U.S. Refining Capacity –Past, Present and FutureOutlookOPIS SupplySummit 2006Malcolm M. Turner, ChairmanTurner, Mason & CompanyTURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 2U.S. Refineries – How Many?●The number of operable U.S. refineries has declined from 322in 1981 to 142 currently (see Slide 3).●It is often stated that no refineries have been built in the UnitedStates since the Garyville, Louisiana refinery (now owned byMarathon) in 1976. That is not exactly true.–Several “small refinery bias”refineries were built later.–Jack Stanley’s Good Hope refinery (now Valero’s St.Charles refinery) was substantially built during the 1990s.●Will new refineries be built in the U.S.?–Arizona Clean Fuels Yuma refinery–Old military bases–Louisiana and Maine development initiatives–California/WashingtonTURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 30501001502002503001980 1990 2000 2010Operable U.S. Refineries?142TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 4How Much Do Refineries Cost?●It does not seem that long ago that $1,000 per barrel perday of capacity was the “estimating figure”.–Prior to 1970, that was a typical new construction cost.–When Clark (Premcor) bought the 170,000 BPD Lima,Ohio refinery from BP in 1998, the purchase price wasabout $1,000 per barrel per day.●The largest refiner in the U.S.with 2.3 million barrels perday of capacity, Valero Energy, has its refining capacitybooked at about $5,400 per barrel per day. FormerChairman Bill Greehey frequently boasted of his ability topurchase refineries at 15-20% of replacement cost.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 5How Much Do Refineries Cost?●Tesoro bought the California Bay Area Golden Eagle Refinery atabout 37% of replacement cost, or$5,500 per barrel per day ofcapacity in 2002. What was thought to be an extremely highprice proved to be almost a stealfrom Valero (sale required bythe FTC).●On the other side, Valero bought Premcor and its four refineriesin 2005 at an estimated 75% of replacement costs, or $9,400 perbarrel per day of capacity. Again, many believed this to beexpensive, but it has not turned out that way.●Recently, Harvest Energy Trust agreed to purchase Vitol’sCome By Chance refinery for $1.5 billion, equivalent to about90% of replacement cost and about $13,000 per barrel per day ofcapacity.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 6How Much Do Refineries Cost?●The reigning high price refiningdeal in U.S. history is theLyondell purchase of CITGO’s minority interest in the 268MBPD Houston refinery. This transaction is reported to beat an equivalent of $5.4 billion, or $19,000 per barrel per dayof capacity and 135% of replacement cost.●The most recent capital estimates announced by ArizonaClean Fuels Yuma equate to $18,000 per barrel per day ofcapacity.●TM&C studies point to the costof competitive grass rootsrefineries in the U.S. to bein the $15,000-20,000 per barrelper day of capacity range. That, of course, reflects 100% oftoday’s replacement cost.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 7U.S. Refining Capacity – Past and Present●With sharply declining numbersof refineries in the U.S.,the total capacity hit a bottomof 15.1 million barrels perday (MMBPD) in 1993. Since then, steady growth hasincreased U.S. refining capacityto a current level of 17.4MMBPD (see Slide 8).●With the number of refineriesin the U.S. reduced to 142,the average refinery capacitytoday stands above 120,000BPD. This surprisingly highaverage figure reflects theimpact of 21 large U.S. refineries with capacities inexcess of 250,000 BPD (see Slide 9).TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 8121416181985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

million barrels per dayU.S. Refining CapacityTURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 9U.S. Refining Capacity – Past and Present03691215180 10 20 30 40 50 60 70 80 90 100 110 120 130 140Number of Refineries

million barrels per da yTURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 10U.S. Refining Capacity – Past and Present●Ownership of U.S. refining capacity has changeddramatically over the last tenyears. Currently, the top tenU.S. refiners are as follows:Top 10 RefinersCapacity (MBPD)Valero 2,257ConocoPhillips 2,178ExxonMobil 1,940BP 1,475Shell 1,143Marathon 935ChevronTexaco 909Sunoco 880PdVSA 828Flint Hills 746Total 13,291TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 11U.S. Refining Capacity – Past and Present●Concentration of U.S. refining capacity is also increasing as thenumber of refiners and refineries diminishes.0204060801000 1 2 3 4 5 6 7 8 9 10Number of Refiners

