments,” of which $1.0 billion related to self-funded capital investments by DGD and $110 million related to capital expenditures of VIEs other than DGD, partially offset by $270 million of proceeds received from the sale of a partial interest in MVP, as described in Note 13 of Notes to Consolidated Financial Statements.

Other financing activities of $1.5 billion consisted primarily of $1.6 billion in dividend payments and $27 million for the purchase of common stock for treasury in connection with stock-based compensation plans, partially offset by $189 million in contributions from noncontrolling interests.

Cash Flows for the Year Ended December 31, 2020
In 2020, we used $948 million of cash generated by our operations and $4.6 billion in debt issuances and borrowings to make $2.4 billion of investments in our business, repay $495 million of debt and finance lease obligations, fund $2.0 billion of other financing activities, and increase our available cash on hand by $730 million. The debt issuances, borrowings, and repayments are described in Note 10 of Notes to Consolidated Financial Statements.

As previously noted, our operations generated $948 million of cash in 2020, which resulted from noncash charges to income of $2.4 billion, partially offset by an unfavorable change in working capital of $345 million. Noncash charges primarily included $2.4 billion of depreciation and amortization expense and $158 million of deferred income tax expense. The change in working capital was affected primarily by a $740 million use of cash4 resulting from the rapid decline in market prices of refined petroleum products and crude oil as a result of the negative economic effects of the COVID-19 pandemic that impacted our receivables and accounts payable. This use of cash, along with other uses of cash, were partially offset by a $1.0 billion source of cash driven by a reduction in inventory levels on hand. Details regarding the components of the change in working capital, along with the reasons for the changes in those components, are described in Note 19 of 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 $2.4 billion consisted of $2.5 billion in capital investments, of which $548 million related to self-funded capital investments by DGD and $251 million related to capital expenditures of VIEs other than DGD.

4 Represents the net cash flow change in “receivables, net” of $3.3 billion and accounts payable of $4.1 billion during the year ended December 31, 2020, as described in Note 19 of Notes to Consolidated Financial Statements.

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Other financing activities of $2.0 billion consisted primarily of $1.6 billion in dividend payments, $208 million to pay distributions to noncontrolling interests, and $156 million for the purchase of common stock for treasury.

Our Capital Resources
Our material cash requirements as of December 31, 2021 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 75. Capital investments exclude strategic investments or acquisitions, if any.

We also identify our capital investments by the nature of the project with which the expenditure is associated as follows:

Sustaining capital investments are generally associated with projects that are expected to extend the lives of our property assets, sustain their operating capabilities and safety (including deferred turnaround and catalyst cost expenditures), or comply with regulatory requirements. Regulatory compliance capital investments are generally associated with projects that are incurred to comply with governmental regulatory requirements, such as requirements to reduce emissions and prohibited elements from our products.

Growth capital investments, including low-carbon growth capital investments that support the development and growth of our low-carbon renewable diesel and ethanol businesses, are generally associated with projects for the construction of new property assets that are expected to enhance our profitability and cash-generating capabilities, including investments in nonconsolidated joint ventures.


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We have developed an extensive multi-year capital investment program, which we update and revise based on changing internal and external factors. The following table reflects our expected capital investments for the year ending December 31, 2022 by nature of the project and reportable segment, along with historical amounts for the years ended December 31, 2021 and 2020 (in millions). The following table also reflects capital investments attributable to Valero, which is a non-GAAP measure that we define and reconcile to capital investments below under “Capital Investments Attributable to Valero.”
Year Ending
December 31,
2022 (a)
Year Ended
December 31,
20212020
Capital investments by nature of the project (b):
Sustaining capital investments$1,290 $1,129 $1,126 
Growth capital investments:
Low-carbon growth capital investments760 1,042 566 
Other growth capital investments340 296 798 
Total growth capital investments1,100 1,338 1,364 
Total capital investments$2,390 $2,467 $2,490 
Capital investments by segment:
Refining$1,540 $1,378 $1,887 
Renewable Diesel780 1,048 548 
Ethanol40 15 21 
Corporate30 26 34 
Total capital investments2,390 2,467 2,490 
Adjustments:
Renewable Diesel capital investments attributable
to the other joint venture member in DGD
(390)(524)(274)
Capital expenditures of other VIEs— (110)(251)
Capital investments attributable to Valero$2,000 $1,833 $1,965 
________________________
(a)All expected amounts for the year ending December 31, 2022 exclude capital expenditures that the consolidated VIEs other than DGD may incur because we do not operate those VIEs.
(b)Capital investments attributable to Valero by nature of the project are as follows (in millions):
Year Ending
December 31,
2022
Year Ended
December 31,
20212020
Sustaining capital investments$1,275 $1,105 $1,110 
Growth capital investments:
Low-carbon growth capital investments385 538 308 
Other growth capital investments340 190 547 
Total growth capital investments725 728 855 
Total capital investments$2,000 $1,833 $1,965 


