Valero Energy

Cheap for a reason is the question the numbers cannot answer.

Whether the price already reflects the risks is what the deep dive is for.

• We are subject to risks arising from litigation, government action, and mandatory disclosure rules related to climate- and other sustainability-related matters, or aimed at the fossil fuel industry.

  Could happen

  We could face increased climate‐related litigation with respect to our operations, disclosures, or products. Governments, non-governmental organizations, and private parties across the world have filed lawsuits or initiated regulatory action against fossil fuel companies. Such lawsuits and actions often allege noncompliance with applicable laws or regulations, or personal injury or damages they attribute to perceived climate-related harms, and seek damages and/or abatement under various tort and other theories, including under consumer protection, human rights, or constitutional provisions. We have been named as a co-defendant in a lawsuit in state court by a county in Oregon seeking significant damages and abatement under various tort theories (including deceptive disclosures). We have also been named as a co-defendant in a federal class-action lawsuit in California alleging antitrust and consumer protection claims related to costs of complying with the LCFS. While we intend to vigorously defend against the allegations in those pending actions, the ultimate outcomes and impacts to us cannot be predicted with certainty at this time, we could incur substantial legal costs and reputational damage associated with defending such matters, and an adverse ruling could require us to pay significant damages. From time to time, we have also been subject to, and expect to continue to be subject to, other litigation related to environmental, health, and safety incidents or other accidents arising in the normal course of our operations. Our industry in particular has been subject to a rising number of lawsuits seeking substantial damage awards in such matters, which have been exacerbated by recent legal, judicial, and jury-related trends in certain jurisdictions where we operate. We have faced, and expect to continue to face, increased risks related to such matters and the outcome of pending or future claims for such matters could have a material adverse effect on our business, financial condition, results of operations, and liquidity. Governments and private parties are also increasingly filing lawsuits or initiating regulatory action based on allegations that certain public statements and disclosures by companies regarding climate- and other sustainability-related matters are false or misleading “greenwashing” that violate deceptive trade practices, consumer protection statutes, or other similar laws and regulations, or are fraudulent or misleading under certain corporate or securities laws and regulations.

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• The availability and prices of our feedstocks and other critical supplies expose us to risks.

  Already happened

  The U.S. federal government under the current administration has also implemented and indicated the potential for new or revised tariffs, duties, sanctions, and other actions with respect to U.S. and foreign trade, manufacturing, and investment, and some foreign governments have in turn implemented or indicated the potential for similar responses impacting U.S. goods and/or foreign operations and business dealings of U.S. companies. While there continues to be a lack of certainty around the ongoing likelihood, timing, and details with respect to the continuation or future invalidation, expansion, revision, or implementation of such actions, as well as the impact of litigation and consequent court orders, such actions have in certain instances had, and could again have, an adverse effect on our ability to obtain optimal or adequate volumes of feedstocks and other critical supplies at favorable prices and costs. Our Refining and Ethanol segments have not been significantly impacted to date by recent U.S. tariffs and foreign duties. However, DGD’s foreign feedstock supplies have recently been impacted, and could continue to be impacted, by U.S. tariffs, as well as by many of the other developments discussed in “ We are subject to risks arising from the Renewable and Low-Carbon Fuel Programs, and other regulations, policies, international certifications, and standards impacting low-carbon fuels. ” The impacts thereof have been compounded by the fact that U.S.-produced renewable diesel and SAF have recently been subject to duties in several foreign jurisdictions, while similar duties have not been broadly applied to imports into the U.S. of foreign renewable diesel and SAF (as finished products), nor have foreign jurisdictions broadly levied tariffs similar to the U.S. on feedstocks that foreign renewable diesel and SAF producers may import and use to produce such products outside the U.S. These events have at times made DGD’s use of certain feedstocks (particularly foreign feedstocks) economically impractical, and resulted in reduced margins, curtailed production, and potentially reduced access to certain product markets due to competitive cost disadvantages, which have had, and could continue to have, an adverse impact on its and our business, financial condition, results of operations, and liquidity.

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• We are subject to risks arising from litigation, government action, and mandatory disclosure rules related to climate- and other sustainability-related matters, or aimed at the fossil fuel industry.