percent of capacityTop 10 have >75%TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 12U.S. Petroleum Products Supply/Demand●In spite of forecasts and efforts by opponents of the petroleumindustry and capitalism generally, the demand for petroleumproducts continues to grow in the U.S. (see Slide 13).●For the 15-year period 1990-2005, demand for motor gasolinesin the U.S. increased over 26%.For this same period, demandfor jet fuels grew over 37%, andfor distillate fuels demand grewmore than 36%.●Most analysts and economistswere shocked at the minorimpact on demands of U.S. petroleum products resulting from thesharp price increases that developed during the last two years.U.S. consumers seem to have adjusted remarkably.●With the falling prices observedduring the past few months, wecertainly expect continued growth in U.S. demand for petroleumfuels products.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 13U.S. Petroleum Products Demand(Actual)02000400060008000100002000 2001 2002 2003 2004 2005

thousands of barrels per dayGasolinesDistillate FuelsJet Fuel/KeroseneResidual FuelsOther(1)(1) Includes LPGs, petrochemical feedstocks, lubricants/waxes, petroleum coke, asphalt, refinery gas and othermiscellaneous products.Source: TM&C “The Outlook”, mid-year 2006.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 14Supply/Demand(cont.)●The outcry for production of fuels from non-crude oilsources is broad but mostly noise. There is “Biodiesel”,“BioWillie” and even “Biobutanol”. Much effort is in placeto create fuels from anythingother than petroleum sources.Will it amount to anything?●According to the National Biodiesel Board, there are 86plants in the U.S. producingbiodiesel. Production in 2006will amount to only about 16,000 BPD, a tiny fraction of U.S.distillate demand. At least three-quarters of existing plantshave capacity of less than 650BPD. Over the next twoyears, however, new facilities will be built to more thandouble U.S. production capacity.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 15Supply/Demand(cont.)●On the demand side, there continues to be noise about reducingconsumption, especially for automobiles. There are many whoexpect large impacts from hybrid vehicles and even fuel cellenergy sources. With no reasonable payouts for such purchasesor sensible economics in sight, I remain in the “skeptics corner”.●Growth in demands for petroleum products are very likely to continue, in the opinion of most analysts. TM&C recently fore-cast(see Slide 16) the following annual growth rates for the period2010-2025: motor gasolines 1.2-1.3%; distillate fuels 1.6-1.7%;jet fuel 1.5%; and other products 0.4%.●Other analysts and cautious petroleum executives expect gasoline demand growth to dampen because of improved technology and changing motorist/consumer purchasing patterns(hybrids, crossovers, etc.). We have seen motor gasoline growthrates forecast at as low as 0.5-0.6% per year.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 16U.S. Petroleum Products Demand(Forecast)0200040006000800010000120002010 2015 2020 2025

thousands of barrels per dayGasolinesDistillate FuelsJet Fuel/KeroseneResidual FuelsOther(1)(1) Includes LPGs, petrochemical feedstocks, lubricants/waxes, petroleum coke, asphalt, refinery gas and othermiscellaneous products.Source: TM&C “The Outlook”, mid-year 2006.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 17Supply/Demand(cont.)●To understand the substantial change in the financialhealth of U.S. refiners and the increased value of refineries,a closer look at the sources ofsupplies for U.S. petroleumproducts is helpful.●For the many years that the U.S. was capable of supplyingits own demands for petroleum products from domesticrefineries (including those nearby offshore facilities that arepart of our traditional supply,such as Irving Oil and Vitol inCanada and the Caribbean refiners), consumers enjoyedthe competitive benefits of lowincremental refining costs ofsurplus capacity serving as a dominating force on pricesetting.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 18Supply/Demand(cont.)●When U.S. refiners lostthe ability to meet growingdemands, they likewise lost the ability to be the incremental source of supply and thus the dominant pricesetter.●With subpar margins and unattractive profits, capitalinvestment was not availablefor refinery expansionprojects or new refineries. John Auers, Vice President ofTM&C and key author of our firm’s August study “TheOutlook”, was recently quoted:“The lack of significantinvestment in grass roots refineries for over three decadesand sustained economic growthin recent years, especiallyin Asia and North America, have combined to create aworldwide shortage of refining capacity.”TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 19Supply/Demand(cont.)●Looking at U.S. gasoline demandand imports, we may see thatthe trends are dramatic. In1985, imports were only 450 MBPD,which comprised 6.6% of total U.S. gasoline demand, and noneof that was from long-haul sources. In 2006, about 1,200MBPD of U.S. gasoline demandwas supplied by imports (seeSlide 20), and most of it was long-haul.●With distillate imports above 500MBPD and almost 9% of U.S.demand, we have come to depend more on sources wherecompetition from other purchasers is stiffening (see Slide 21).●Most product imports come intoPADD I, the U.S. East Coast.Here imports have risen to over 30% of demand. More importantly, this is the price settingarea for most of the U.S., withthe home of the NYMEX in New York City (see Slide 22).TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 20U.S. Gasoline Demand and Imports(MBPD)550065007500850095002000 2001 2002 2003 2004 2005 2006YTD