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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. 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. See “ITEMS 1. and 2. BUSINESS AND PROPERTIES—OUR COMPREHENSIVE LIQUID FUELS STRATEGY—Our Low-Carbon Projects” for a description of our low-carbon projects.

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 13 of 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.

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Year Ended December 31,
20212020
Reconciliation of capital investments
to capital investments attributable to Valero
Capital expenditures (excluding VIEs)$513 $1,014 
Capital expenditures of VIEs:
DGD1,042 523 
Other VIEs110 251 
Deferred turnaround and catalyst cost expenditures
(excluding VIEs)
787 623 
Deferred turnaround and catalyst cost expenditures
of DGD
25 
Investments in nonconsolidated joint ventures54 
Capital investments2,467 2,490 
Adjustments:
DGD’s capital investments attributable to our joint
venture member
(524)(274)
Capital expenditures of other VIEs(110)(251)
Capital investments attributable to Valero$1,833 $1,965 
Contractual Obligations
Below is a summary of our contractual obligations (in millions) as of December 31, 2021 that are expected to be paid within the next year and thereafter. These obligations are reflected in our balance sheets, except (i) the interest payments related to debt obligations, operating lease liabilities, and finance lease obligations and (ii) purchase obligations.
Payments Due by Period
Short-TermLong-TermTotal
Debt obligations (a)$1,110 $10,926 $12,036 
Interest payments related to debt obligations (b)527 5,868 6,395 
Operating lease liabilities (c)351 1,157 1,508 
Finance lease obligations (c)228 2,476 2,704 
Other long-term liabilities (d)— 2,464 2,464 
Purchase obligations (e)23,211 8,669 31,880 
________________________
(a)Debt obligations are described in Note 10 of Notes to Consolidated Financial Statements, which is incorporated by reference into this item and includes a maturity analysis of our debt. Debt obligations exclude amounts related to net unamortized debt issuance costs and other.
(b)Interest payments related to debt obligations are the expected payments based on information available as of December 31, 2021.
(c)Operating lease liabilities and finance lease obligations are described in Note 6 of Notes to Consolidated Financial Statements, which is incorporated by reference into this item and includes maturity analyses of remaining minimum lease payments. Operating lease liabilities and finance lease obligations reflected in this table include related interest expense.
(d)Other long-term liabilities are described in Note 9 of Notes to Consolidated Financial Statements, which is incorporated by reference into this item. Other long-term liabilities exclude amounts related to the long-term portion of operating lease liabilities that are separately presented above.
(e)Purchase obligations are described in Note 11 of Notes to Consolidated Financial Statements, which is incorporated by reference into this item. Purchase obligations are based on (i) fixed or minimum quantities to be purchased and (ii) fixed or estimated prices to be paid based on current market conditions.

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The amounts outstanding associated with the debt instruments described below are reflected in current portion of debt and finance lease obligations in our balance sheet as of December 31, 2021, and they are also included in the table above in debt obligations – short-term. However, the final cash flows for these instruments cannot be predicted with certainty at this time for the reasons noted below.

The $300 million of 4.00 percent Gulf Opportunity Zone Revenue Bonds Series 2010 (GO Zone Bonds) are due December 1, 2040, but they 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. However, we have the option to effectuate a remarketing of these bonds, and we currently expect to remarket them effective on or soon after the Mandatory Tender Date or otherwise refinance them, but we cannot provide any assurance that we will be able to do so.

The IEnova Revolver, as defined and described in Note 10 of Notes to Consolidated Financial Statements, is subject to repayment on demand; however, we do not expect the lender to demand repayment during the next 12 months.

