Basics of Refining

February 17, 2005

Refining Fundamentals &

Impact of Changing Fuel Specifications

1
 Safe Harbor Statement

Statements contained in this presentation that state

the Company’s or management’s expectations or predictions
of the future are forward-looking statements intended to be
covered by the safe harbor provisions of the Securities Act of
1933 and the Securities Exchange Act of 1934. It is important
to note that the Company’s actual results could differ
materially from those projected in such forward-looking
statements. Factors that could affect those results include
those mentioned in the documents that the Company has filed
with the Securities and Exchange Commission.

2
 Crude Oil Characteristics
Q Crude density is commonly measured by API gravity
O API gravity provides a relative measure of crude oil density …
the higher the API number, the lighter the crude
O Classified as light, medium, or heavy
¾ Light crudes are easier to process
¾ Heavy crudes are more difficult to process

Q Sulfur content measures if a crude is sweet (low sulfur) or

sour (high sulfur)
O Less than 0.7% sulfur content = sweet
O Greater than 0.7% sulfur content = sour
O High sulfur crudes require additional processing to meet regulatory
specs

Q Acid content measured by Total Acid Number (TAN)

O Acidic crudes highly corrosive to refinery equipment
O High acid crudes are those with TAN > 0.7
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 Crude Oil Basics
Crude Quality by Types Estimated Quality of Reserves (2005)
3.5
SOUR

Maya

3
Arab Heavy

Arab Medium High Acid

Sweet
2.5
(Sweet)
SULFUR CONTENT

2% 19%
Mars
Dubai
2
Iran Heavy
2010

1.5
Venezuela Medium
Arab Light Heavy
2000
Urals
Iran Light
Sour Light/Medium
1
1990 16% Sour
Alaska North Slope
(ANS)
1980 63%
SWEET

0.5
Brent
WTI
Cabinda Tapis
Bonny Light
0
20 25 30 35 40 45 50

HEAVY API GRAVITY LIGHT

Source: Simmons & Co. Source: Oil & Gas Journal, Company Information

Q Majority of global reserves are light/medium sour

Q Most quoted benchmark prices are light sweet crudes
O WTI (West Texas Intermediate), Western Hemisphere

O Brent (North Sea Crude), Europe

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 Basic Refining Concepts
Crude Types Characteristics Yields
2004 U.S. Refinery
34+ API Gravity 3%
Production
Sweet Crude < 0.7 % Sulfur 30%

(i.e. WTI, Brent) Propane/

Propane/
35% Demand 34% 8%
8% Butane
Butane
Most Expensive 33%
Gasoline
RFG
49% Conventional
24 - 34 API Gravity 3%
CARB
21%
Medium Sour Crude > 0.7 % Sulfur Premium
26%
(i.e. Mars, Arab Light,
Arab Medium) 50% Demand
32% Distillate
50%
Less Expensive Jet Fuel
Diesel
Heating Oil
1%
< 24 API Gravity 14%

> 0.7 % Sulfur 11% Heavy

Heavy Sour Crude 22% Fuel Oil
& Other
(i.e. Maya) 15% Demand 63%
Source: EIA Refiner Production
Least Expensive

Refineries upgrade crude oil to higher value products 5

 Basic Refining Concepts
<90 Degrees
Butane & Refinery Fuel
Lighter Gas Processing

Distillation 90-220 Degrees

Tower Straight Run Further Processed to Gasoline
(Crude Gasoline
Crude
Crude Unit)
Oil
Oil 220-315 Degrees Further Processed to Gasoline
Naphtha Heavy naphtha for jet fuel

315-450 Degrees Further Processed to Jet Fuel,

Kerosene
Diesel and Fuel Oils

450-650 Degrees Further Processed to Gasoline,

Furnace Light Gas Oil
Diesel and Fuel Oil

Vacuum 650-800 Degrees Further Processed to Gasoline,

Heavy Gas Oil
Unit Diesel and Fuel Oil

800+ Degrees Residual Fuel Further Processed to Gasoline,

Oil/Asphalt Diesel, Fuel Oil & Lube Stocks
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Hydroskimming Refineries – Distillation Process
Crude
Unit Propane/
Propane/Butane
4% Butane

Gasoline
Distillation Tower

Reformer High Octane Gasoline RFG

Low Octane Gasoline 30% Conventional
CARB
Hydrogen

Light Premium

Distillate
Sweet Kerosene/Jet Fuel
Desulfurizer
Kerosene/Jet Fuel 34% Distillate
Jet Fuel
Crude Diesel/Heating Oil Diesel/Heating Oil
Diesel
Heating Oil

