Valero Energy Corporation Reports Third Quarter Earnings; Ninth Consecutive Quarter of Record Results

Valero Energy Corporation (NYSE:VLO) today reported netincome for the third quarter of 2005 of $1.3 billion, or $4.37 pershare, compared to $434 million, or $1.57 per share, for the sameperiod last year. The third quarter 2005 results exclude a $621million pre-tax LIFO charge to cost of goods sold related to thedifference between the fair market value of the inventories acquiredfrom Premcor Inc. on September 1, 2005 and Valero's recorded amountsunder LIFO accounting attributable to those inventories. Includingthis special non-cash item, net income for the third quarter of 2005was $862 million, or $2.94 per share.

For the nine months ended September 30, 2005, Valero's net incomewas $2.7 billion, or $9.42 per share, versus $1.3 billion, or $4.78per share, for the nine months ended September 30, 2004. Including theLIFO charge discussed above, the company's net income for the ninemonths ended September 30, 2005 was $2.2 billion, or $7.92 per share.The company's debt-to-capitalization ratio, net of cash, was 29.1percent as of September 30, 2005, compared to 30.7 percent as ofDecember 31, 2004.

Excluding the LIFO charge, third quarter operating income for thecompany's refining segment was $2.1 billion, compared to $760 millionfor the same period last year. The significant increase in operatingincome was primarily due to the sharp rise in refined product marginsas well as widening sour crude oil discounts. The company alsobenefited from the addition of the four former Premcor Inc.refineries, which contributed approximately $330 million to operatingincome in September.

"This was a challenging quarter for Valero in so many ways giventhe hurricanes on the Gulf Coast and the addition of four newrefineries to our system, but our employees did an outstanding jobmeeting these challenges," said Bill Greehey, Valero's Chairman of theBoard and Chief Executive Officer. "In particular, the efforts of ouremployees at the St. Charles and Port Arthur refineries were nothingshort of heroic in restoring our operations in record time and helpingtheir communities recover from these devastating storms.

"The impact of these hurricanes reflects what we've been sayingfor years -- that refining capacity has gotten tighter, not just inthe U.S., but globally. Anytime there is a major disruption, marginsare likely to spike. Just as they did shortly after Hurricanes Katrinaand Rita, pump prices spiked up, but then came down. We believe thatthe impact of these hurricanes on pump prices will soon be behind us.As more refineries come back on-line, pump prices should continue tofall and that is good for both refined product demand and theeconomy," said Greehey.

"Looking at the remainder of the fourth quarter, the outlook isoutstanding. Gulf Coast gasoline margins based on the forward curvefor November and December are trading around $4.00 per barrel andheating oil margins are around $17.00 per barrel. As for sour crudediscounts, they have continued to widen from what were alreadyimpressive levels. For example, Maya crude oil discounts are currentlyat around $15.00 per barrel and are expected to widen further, just asthey did at the end of last year. And, the fourth quarter will be ourfirst full quarter with the contribution of the Premcor assets. As wehave begun to integrate these refineries into our system, we have beenvery impressed by the quality of the workforce as well as the assets.Despite the three-week outage at the Port Arthur refinery duringOctober, we expect that the fourth quarter will demonstrate howstrongly accretive to our earnings the acquisition will be goingforward. Given all these positive factors, it's clear that the currentFirst Call consensus estimate of $3.67 per share for the fourthquarter is significantly too low. In fact, we estimate that in Octoberalone we will earn around $2.30 per share.

"With respect to next year, the industry is facing theimplementation of the Tier II low-sulfur fuels standards, the removalof MTBE from the gasoline pool and the likelihood of low inventoriesheaded into the year. The futures market is already reflecting thesechallenges and if you look at the forward curve, refined productmargins for next year are currently trading at higher levels than theyare for this year. So, when you consider the strong marketfundamentals, a full-year contribution of the Premcor assets, and theadditional 100,000 barrels per day of capacity coming on-line in ourrefining system next year from our strategic projects, you can see whywe believe that 2006 will be another record-setting year for Valero,"he said.

Valero's senior management will hold a conference call at 10:00a.m. ET (9:00 a.m. CT) today, to discuss this earnings release andprovide an update on company operations. A live broadcast of theconference call will be available on the company's website atwww.valero.com.