We have not entered into any transactions, agreements, or other contractual arrangements that would result in off-balance sheet liabilities.

Other Matters Impacting Liquidity and Capital Resources
Stock Purchase Program
On January 23, 2018, our Board authorized the 2018 Program for the purchase of our outstanding common stock. As of December 31, 2021, we had $1.4 billion available for purchase under the 2018 Program, which has no expiration date. We have not purchased any shares of our common stock under the 2018 Program since mid-March 2020, and we will evaluate the timing of repurchases when appropriate. We have no obligation to make purchases under this program.

Pension Plan Funding
We plan to contribute $116 million to our pension plans and $22 million to our other postretirement benefit plans during 2022. See Note 14 of Notes to Consolidated Financial Statements for a discussion of our employee benefit plans.

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 9 of Notes to Consolidated Financial Statements for disclosure of our environmental liabilities.

Tax Matters
During 2020, we deferred payment on $250 million of value-added and motor fuel taxes that were otherwise due in 2020 as permitted by various taxing authorities to help companies address the negative impacts of the COVID-19 pandemic. We paid $220 million of the deferred amount in 2021 and the remaining $30 million in January 2022.


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Cash Held by Our Foreign Subsidiaries
As of December 31, 2021, $3.3 billion of our cash and cash equivalents was held by our foreign subsidiaries. Cash held by our foreign subsidiaries can be repatriated to us without any U.S. federal income tax consequences on dividends, 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 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. See also “ITEM 1A. RISK FACTORS—Risks Related to Our Business, Industry, and Operations—Legal, regulatory, and political matters and developments regarding climate change, GHG or other air emissions, fuel efficiency, or the environment may decrease the demand for our petroleum-based products and could adversely affect our performance.”


CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The following summary provides further information about our critical accounting policies that involve critical accounting estimates, and should be read in conjunction with Note 1 of Notes to Consolidated Financial Statements, which summarizes our significant accounting policies. The following accounting policies involve estimates that are considered critical due to the level of subjectivity and judgment involved, as well as the impact on our financial position and results of operations. We believe that all of our estimates are reasonable. Unless otherwise noted, estimates of the sensitivity to earnings that would result from changes in the assumptions used in determining our estimates is not practicable due to the number of assumptions and contingencies involved, and the wide range of possible outcomes.

Unrecognized Tax Benefits
We take tax positions in our tax returns from time to time that ultimately may not be allowed by the relevant taxing authorities. When we take such positions, we evaluate the likelihood of sustaining those positions and determine the amount of tax benefit arising from such positions, if any, that should be recognized in our financial statements. Tax benefits not recognized by us are recorded as a liability for unrecognized tax benefits, which represents our potential future obligation to various taxing authorities if the tax positions are not sustained.

The evaluation of tax positions and the determination of the benefit arising from such positions that are recognized in our financial statements requires us to make significant judgments and estimates based on an analysis of complex tax laws and regulations and related interpretations. These judgments and

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estimates are subject to change due to many factors, including the progress of ongoing tax audits, case law, and changes in legislation.

Details of our liability for unrecognized tax benefits, along with other information about our unrecognized tax benefits, are included in Note 16 of Notes to Consolidated Financial Statements.

Impairment of Long-Lived Assets
Long-lived assets (primarily property, plant, and equipment) are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. A long-lived asset is not recoverable if its carrying amount exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. If a long-lived asset is not recoverable, an impairment loss is recognized for the amount by which the carrying amount of the long-lived asset exceeds its fair value, with fair value determined based on discounted estimated net cash flows or other appropriate methods.

In order to test for recoverability, we must make estimates of projected cash flows related to the asset being evaluated. Such estimates include, but are not limited to, assumptions about future sales volumes, commodity prices, operating costs, margins, the use or disposition of the asset, the asset’s estimated remaining useful life, and future expenditures necessary to maintain the asset’s existing service potential in light of existing and expected regulations. Due to the significant subjectivity of the assumptions used to test for recoverability, changes in market conditions could result in significant impairment charges in the future, thus affecting our earnings.