Vacuum Gas Oil

Unit Heavy
32% Fuel Oil
Heavy Fuel Oil & Other

100% Total Yield

Simple low upgrading capability refineries tend to run sweet crude 7
Medium Conversion Refineries - Catalytic Cracking
Crude
Propane/
Unit 8%
Propane/Butane Butane

Gasoline
RFG
Low Octane Gasoline
Reformer High Octane Gasoline 45% Conventional
CARB
Distillation Tower

Hydrogen Premium
Distillate
Light Kerosene/Jet Fuel
Desulfurizer
Kerosene/Jet Fuel
27% Distillate
Jet Fuel
Sour Diesel/Heating Oil Diesel/Heating Oil
Diesel
Heating Oil
Crude
Light Cycle Oil
(LCO)

Alkylation
Unit Alkylate
Fluid Catalytic
Vacuum Gas Oil
Cracker (FCC)
Unit FCC Gasoline
Heavy
24% Fuel Oil
& Other
Heavy Fuel Oil

104% Total Yield

Moderate upgrading capability refineries tend to run more sour crudes
while achieving increased higher value product yields and volume gain. 8
High Conversion Refineries – Coking/Resid Destruction
Crude Hydrogen Plant
Gas
Unit Propane/
Propane/Butane
7% Butane

Distillation Tower Gasoline

Low Octane Gasoline Reformer High Octane Gasoline RFG
58% Conventional
Medium/ Hydrogen CARB
Premium
Heavy Kerosene
Distillate
Desulfurizer
Kerosene/Jet Fuel
28% Distillate
Sour Diesel Diesel/Heating Oil
Jet Fuel
Diesel
Crude Heating Oil

Light Gas Oil Hydrocracker Hydrocrackate Gasoline

LCO Alkylation Alky Gasoline

Unit
Fluid Catalytic
Vacuum Medium Gas Oil Cracker (FCC)
Unit FCC Gasoline

Delayed Heavy
Heavy Fuel Oil
Coker
Coke 15% Fuel Oil
& Other

108% Total Yield

Complex refineries can run heavier and more sour crudes while
achieving the highest light product yields and volume gain. 9
 Conversion Economics
USGC Medium Sour Crude Refining Margins
18.00
18.00
15.00
15.00
12.00
12.00
$/BBL
$/BBL

9.00
9.00
6.00
6.00
3.00
3.00
0.00
0.00
-3.00
-3.00
Jan-01
Jan-01 Jan-02
Jan-02 Jan-03
Jan-03 Jan-04
Jan-04 Jan-05
Jan-05

Hydroskimming
Hydroskimming Cracking
Cracking Coking
Coking

Q Conversion capacity needed to capitalize on sour crude discounts

O Hydroskim - Breakeven or moderate margins; High resid yield
¾ When margins are positive - increase crude runs
¾ When margins are negative - decrease crude runs
O Cracking - Better margins; Lower resid yield
O Coking - Best margins; Lowest resid yield
¾ Maximize heavy crudes
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Regulatory Changes Impacting Supply
Maximum Gasoline Maximum Diesel
Sulfur Content (PPM) Sulfur Content (PPM)
300
500 500 500

350 350
150 150
120
90
50 50
30 30 50 50
10 15 15 10

’03 ’04 ’05 ’06 Beyond ’03 ’04 ’05 ’06 Beyond ’03 ’04 ’05 ’06 Beyond ’03 ’04 ’05 ’06 Beyond

U.S. Europe U.S. Europe

Q Major changes in sulfur specs

O 2005 in Europe and 2006 in U.S.

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 Desulfurization Basics
Q Goal
X Removal sulfur from light products (gasoline or diesel) to meet air quality
requirements for clean burning fuels

Q Process
Desulfurization Unit
HC Desulfurized Light Products
High Sulfur HC-S H2 HC-S
Light Products HC-S
H2
(HC-S)
H2 Elemental
Catalyst
Sulfur Plant Sulfur
HC-S HC-S • Agricultural
H2S S S
H2 S • Pharmaceutical
HC-S S
S S
2
H
Hydrogen Unit
H2
H2 H2
H2
H2 H2

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 Gasoline Desulfurization
Crude Hydrogen Plant
Unit Q Significant capital
Propane/Butane
investment
Q Lower FCC
Distillation Tower

Low Octane Gasoline Reformer High Octane Gasoline gasoline octane

(yield loss)
Kerosene Distillate Kerosene/Jet Fuel Q Other Options
Desulfurizer
X Desulfurize FCC
Sour Diesel Diesel/Heating Oil feed
Crude X Shift FCC
gasoline into
Hydrocracker
Light Gas Oil Hydrocrackate Gasoline
distillate
LCO Alky
Unit Alkylate Gasoline
Fluid
Vacuum
Catalytic
Unit Medium Gas Oil
Cracker
FCC
FCC Gasoline
(FCC) Gasoline Install
InstallNew
New
Desulfurizer
Delayed
FCC
FCC
Heavy Fuel Oil Coker Coke
Gasoline
Gasoline
Desulfurizer
Desulfurizer