Valero Energy Corporation is a Fortune 500 company based in SanAntonio, with approximately 22,000 employees and expected annualrevenue of more than $75 billion. The company owns and operates 18refineries throughout the United States, Canada and the Caribbean witha combined throughput capacity of approximately 3.3 million barrelsper day, making it the largest refiner in North America. Valero isalso one of the nation's largest retail operators with more than 4,700retail and branded wholesale outlets in the United States, Canada andthe Caribbean under various brand names including Valero, DiamondShamrock, Shamrock, Ultramar, and Beacon. Please visit www.valero.comfor more information.

Statements contained in this press release that state thecompany's or management's expectations or predictions of the futureare forward-looking statements intended to be covered by the safeharbor provisions of the Securities Act of 1933 and the SecuritiesExchange Act of 1934. The words "believe," "expect," "should,""estimates," and other similar expressions identify forward-lookingstatements. It is important to note that actual results could differmaterially from those projected in such forward-looking statements.For more information concerning factors that could cause actualresults to differ from those expressed or forecast, see the proxystatement/prospectus dated July 13, 2005 regarding the merger ofValero and Premcor, and the amended Form S-4 Registration Statementfiled with the Securities and Exchange Commission (as the same may besupplemented or amended). Also see both companies' reports, includingannual reports on Form 10-K and quarterly reports on Form 10-Q, filedwith the Securities and Exchange Commission and available on theValero web site at www.valero.com.
VALERO ENERGY CORPORATION AND SUBSIDIARIES
EARNINGS RELEASE
(Millions of Dollars, Except per Share, per Barrel and per Gallon
Amounts)
(Unaudited)


Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
2005(1) 2004 2005(1) 2004
--------- -------- --------- ---------
STATEMENT OF INCOME DATA:
(See note below)
Operating Revenues
(including $2,263,
$1,330, $5,083 and
$3,489, respectively,
related to buy/sell
arrangements) (2) (3) $23,283 $14,339 $56,268 $39,228
--------- -------- --------- ---------

Costs and Expenses:
Cost of Sales (2) 20,017 12,683 48,768 34,260
Refining Operating
Expenses 772 529 1,938 1,553
Retail Selling Expenses 201 177 561 518
General and
Administrative Expenses 129 87 303 263
Depreciation and
Amortization Expense 232 164 615 464
--------- -------- --------- ---------
Total Costs and
Expenses 21,351 13,640 52,185 37,058
--------- -------- --------- ---------

Operating Income 1,932 699 4,083 2,170

Equity in Earnings of
Valero L.P. 13 10 32 29

Other Income (Expense),
Net 11 7 (4) 4

Interest and Debt
Expense:
Incurred (85) (73) (230) (222)
Capitalized 18 10 39 27
--------- -------- --------- ---------

Income Before Income Tax
Expense 1,889 653 3,920 2,008

Income Tax Expense 605 219 1,255 693
--------- -------- --------- ---------

Net Income 1,284 434 2,665 1,315

Preferred Stock Dividends 4 3 12 9
--------- -------- --------- ---------

Net Income Applicable to
Common Stock $1,280 $431 $2,653 $1,306
========= ======== ========= =========

Earnings per Common Share $4.65 $1.69 $10.10 $5.13

Weighted Average Common
Shares Outstanding
(in millions) 276 256 263 255

Earnings per Common Share
- Assuming Dilution $4.37 $1.57 $9.42 $4.78

Weighted Average Common
Equivalent Shares
Outstanding
(in millions) 294 276 283 275


September December
30, 31,
2005 2004
--------- --------
BALANCE SHEET DATA:
Cash $737 $864

Total Debt $6,388 $4,313

Debt-to-Capitalization
Ratio (net of cash) (4) 29.1% 30.7%


Note: The statement of income information reflected above excludes
the effect of a $621 million pre-tax LIFO charge in the third
quarter of 2005 primarily related to the difference between
the fair market value of the acquired Premcor inventories on
September 1, 2005 and Valero's recorded amounts under LIFO
accounting attributable to those inventories. This special
non-cash charge will be included in cost of sales in the
Company's financial statements prepared in accordance with
generally accepted accounting principles, resulting in
earnings per common share and earnings per common share
assuming dilution of $3.11 and $2.94, respectively, for the
third quarter of 2005 and $8.49 and $7.92, respectively, for
the nine months ended September 30, 2005.