As of December 31, 2021, we determined there was no impairment of our long-lived assets.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

COMMODITY PRICE RISK

We are exposed to market risks related to the volatility in the price of feedstocks (primarily crude oil, waste and renewable feedstocks, and corn), the products we produce, and natural gas used in our operations. To reduce the impact of price volatility on our results of operations and cash flows, we use commodity derivative instruments, including futures and options to manage the volatility of:

inventories and firm commitments to purchase inventories generally for amounts by which our current year inventory levels (determined on a LIFO basis) differ from our previous year-end LIFO inventory levels; and

forecasted purchases and/or product sales at existing market prices that we deem favorable.

Our positions in commodity derivative instruments are monitored and managed on a daily basis by our risk control group to ensure compliance with our stated risk management policy that has been approved by our Board.

As of December 31, 2021 and 2020, the amount of gain or loss that would have resulted from a 10 percent increase or decrease in the underlying price for all of our commodity derivative instruments entered into for purposes other than trading with which we have market risk was not material. See Note 21 of Notes to Consolidated Financial Statements for notional volumes associated with these derivative contracts as of December 31, 2021.

COMPLIANCE PROGRAM PRICE RISK

We are exposed to market risk related to the volatility in the price of credits needed to comply with the Renewable and Low-Carbon Fuel Blending Programs. To manage this risk, we enter into contracts to purchase these credits. As of December 31, 2021 and 2020, the amount of gain or loss in the fair value of derivative instruments that would have resulted from a 10 percent increase or decrease in the underlying price of the contracts was not material. See Note 21 of Notes to Consolidated Financial Statements for a discussion about these blending programs.


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INTEREST RATE RISK

The following table provides information about our debt instruments (dollars in millions), the fair values of which are sensitive to changes in interest rates. Principal cash flows and related weighted-average interest rates by expected maturity dates are presented. See Note 10 of Notes to Consolidated Financial Statements for additional information related to our debt.
December 31, 2021 (a)
Expected Maturity Dates
2022 (b)(c)2023202420252026There-
after
TotalFair
Value
Fixed rate$300$— $169$1,374$1,726$7,637$11,206$12,838 
Average interest rate4.0 %— %1.2 %3.0 %3.9 %5.0 %4.5 %
Floating rate$810$20$— $— $— $— $830$830 
Average interest rate3.5 %3.9 %— %— %— %— %3.5 %
December 31, 2020 (a)
Expected Maturity Dates
2021 (c)2022 (b)202320242025There-
after
TotalFair
Value
Fixed rate$— $300$850$925$1,650$8,174$11,899$13,899 
Average interest rate— %4.0 %2.7 %1.2 %3.1 %5.1 %4.4 %
Floating rate$603$6$595$— $— $— $1,204$1,204 
Average interest rate3.9 %3.0 %1.4 %— %— %— %2.7 %
________________________
(a)Excludes unamortized discounts and debt issuance costs.
(b)See “ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—LIQUIDITY AND CAPITAL RESOURCES—Our Capital Resources—Contractual Obligations” for a discussion of the Mandatory Tender Date and maturity date of our GO Zone Bonds.
(c)Our floating rate debt included outstanding borrowings under the DGD Revolver, the DGD Loan Agreement, and the IEnova Revolver (each as defined and described in Note 10 of Notes to Consolidated Financial Statements). The respective lenders of these debt instruments do not have recourse against us.

FOREIGN CURRENCY RISK

We are exposed to exchange rate fluctuations on transactions related to our foreign operations that are denominated in currencies other than the local (functional) currencies of those operations. To manage our exposure to these exchange rate fluctuations, we often use foreign currency contracts. As of December 31, 2021 and 2020, the fair value of our foreign currency contracts was not material.

See Note 21 of Notes to Consolidated Financial Statements for a discussion about our foreign currency risk management activities.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate “internal control over financial reporting” (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) for Valero Energy Corporation. Our management evaluated the effectiveness of Valero’s internal control over financial reporting as of December 31, 2021. In its evaluation, management used the criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management believes that as of December 31, 2021, our internal control over financial reporting was effective based on those criteria.

Our independent registered public accounting firm has issued an attestation report on the effectiveness of our internal control over financial reporting, which begins on page 69 of this report.