Demand0200400600800100012001400 ImportsDemandImports7.78.79.19.910.412.013.3Imports as Percent of DemandTURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 21U.S. Distillate Demand and Imports(MBPD)400045005000550060002000 2001 2002 2003 2004 2005 2006YTD

Demand0100200300400500600700 ImportsDemandImports8.38.97.08.17.99.08.8Imports as Percent of DemandTURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 22PADD I Gasoline Demand and Imports(MBPD)19002400290034002000 2001 2002 2003 2004 2005 2006YTD

Demand020040060080010001200 ImportsDemandImports20.022.023.624.325.727.830.7Imports as Percent of DemandTURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 23Supply/Demand(cont.)●With the U.S. markets becoming more dependent each yearon long-haul imports, the costs are increasing relatively,and the price setting mechanism has proved to be especially beneficial for U.S. refiners. Long-haul imports haverisen from less than half in2000 to about 71% of totalimports in 2006 (see Slide 25).●For two growth scenarios, we have estimated the impacton long haul imports in 2015(see Slide 26). Based on theTM&C growth outlook for gasoline, long haul imports willincrease and the new Middle East refinery sources willcome into play. For the morepessimistic growth outlook,plentiful gasoline import sources should be available fromEuropean refiners.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 24Supply/Demand(cont.)●Long-haul imports are defined as production fromrefiners not located in Canada or the Caribbean.Major sources are European countries such asNetherlands, United Kingdom and France, andsurprisingly Russia (see Slide 27).●Large refining projectsannounced in the MiddleEast, especially Saudi Arabia, indicate that theselong-haul sources expectto become incrementalsuppliers of imported products for the U.S. markets.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 25040080012002000 2001 2002 2003 2004 2005 2006 YTD