VALERO ENERGY CORPORATION AND SUBSIDIARIES
EARNINGS RELEASE
(Millions of Dollars, Except per Share, per Barrel and per Gallon
Amounts)
(Unaudited)


Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
2005(1) 2004 2005(1) 2004
---------- ---------- ---------- ---------
Operating Income (Loss)
by Business Segment:
Refining $2,063 $760 $4,360 $2,341
---------- ---------- ---------- ---------
Retail:
U.S. 5 22 21 56
Northeast 16 14 57 66
---------- ---------- ---------- ---------
Total Retail 21 36 78 122
---------- ---------- ---------- ---------
Total Before Corporate 2,084 796 4,438 2,463
Corporate (152) (97) (355) (293)
---------- ---------- ---------- ---------
Total $1,932 $699 $4,083 $2,170
========== ========== ========== =========

Depreciation and
Amortization by Business
Segment:
Refining $187 $140 $504 $392
---------- ---------- ---------- ---------
Retail:
U.S. 16 8 42 26
Northeast 6 6 17 16
---------- ---------- ---------- ---------
Total Retail 22 14 59 42
---------- ---------- ---------- ---------
Total Before Corporate 209 154 563 434
Corporate 23 10 52 30
---------- ---------- ---------- ---------
Total $232 $164 $615 $464
========== ========== ========== =========

Operating Highlights:
Refining:
Throughput Margin per
Barrel $13.43 $6.92 $10.80 $7.31

Operating Costs per
Barrel:
Refining Operating
Expenses $3.43 $2.56 $3.08 $2.65
Depreciation and
Amortization 0.83 0.68 0.80 0.67
---------- ---------- ---------- ---------
Total Operating
Costs per Barrel $4.26 $3.24 $3.88 $3.32
========== ========== ========== =========

Throughput Volumes
(Mbbls per Day):
Feedstocks:
Heavy Sour Crude 484 508 495 472
Medium/Light Sour
Crude 579 635 582 564
Acidic Sweet Crude 125 89 112 100
Sweet Crude 668 507 591 534
Residuals 248 176 183 127
Other Feedstocks 114 114 124 133
---------- ---------- ---------- ---------
Total Feedstocks 2,218 2,029 2,087 1,930
Blendstocks and Other 227 214 220 208
---------- ---------- ---------- ---------
Total Throughput
Volumes 2,445 2,243 2,307 2,138
========== ========== ========== =========

Yields (Mbbls per Day):
Gasolines and
Blendstocks 1,165 1,050 1,086 1,036
Distillates 741 674 697 638
Petrochemicals 66 71 67 70
Other Products (5) 464 455 459 402
---------- ---------- ---------- ---------
Total Yields 2,436 2,250 2,309 2,146
========== ========== ========== =========


VALERO ENERGY CORPORATION AND SUBSIDIARIES
EARNINGS RELEASE
(Millions of Dollars, Except per Share, per Barrel and per Gallon
Amounts)
(Unaudited)


Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
2005(1) 2004 2005(1) 2004
---------- ---------- ---------- ---------
Refining Operating
Highlights by Region: (6)
Gulf Coast: (7)
Operating Income $1,163 $488 $2,616 $1,337

Throughput Volumes
(Mbbls per Day) (8) 1,328 1,273 1,289 1,185

Throughput Margin per
Barrel $13.82 $7.34 $11.17 $7.40

Operating Costs per
Barrel:
Refining Operating
Expenses $3.52 $2.54 $3.01 $2.65
Depreciation and
Amortization 0.77 0.63 0.72 0.64
---------- ---------- ---------- ---------
Total Operating
Costs per Barrel $4.29 $3.17 $3.73 $3.29
========== ========== ========== =========

Mid-Continent: (9)
Operating Income $345 $37 $492 $212

Throughput Volumes
(Mbbls per Day) (8) 352 291 302 292

Throughput Margin per
Barrel $14.85 $4.77 $9.93 $5.88

Operating Costs per
Barrel:
Refining Operating
Expenses $3.39 $2.71 $3.27 $2.65
Depreciation and
Amortization 0.80 0.64 0.70 0.58
---------- ---------- ---------- ---------
Total Operating
Costs per Barrel $4.19 $3.35 $3.97 $3.23
========== ========== ========== =========

Northeast:
Operating Income $279 $100 $501 $358

Throughput Volumes
(Mbbls per Day) (8) 451 381 406 377

Throughput Margin per
Barrel $10.27 $5.33 $7.88 $5.92

Operating Costs per
Barrel:
Refining Operating
Expenses $2.79 $1.89 $2.58 $1.87
Depreciation and
Amortization 0.76 0.59 0.79 0.58
---------- ---------- ---------- ---------
Total Operating
Costs per Barrel $3.55 $2.48 $3.37 $2.45
========== ========== ========== =========