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders
Valero Energy Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Valero Energy Corporation and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 22, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated

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financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of gross unrecognized tax benefits

As discussed in Note 16 to the consolidated financial statements, as of December 31, 2021, the Company has gross unrecognized tax benefits, excluding related interest and penalties, of $816 million. The Company’s tax positions are subject to examination by local taxing authorities and the resolution of such examinations may span multiple years. Due to the complexities inherent in the interpretation of income tax laws in domestic and foreign jurisdictions, it is uncertain whether some of the Company’s income tax positions will be sustained upon examination.

We identified the assessment of the Company’s gross unrecognized tax benefits as a critical audit matter. Complex auditor judgment was required in evaluating the Company’s interpretation of income tax laws and assessing the Company’s estimate of the ultimate resolution of its income tax positions.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s income tax process. This included controls to evaluate which of the Company’s income tax positions may not be sustained upon examination and estimate the gross unrecognized tax benefits. We involved domestic and international income tax professionals with specialized skills and knowledge, who assisted in:
obtaining an understanding and evaluating the Company’s income tax positions as filed or intended to be filed
evaluating the Company’s interpretation of income tax laws by developing an independent assessment of the Company’s income tax positions and comparing the results to the Company’s assessment
inspecting settlements and communications with applicable taxing authorities
assessing the expiration of applicable statutes of limitations.
In addition, we evaluated the Company’s ability to estimate its gross unrecognized tax benefits by comparing historical uncertain income tax positions, including the gross unrecognized tax benefits, to actual results upon conclusion of tax examinations.

/s/ KPMG LLP


We have served as the Company’s auditor since 2004.

San Antonio, Texas
February 22, 2022

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders
Valero Energy Corporation:

Opinion on Internal Control Over Financial Reporting

We have audited Valero Energy Corporation and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 22, 2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the

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assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP


San Antonio, Texas
February 22, 2022


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VALERO ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(millions of dollars, except par value)
December 31,
20212020
ASSETS
Current assets:
Cash and cash equivalents$4,122 $3,313 
Receivables, net10,378 6,109 
Inventories6,265 6,038 
Prepaid expenses and other400 384 
Total current assets21,165 15,844 
Property, plant, and equipment, at cost49,072 46,967 
Accumulated depreciation(18,225)(16,578)
Property, plant, and equipment, net30,847 30,389 
Deferred charges and other assets, net5,876 5,541 
Total assets$57,888 $51,774 
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt and finance lease obligations$1,264 $723 
Accounts payable12,495 6,082 
Accrued expenses1,253 994 
Taxes other than income taxes payable1,461 1,372 
Income taxes payable378 112 
Total current liabilities16,851 9,283 
Debt and finance lease obligations, less current portion12,606 13,954 
Deferred income tax liabilities5,210 5,275 
Other long-term liabilities3,404 3,620 
Commitments and contingencies
Equity:
Valero Energy Corporation stockholders’ equity:
Common stock, $0.01 par value; 1,200,000,000 shares authorized;
673,501,593 and 673,501,593 shares issued
Additional paid-in capital6,827 6,814 
Treasury stock, at cost;
264,305,955 and 265,096,171 common shares
(15,677)(15,719)
Retained earnings28,281 28,953 
Accumulated other comprehensive loss(1,008)(1,254)
Total Valero Energy Corporation stockholders’ equity18,430 18,801 
Noncontrolling interests1,387 841 
Total equity19,817 19,642 
Total liabilities and equity$57,888 $51,774 
See Notes to Consolidated Financial Statements.

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VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(millions of dollars, except per share amounts)
Year Ended December 31,
202120202019
Revenues (a)$113,977 $64,912 $108,324 
Cost of sales:
Cost of materials and other102,714 58,933 96,476 
Lower of cost or market (LCM) inventory valuation adjustment— (19)— 
Operating expenses (excluding depreciation and amortization
expense reflected below)
5,776 4,435 4,868 
Depreciation and amortization expense2,358 2,303 2,202 
Total cost of sales110,848 65,652 103,546 
Other operating expenses87 35 21 
General and administrative expenses (excluding depreciation and
amortization expense reflected below)
865 756 868 
Depreciation and amortization expense47 48 53 
Operating income (loss)2,130 (1,579)3,836 
Other income, net16 132 104 
Interest and debt expense, net of capitalized interest(603)(563)(454)
Income (loss) before income tax expense (benefit)1,543 (2,010)3,486 
Income tax expense (benefit)255 (903)702 
Net income (loss)1,288 (1,107)2,784 
Less: Net income attributable to noncontrolling interests358 314 362 
Net income (loss) attributable to Valero Energy Corporation
stockholders
$930 $(1,421)$2,422 
Earnings (loss) per common share$2.27 $(3.50)$5.84 
Weighted-average common shares outstanding (in millions)407 407 413 
Earnings (loss) per common share – assuming dilution$2.27 $(3.50)$5.84 
Weighted-average common shares outstanding –
assuming dilution (in millions)
407 407 414 
__________________________
Supplemental information:
(a) Includes excise taxes on sales by certain of our foreign
operations
$5,645 $4,797 $5,595 