thousand barrels per dayLong-HaulShort-HaulU.S. Gasoline Imports by Source Category47535756606471Long-Haul Imports as Percent of TotalTURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 26Projected U.S. Gasoline Imports bySource Category(MBPD)TM&C LowEst. Outlook Growth200620152015Total Demand 9,240 10,281(1)9,751(2)Refining Production 7,761 8,500(3)8,500(3)Less Exports (150) (150) (150)MTBE 93 0 0Ethanol 303 489(4)489(4)Imports – Short Haul 364 364(5)364(5)Imports – Long Haul 8691,078(6)548(6)(1) “The Outlook”, mid-year 2006.(2) Annual growth at 0.6%.(3) TM&C estimate.(4) 2012 federally mandated volume.(5) Assumed to be constant.(6) Calculated by difference.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 27U.S. Gasoline Imports by Country of OriginJune 2006MBPDShort HaulCanada 132U.S. Virgin Islands 125Venezuela 77Other Caribbean 23Subtotal 357Long HaulNetherlands 179United Kingdom 170France 59Russia 55Spain 54Belgium 49Estonia 37MBPDLong Haul (cont.)Italy 30Portugal 29Finland 21Sweden 20Germany 19Saudi Arabia 18Latvia 17Nigeria 14Norway 11Other Long Haul 81Subtotal 863Total Imports 1,220TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 28Worldwide Increases in Refining Capacity●In its study released in August,TM&C notes that “the expansionin worldwide refining capacity needed to sustain even moderateeconomic growth is quite significant, and in our judgment,exceeds current engineering, procurement and constructioncapacity to effectively manage and complete major projects withintraditional time and cost parameters.”●Significant new worldwide refining investment, currently estimated to be as much as $300 billion or more during the next 20years, will be required to meet growing product demand andhigher quality product specifications and to process heaviercrude oil slates.●Worldwide expansion will have to be dramatic to meet demand.By 2012 another 10.4 MMBPD ofnew capacity is expected tocome on line, based on announced projects (see Slide 29). Of thistotal, the U.S. will add only net capacity of about 1.7 MMBPD.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 29Worldwide Refining OutlookCapacity ExpansionsU.S. 1.7Asia 4.0Latin America 1.2Mideast 2.4Others 1.1Total by 2012 10.4Product SupplyIncreasesGasoline 4.1Distillates 4.2Resid 0.4Others 1.7Total by 2012 10.4Source: TM&C “The Outlook”, mid-year 2006.(MMBPD)TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 30U.S. Refining Capacity – Future Outlook●TM&C expects most additional new capacity in theU.S. to be concentrated onthe Gulf Coast, althoughsome will be in the Midwest. Collectively, theseregions may add an additional 1.5 MMBPD of capacitywith negligible additionsin the East Coast and RockyMountain regions. WestCoast additions will benominal (see Slide 31).●TM&C studies also forecast conversion capacityincreases and octane unit capacity increases through2012 as shown in Slides 32 and 33.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 31U.S. Refining Capacity Increasesthrough 2012Crude Capacity (MBPD)Heavy/SourLight/SweetTotalPADD I 30 (30) 0PADD II 675 (84) 591PADD III 1,060 (107) 953PADD IV 63 (35) 28PADD V 140(31)109Total U.S. 1,968 (287) 1,681TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 32U.S. Conversion Capacity Increasesthrough 2012CokingFCCUHydrocrackingPADD I 14 20 0PADD II 184 52 174PADD III 270 50 228PADD IV 20 12 0PADD V 45500Total U.S. 533 184 402(MMBPD)TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 33U.S. Octane Unit Capacity Increasesthrough 2012C5/C6ReformingAlkylationIsomerizationPADD I 0 0 0PADD II 120 6 5PADD III 30 0 0PADD IV 0 3 0PADD V 0170Total U.S. 150 26 5(MMBPD)TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 34Capacity – Future Outlook(cont.)●TM&C notes that virtually everyU.S. refiner has expansionprojects under study for its currently owned plants, and severalare continuing to look at acquisitions. The high prices, both forbuying refiners and building capacity, are significant deterrents. The extraordinary EPC circumstance worldwide hasundoubtedly caused many aspirantsto cancel or scale backplans.●Earlier this month, Valero announced its plans to consider amajor expansion of its St. Charlesrefinery in Louisiana. With aboost to 380,000 BPD if implemented, Valero would be following the pattern of its up-the-river neighbor Marathon atGaryville by adding crude, coking, hydrocracking and hydrogencapacity. The result would bea very competitive Gulf Coastrefinery.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 35Capacity – Future Outlook(cont.)●Subsequent to completion ofTM&C’s August report, “TheOutlook”, Irving Oil announcedits intention to considerseriously the construction of asecond refinery with a capacityof 300,000 BPD. This facility could dramatically impact EastCoast markets where Irving already supplies more than100,000 BPD of reformulated gasoline meeting tough U.S.specifications. It also is capable of making ULSD and iscurrently a formidablesource of supply.●Proposed expansions of the Come By Chance refinery and theannounced Newfoundland and Labrador Refining Corporation300,000 BPD new refinery are bothcompetitors with the Irvingproject. Such additions tothe East Coast supply sourceswould undoubtedly reduce dependence on long-haulpetroleum products sources from Europe and the Middle East.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 36Capacity – Future Outlook(cont.)●It has been suggested that some skilled and wellfinanced refiners might enjoy speculative announcements concerning new capacity simply to deter theentry of newcomers and even fellow competitors.TM&C of course has no evidence of such activities,but such ideas make for interesting conversation.●On the bright side from the perspective of U.S.refiners, all of these new supplies will be relativelyhigh cost. That is, they will require returns on capitalbased on new grass roots investments. These areclassic 100% of replacement cost facilities.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 37Capacity – Future Outlook(cont.)●Existing U.S. refiners, with lower capital cost from currentcapacity or even newly built facilities, will enjoy competitiveadvantages. This circumstance is one of TM&C’s primarybases for a continued outlook for relatively prosperousfinancial times for the U.S. refining industry.●In the final analysis, TM&C believes that U.S. refiners willnot be able to “build” their way out of their new-foundprosperity for perhaps a decade.On the other side of thesupply/demand equation, products demand outlooks couldindeed change dramaticallyduring that time period.TURNER, MASON & COMPANYCONSULTING ENGINEERSSlide 38Capacity – Future Outlook(cont.)●TM&C does believe that U.S. refinerswill see consistent transitionin feedstock supplies, with Canadian syncrude becoming a significant factor all the way into the Gulf Coast. We are actively involved in and well aware of several pipeline, refining and upgradingprojects that will bring about shiftsin crude oil supplies. CanadianWCS and similar grades will gain some markets from Venezuelaand perhaps Mexico.●An observation that we put forth is that while U.S. refiners haveheretofore been forced to makesignificant capital expenditures inorder to avail themselves to optimum priced crude oil from worldwide sources, the Canadian syncrude alternative will bring changesto that scenario.●We expect large upgrader projects to manufacture Canadian syncrudes that are tailor-made to fit U.S. refiners’ existing processconfigurations and allow them to avoid what otherwise might beprohibitively expensive capital projects.