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 Diesel Desulfurization
Crude Hydrogen Plant
Unit Q Significant capital
Propane/Butane investment
Q Significant project
Distillation Tower

Reformer
Low Octane Gasoline High Octane Gasoline
management time
and focus
Kerosene
Kerosene Desulfurizer Kerosene/Jet Fuel Q Diesel yield loss
Sour Diesel Modified or New
Diesel Desulfurizer
Diesel/Heating Oil

Crude
Hydrocracker
Light Gas Oil Hydrocrackate Gasoline

LCO Alky
Unit Alkylate Gasoline
Vacuum Medium Gas Oil
Fluid
Catalytic
Install
InstallNew
New
Unit
Cracker FCC
FCC Gasoline
Diesel
Diesel
(FCC) Gasoline
Desulfurizer Desulfurizer
Desulfurizer
Delayed oror
Heavy Fuel Oil Coker Coke
Modify
ModifyExisting
Existing
Desulfurizer
Desulfurizer

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Appendix

15
 Major Refining Processes
Category Definition
Topping Separating crude oil into
(Separation of Crude) difference hydrocarbon groups.
The most common means is
through distillation.
Process
Desalting – Prior to distillation, crude oil is often
desalted to remove corrosive salts as well as metals
and other suspended solids.
Atmospheric Distillation – Used to separate the
desalted crude into specific hydrocarbon groups
(straight run gasoline, naphtha, light gas oil, etc.) or
fractions.
Vacuum Distillation – Heavy crude residue
(“bottoms”) from the atmospheric column is further
separated using a lower-pressure distillation
process. Means to lower the boiling points of the
fractions and permit separation at lower
temperatures, without decomposition and excessive
coke formation.
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 Major Refining Processes
Category Definition
Thermal and “Cracking” or breaking down
Catalytic Cracking large, heavy hydrocarbon
molecules into smaller
hydrocarbon molecules thru
application of heat or thru the
use of catalysts.
Process
Coking – Thermal non-catalytic cracking process
that converts low value oils to higher value gasoline,
gas oils and marketable coke. Residual fuel oil from
vacuum distillation column is typical feedstock.
Visbreaking – Thermal non-catalytic process used
to convert large hydrocarbon molecules in heavy
feedstocks to lighter products such as fuel gas,
gasoline, naphtha and gas oil. Produces sufficient
middle distillates to reduce the viscosity of the heavy
feed.
Catalytic Cracking – A central process in refining
where heavy gas oil range feeds are subjected to
heat in the presence of catalyst and large molecules
crack into smaller molecules in the gasoline and
surrounding ranges.
Catalytic Hydrocracking – Like cracking, used to
produce blending stocks for gasoline and other fuels
from heavy feedstocks. Introduction of hydrogen in
addition to a catalyst allows the cracking reaction to
proceed at lower temperatures than in catalytic
cracking, although pressures are much higher.
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 Major Refining Processes
Category Definition
Combination/ Linking two or more
Rearrangement of hydrocarbon molecules together
Hydrocarbons to form a large molecule (e.g.
converting gases to liquids).
Process
Alkylation – Important process to upgrade light
olefins to high-value gasoline components. Used to
combine small molecules into large molecules to
produce a higher octane product for blending with
gasoline.
Catalytic Reforming – The process where naphthas
are changed chemically to increase their octane
numbers. Octane numbers are measures of whether
a gasoline will knock in an engine. The higher the
octane number, the more resistance to pre or self-
ignition.
Polymerization – Process that combines smaller
molecules to produce high octane blending stock.
Isomerization – Process used to produce compounds
with high octane for blending into the gasoline pool.
Also used to produce isobutene, an important
feedstock for alkylation.
Ethers Manufacture – Alcohols and ethers (MTBE)
are added to gasoline to increase octane levels and
reduce generation of carbon monoxide.
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 Major Refining Processes
Category Definition
Treating Processing of petroleum
products to remove some of the
sulfur, nitrogen, heavy metals
and other impurities
Process
Catalytic Hydrotreating, Hydroprocessing,
sweeting/sulfur removal – Used to remove
impurities (e.g. sulfur, nitrogen, oxygen and halides)
from petroleum fractions. Hydrotreating further
“upgrades” heavy feeds by converting olefins and
diolefins to parafins, which reduces gum formation
in fuels. Hydroprocessing also cracks heavier
products to lighter, more saleable products.
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