See Notes to Consolidated Financial Statements.

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VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(millions of dollars)
Year Ended December 31,
202120202019
Net income (loss)$1,288 $(1,107)$2,784 
Other comprehensive income:
Foreign currency translation adjustment(47)161 349 
Net gain (loss) on pension
and other postretirement benefits
378 (80)(234)
Net gain (loss) on cash flow hedges(2)(8)
Other comprehensive income before
income tax expense (benefit)
329 83 107 
Income tax expense (benefit) related to
items of other comprehensive income
82 (16)(48)
Other comprehensive income247 99 155 
Comprehensive income (loss)1,535 (1,008)2,939 
Less: Comprehensive income attributable
to noncontrolling interests
359 316 361 
Comprehensive income (loss) attributable to
Valero Energy Corporation stockholders
$1,176 $(1,324)$2,578 

See Notes to Consolidated Financial Statements.

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VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(millions of dollars)
Valero Energy Corporation Stockholders’ Equity
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
TotalNon-
controlling
Interests
Total
Equity
Balance as of December 31, 2018$$7,048 $(14,925)$31,044 $(1,507)$21,667 $1,064 $22,731 
Net income— — — 2,422 — 2,422 362 2,784 
Dividends on common stock
($3.60 per share)
— — — (1,492)— (1,492)— (1,492)
Stock-based compensation expense— 77 — — — 77 — 77 
Transactions in connection with
stock-based compensation plans
— (50)30 — — (20)— (20)
Open market stock purchases— — (753)— — (753)— (753)
Acquisition of Valero Energy
Partners LP (VLP) publicly held
common units
— (328)— — — (328)(622)(950)
Distributions to noncontrolling interests— — — — — — (70)(70)
Other— 74 — — — 74 — 74 
Other comprehensive income (loss)— — — — 156 156 (1)155 
Balance as of December 31, 20196,821 (15,648)31,974 (1,351)21,803 733 22,536 
Net income (loss)— — — (1,421)— (1,421)314 (1,107)
Dividends on common stock
($3.92 per share)
— — — (1,600)— (1,600)— (1,600)
Stock-based compensation expense— 76 — — — 76 — 76 
Transactions in connection with
stock-based compensation plans
— (83)59 — — (24)— (24)
Open market stock purchases— — (130)— — (130)— (130)
Distributions to noncontrolling interests— — — — — — (208)(208)
Other comprehensive income— — — — 97 97 99 
Balance as of December 31, 20206,814 (15,719)28,953 (1,254)18,801 841 19,642 
Net income— — — 930 — 930 358 1,288 
Dividends on common stock
($3.92 per share)
— — — (1,602)— (1,602)— (1,602)
Stock-based compensation expense— 80 — — — 80 — 80 
Transactions in connection with
stock-based compensation plans
— (67)42 — — (25)— (25)
Contributions from noncontrolling interests— — — — — — 189 189 
Distributions to noncontrolling interests— — — — — — (2)(2)
Other comprehensive income— — — — 246 246 247 
Balance as of December 31, 2021$$6,827 $(15,677)$28,281 $(1,008)$18,430 $1,387 $19,817 

See Notes to Consolidated Financial Statements.

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VALERO ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions of dollars)
Year Ended December 31,
202120202019
Cash flows from operating activities:
Net income (loss)$1,288 $(1,107)$2,784 
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization expense2,405 2,351 2,255 
Loss on early redemption and retirement of debt193 — 22 
LCM inventory valuation adjustment—