West Coast:
Operating Income $276 $135 $751 $434

Throughput Volumes
(Mbbls per Day) 314 298 310 284

Throughput Margin per
Barrel $14.78 $9.29 $13.94 $10.25

Operating Costs per
Barrel:
Refining Operating
Expenses $4.00 $3.40 $3.81 $3.69
Depreciation and
Amortization 1.22 1.00 1.24 1.00
---------- ---------- ---------- ---------
Total Operating
Costs per Barrel $5.22 $4.40 $5.05 $4.69
========== ========== ========== =========


VALERO ENERGY CORPORATION AND SUBSIDIARIES
EARNINGS RELEASE
(Millions of Dollars, Except per Share, per Barrel and per Gallon
Amounts)
(Unaudited)


Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- --------------------
2005(1) 2004 2005(1) 2004
---------- ---------- ---------- ---------
Retail - U.S.:
Company - Operated Fuel
Sites (Average) 1,029 1,103 1,029 1,123
Fuel Volumes (Gallons per
Day per Site) 4,966 4,787 4,862 4,640
Fuel Margin per Gallon $0.121 $0.128 $0.118 $0.128
Merchandise Sales $250 $247 $710 $705
Merchandise Margin
(Percentage of Sales) 30.1% 27.8% 29.7% 28.3%
Margin on Miscellaneous
Sales $33 $25 $91 $73
Selling Expenses $145 $127 $400 $374

Retail - Northeast:
Fuel Volumes (Thousand
Gallons per Day) 3,122 3,148 3,192 3,234
Fuel Margin per Gallon $0.206 $0.190 $0.210 $0.209
Merchandise Sales $42 $38 $112 $103
Merchandise Margin
(Percentage of Sales) 25.0% 23.9% 25.4% 24.1%
Margin on Miscellaneous
Sales $8 $7 $23 $17
Selling Expenses $56 $50 $161 $144

Average Market Reference
Prices and Differentials
(Dollars per Barrel):
Feedstocks (at U.S. Gulf
Coast, except as Noted):
West Texas Intermediate
(WTI) Crude Oil $63.05 $43.82 $55.26 $39.13
WTI Less Sour Crude Oil
(10) $5.26 $4.95 $6.68 $4.54
WTI Less Alaska North
Slope (ANS) Crude Oil
(U.S. West Coast) $2.26 $2.06 $3.36 $1.49
WTI less Maya Crude Oil $15.46 $11.65 $15.20 $9.91

Products:
U.S. Gulf Coast:
Conventional 87
Gasoline Less WTI $19.38 $7.24 $11.63 $9.47
No. 2 Fuel Oil Less WTI $13.48 $4.42 $10.15 $2.89
Propylene Less WTI $(4.95) $4.44 $6.61 $7.76
U.S. Mid-Continent:
Conventional 87
Gasoline Less WTI $17.41 $8.18 $11.70 $10.29
Low-Sulfur Diesel Less
WTI $16.35 $7.89 $13.09 $6.07
U.S. Northeast:
Conventional 87
Gasoline Less WTI $15.98 $7.83 $9.60 $9.62
No. 2 Fuel Oil Less WTI $12.47 $5.29 $10.80 $4.01
Lube Oils Less WTI $32.32 $21.40 $29.74 $23.27
U.S. West Coast:
CARBOB 87 Gasoline Less
ANS $25.54 $18.84 $22.04 $20.44
Low-Sulfur Diesel Less
ANS $24.56 $15.77 $20.94 $14.90


VALERO ENERGY CORPORATION AND SUBSIDIARIES
EARNINGS RELEASE
(Millions of Dollars, Except per Share, per Barrel and per Gallon
Amounts)
(Unaudited)


(1) The information presented for the three months and nine months
ended September 30, 2005 includes the operations related to
the acquisition of Premcor Inc. commencing on September 1,
2005. As indicated in the Note on the first page of this
earnings release, the statement of income information
presented herein excludes the effect of a $621 million pre-tax
LIFO charge for the three months and nine months ended
September 30, 2005. The following provides a reconciliation of
the statement of income data excluding the LIFO charge to the
statement of income data including the LIFO charge for each of
the captions affected as required in accordance with generally
accepted accounting principles (GAAP).

