Fuel Oil A Refiner’s Perspective

1. Fuel Oil A Refiner’s Perspective

2. Typical Fuels Refinery Crude Oil Distillation PLPG LPG Light St. Run Gasolines Naphthas Jet Fuel / Kero Distillates Further Refining Diesel / Heating Oils Crude Oil Gas Oils Bunker/Fuel Oils Residual (0 - 40%) Misc. Products Coke (carbon) Sulfur

3. Crude Oil Yields LPG Lighter LSR Naphtha Kero Diesel API Gravity Gasoil Resid Heavier API=27.6 Sulfur = 1.1% API=21.3 Sulfur = 3.5% API=15.3 Sulfur = 2.5% API=47.3 Sulfur = 0.3% Low High Refinery Complexity

4. Crude Oil Properties

5. Refining Trends

6. NYH 6:3:2:1 Brent Crack Overall refining margins have increased

7. 1% Fuel Oil vs Brent Price Fuel oil price relative to crude has declined

8. Gasoline and Fuel Oil Price History Spread between gasoline and fuel oil has widened making resid upgrade highly desirable

9. Fuel Oil Components And Processing Options

10. Light Cycle Oil (LCO) – from FCC Used as cutter for viscosity Desirable for ULSD feedstock if hydrotreater is capable of converting Heavy Cycle Oil (HCO) – from FCC Heavier cut still a good cutter stock Decant / Slurry Oil – from FCC Potential carbon black feedstock Fuel oil cutter stock Atmospheric Gas Oil – may be used if needed for gravity / viscosity control Undesirable due to large downgrade relative to cat cracking Vacuum Resid Has the most processing optionality Fuel Oil Blend Components

11. Blending to Bunker Fuel & Utility Fuel Oil Asphalt Production Resid Conversion to Gasoline / Diesel FCC Feed (light straight run resid) Delayed Coking (heavy, sour resid) Visbreaking Refinery Options for Resid

12. Advantages Low capital requirements to process Provides outlet for non-clean product streams Disadvantages Negative margin relative to crude May require downgrade of lighter products to meet gravity / viscosity specifications Refinery Options for Resid - Fuel Oil Blending

13. Advantages Provides opportunity for product upgrade vs fuel oil May be able to run advantaged crude slate Disadvantages May result in gas oil downgrade from cat cracking to asphalt to meet specifications May limit crude selection Specifications more difficult to meet Refinery Options for Resid - Asphalt Production

14. Advantages Upgrades resid to gasoline and diesel Improved clean products yield Improved margin Disadvantages Resid feed rate limited by concarbon - air blower limit Feed rate may also be limited by metals in resid – higher catalyst additions or metals passivation Can impact crude selection requiring more expensive, higher quality crudes to accommodate processing Refinery Options for Resid - Catalytic Cracking

15. Advantages Enables processing of cheaper heavy sour crude Upgrades resid to gasoline and diesel Disadvantages Requires significant capital investment Additional hydrotreating Sulfur processing Amine treating Sour water processing Refinery Options for Resid - Delayed Coking

16. Sales are the best option when: Running low resid yielding crudes Clean products yield is high (>90%) Capital investment for resid conversion is not desirable The refinery has waterborne product distribution options Fuel Oil Sales

17. A Refiner’s Options:Economic Option? Sell to export market Possible Blend with low-sulfur streams A few refineries? Switch to lower-sulfur crudes A few refineries? Asphalt market Limited market Resid Desulfurization Unlikely / costly Resid Destruction Possible ….If Fuel Oil Sulfur is Regulated to 1.5% Sulfur

18. Where will market economics steer us? Relative Prices Crude Oil vs. Fuel Oil vs. Motor Fuels Cost of Capital Investment Operating Cost A Refiner’s Decision

19. Thank you ! . Special thanks to Steve Smith and Marla Benyshek at ConocoPhillips for their help

20. Backup Slides

21. ConocoPhillips U.S. Refinery Sites

22. East Coast 6:3:2:1 Brent crack (or margin) 6 Barrels of sweet crude produces: 3 barrels of gasoline 2 barrels of heating oil 1 barrel of fuel oil 6:3:2:1 = (3 x gasoline price + 2 x diesel price + 1 x fuel oil price – 6 x Brent crude price) / 6 Refining Margins

23. Gasoline & LSFO Price History