  In addition to voluntary disclosures in response to investor and stakeholder requests discussed above, many governments have also proposed or adopted regulations that impose disclosure obligations with respect to various climate-related matters and other sustainability-related matters. In October 2023, California adopted a host of broad and far-reaching climate-related disclosure obligations, including with respect to GHG emissions, climate-related financial-risk reporting, and statements regarding GHG emissions reductions; and carbon offsets, certain of which are currently subject to ongoing litigation and potential delays, creating substantial uncertainty. New York also recently adopted certain GHG reporting requirements that are even broader in scope than California’s and require extremely burdensome (perhaps even infeasible) and detailed disclosures, including with respect to the quantity and type of fuel and feedstock related to such emissions. Other U.S. states have proposed or announced disclosure obligations with respect to climate-related matters. The U.K. has adopted and the EU has provisionally adopted certain burdensome disclosures related to various environmental, climate, social, supply chain, human rights, and other sustainability-related matters. In the EU, these include its Corporate Sustainability Reporting Directive (CSRD) and its Corporate Sustainability Due Diligence Directive (CSDDD), which also provides a private cause of action. Although the scope of CSRD and CSDDD have been simplified with provisional agreements by applicable governance bodies within the EU, endorsement and formal adoption are still pending. Further, the scope and extent to which the CSRD and the CSDDD will require any extraterritorial disclosure obligations on non-EU parent companies remains unknown and presents considerable uncertainty for many companies, including us. Some governments have also adopted laws and regulations, or have launched investigations and requested information, based on pricing practices in the fossil fuel industry, which we have been and may again be subject to. For example, California’s Oil Refinery Cost Disclosure Act (SB 1322) requires refineries in California to report monthly on the volume and cost of the crude oil they buy, the quantity and price of the wholesale gasoline they sell, and the gross gasoline margin per barrel, among other information. Some governments and other third parties we do business with have also begun requesting product-specific climate-related disclosures from us in connection with their own reporting. At the same time, in September 2025, the EPA proposed to effectively cease its Greenhouse Gas Reporting Program, which presents uncertainties with respect to future climate-related reporting methodologies that are utilized. Our efforts to comply with these laws, regulations, and requests impose a strain on company resources and expose us to risk by requiring disclosure of information that (i) may be protected trade secrets and/or competitively sensitive; (ii) exposes us to litigation and enforcement; (iii) may be inconsistent with other standards or requirements that are subject to ongoing change and uncertainty, or our current practices that may utilize different methodologies or standards; (iv) is subject to many assumptions and inherent calculation difficulties, such as accuracy, completeness, and dependence on third parties; (v) may be perceived in ways that adversely impact our business relationships, credibility, and reputation; and (vi) may be infeasible to obtain or report. The costs, burdens, and risks imposed by the foregoing may cause us to alter our business and operations in certain locations.

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• We are subject to risks arising from the availability and prices of natural gas, electricity, and water.

  Already happened

  For example, the real-time market structure of the largest grid operator in Texas exposes many of our refineries and operations located in Texas to “scarcity pricing” during periods of supply and demand imbalance. As electrification continues to grow, or if there are increased restrictions or costs imposed on the ability of utilities or power suppliers to utilize certain energy sources (such as through restrictions on, or other pressure not to use, fossil fuel or nuclear-generated electricity), there will likely be increased strains on and risks to the integrity, reliability, and resilience of electrical grids, and increased volatility and tightness in natural gas and electricity supplies across the world. These events could negatively affect the cost, reliability, and availability of our natural gas and electricity supplies and may cause sporadic outages disrupting our operations. Growing electrification and rapidly developing and increasing technology use (such as artificial intelligence (AI), computer processing, cryptocurrency mining, and cloud storage, as well as the data centers and power supplies required to support these activities) will also likely increase the intermittency and decrease the reliability of electricity supplies, particularly for grids highly dependent upon wind and solar power, which exacerbate the foregoing challenges, including by increasing costs. Government and private impediments and opposition to certain infrastructure projects (including pipelines) have also resulted in, and could continue to result in, the underinvestment in, or unavailability of, the infrastructure and logistics assets needed to transport and obtain natural gas, electricity, and water in a reliable and cost-efficient manner. We actively manage these risks through contracting and, in the case of natural gas and electricity, hedging, as appropriate, and by pursuing projects that reduce our reliance on third parties and fortify the resilience of our assets and supplies. However, increases in the prices for natural gas and electricity, and disruptions to our supplies thereof, have had, and could again have, a material adverse effect on our business, financial condition, results of operations, and liquidity. Certain of our refineries in Texas have also recently experienced various water supply challenges that remain ongoing to various degrees and in certain instances have resulted in, or are expected to result in, additional capital expenditures and/or ongoing costs. We could experience additional water supply challenges in the future.

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• We are subject to risks arising from the Renewable and Low-Carbon Fuel Programs, and other regulations, policies, international certifications, and standards impacting low-carbon fuels.

  Could happen

  The risks and uncertainties with respect to the final RFS Set II rules are also interrelated with and compounded by U.S. tariffs impacting DGD’s foreign feedstock supplies and several other low-carbon fuels policies, standards, and incentives; and vice versa. For example, for fuel produced on or after January 1, 2026, the OBBB restricts eligibility for the clean fuel production credit to fuels that are derived exclusively from feedstock that was produced or grown in the U.S., Mexico, or Canada, and important guidance with respect to certain aspects of such credits has yet to be finalized. Additionally, in June 2025, California’s Office of Administrative Law approved an amendment to the LCFS that seeks to reduce the CI of California’s transportation fuel pool by 30 percent by 2030 and by 90 percent by 2045 and imposes a cap on the issuance of credits for biomass-based diesel produced from soybean, canola, or sunflower oil, limiting it to 20 percent of the total credits per producer or importer, updated the model used to calculate CI, and introduced more onerous sustainability criteria for crop-based biofuels. Certain Canadian provinces have also recently imposed requirements under their low-carbon fuels standards or programs that limit the amount of imported ethanol and renewable diesel that can be claimed under the programs, and similar protectionist measures are being considered at the federal level in Canada. Further, effective January 1, 2025, the U.K. imposed additional feedstock and reporting requirements impacting SAF compared to the “Refuel EU” requirements under the EU Renewable Energy Directive. The combined effects of each of the foregoing present considerable risks and uncertainties.

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