Three Months Ended
September 30, 2005
---------------------------------------
Amounts Amounts
as LIFO in Accordance
Presented Effect with GAAP
------------ ------------ -------------

Cost of Sales $20,017 $621 $20,638

Total Costs and
Expenses 21,351 621 21,972

Operating Income 1,932 (621) 1,311

Income Before
Income Tax Expense 1,889 (621) 1,268

Income Tax Expense 605 (199) 406

Net Income 1,284 (422) 862

Net Income
Applicable
to Common Stock 1,280 (422) 858

Earnings per Common
Share 4.65 (1.54) 3.11

Earnings per Common
Share - Assuming
Dilution 4.37 (1.43) 2.94


Nine Months Ended
September 30, 2005
---------------------------------------
Amounts Amounts
as LIFO in Accordance
Presented Effect with GAAP
------------ ------------ -------------

Cost of Sales $48,768 $621 $49,389

Total Costs and
Expenses 52,185 621 52,806

Operating Income 4,083 (621) 3,462

Income Before
Income Tax Expense 3,920 (621) 3,299

Income Tax Expense 1,255 (199) 1,056

Net Income 2,665 (422) 2,243

Net Income Applicable
to Common Stock 2,653 (422) 2,231

Earnings per Common
Share 10.10 (1.61) 8.49

Earnings per Common
Share - Assuming
Dilution 9.42 (1.50) 7.92


(2) Valero Energy Corporation's buy/sell arrangements involve
linked purchases and sales related to crude oil contracts
entered into to address location, quality or grade
requirements. Included in cost of sales are amounts which
approximate the revenues resulting from these transactions.

(3) Includes excise taxes on sales by Valero's U.S. retail
system of $210 and $215 for the three months ended
September 30, 2005 and 2004, respectively, and $611 and
$631 for the nine months ended September 30, 2005 and
2004, respectively.

(4) The following is a reconciliation of the debt-to-capitalization
ratio. This information is presented because Valero is required
to maintain a certain debt-to-capitalization ratio under its
bank credit facilities.


September 30, December 31,
2005 2004
------------- ------------
Debt:
Debt, including current maturities
and capital lease obligations,
per the balance sheet $6,388 $4,313
Less: Cash and temporary cash
investments (737) (864)
------------- ------------
Total debt (net of cash) 5,651 3,449
------------- ------------

Stockholders' equity 13,794 7,798
------------- ------------
Total capitalization $19,445 $11,247
============= ============

Debt-to-capitalization ratio (net
of cash) 29.1% 30.7%
============= ============

(5) Primarily includes gas oils, No. 6 fuel oil, petroleum coke and
asphalt.

(6) The regions depicted herein contain the following refineries
subsequent to the Premcor acquisition: Gulf Coast- Corpus
Christi East and West Refineries, Texas City Refinery, Houston
Refinery, Three Rivers Refinery, Krotz Springs Refinery, St.
Charles Refinery, Aruba Refinery and Port Arthur Refinery;
Mid-Continent- McKee Refinery, Ardmore Refinery, Memphis
Refinery and Lima Refinery; Northeast- Quebec Refinery,
Paulsboro Refinery and Delaware City Refinery; and West Coast-
Benicia Refinery and Wilmington Refinery. The Mid-Continent
region also included the Denver Refinery for periods prior to
its disposition on May 31, 2005.

(7) The information presented for the nine months ended September 30,
2004 includes the operations of the Aruba Refinery and certain
related businesses commencing on March 5, 2004, the date of
Valero's acquisition of these facilities from El Paso
Corporation. Throughput volumes for the Gulf Coast region for
the nine months ended September 30, 2004 are based on a 274-day
period, which results in 170 Mbbls per day being included for
Aruba. Throughput volumes for Aruba for the 210 days of its
operations during the nine-month period averaged 222 Mbbls per
day.

(8) Throughput volumes for the Gulf Coast, Mid-Continent and Northeast
regions for the three months ended September 30, 2005 include
66, 100 and 66 Mbbls per day, respectively, and for the nine
months ended September 30, 2005, include 22, 34 and 22 Mbbls per
day, respectively, related to the operations of the refineries
acquired from Premcor Inc. commencing on September 1, 2005.
Throughput volumes for those acquired refineries for the 30 days
of their operations subsequent to the acquisition date of
September 1, 2005 were 203, 306 and 203 Mbbls per day,
respectively, for the Gulf Coast, Mid-Continent and Northeast
regions.

(9) The information presented for the Mid-Continent region includes
the operations of the Denver Refinery through May 31, 2005, the
date of Valero's sale of this facility to Suncor Energy Inc.
Throughput volumes for the Mid-Continent region include 0, 38,
21 and 37 Mbbls per day, respectively, related to the Denver
Refinery for the three months ended September 30, 2005 and 2004
and the nine months ended September 30, 2005 and 2004.

(10) The market reference differential for sour crude oil is based on
50% Arab Medium and 50% Arab Light posted prices.