Rating Methodology October 2005 Contact

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Global Independent Refining and Marketing Industry Summary The purpose of this methodology is to provide investors and other interested parties with a clear understanding of how Moody's assigns ratings to issuers and their obligations in the global independent refining and marketing industry. This methodology examines the key factors that influence the credit strength of independent refining and marketing companies worldwide, and by extension, Moody's ratings of these companies. Our goal is to help the market understand the qualitative and quantitative factors that we consider most important for this sector and how they map to rating outcomes. Readers should be able to use this report to gauge most company ratings to within two notches. Moody's analysis of the independent refining and marketing sector focuses primarily on the following key rating factors: 1. Scale and diversification 2. Refinery profitability 3. Financial flexibility 4. Institutional supports/constraints We also look at other factors that can influence the ratings of independent refining and marketing companies, including competitive market position, liquidity and event risk. This methodology is not an exhaustive treatment of all the factors reflected in Moody's ratings of the independent refining and marketing sector, but should enable the reader to understand the key considerations and financial ratios used by Moody's when determining a rating in this sector. For example, in addition to the above areas, there are several generic factors such as corporate governance, management quality, public vs. private ownership1, and political risk that we do not discuss because they are common across all industries. These do, however, remain important inputs into our ratings. We believe that this methodology will enable the reader to gain insight into Moody's rating criteria. However, we caution that our rating process involves a degree of judgment that from time to time will cause a rating outcome to fall outside the expected range of outcomes based on strict application of the factors presented herein. In these situations, we explain the differences and rationale in our credit opinions and company-specific analyses. 1.

Please refer to Moody's Special Comment "The Application of Joint Default Analysis to Government-Related Issuers" (April 2005).

Industry Overview ABOUT THE RATED UNIVERSE Moody's rates 26 independent refining and marketing companies globally2, with: • 46% in the U.S., • 38% in Asia, • 12% in South America, and • 4% in Europe. Together, these companies have outstanding rated debt of approximately U.S.$15.9 billion, with 71% held by the U.S. refiners. About $5.7 billion or 36% of the rated debt is held by high yield companies, 62% of which is attributable to U.S. independent refiners. The weighted average rating for the industry worldwide is Ba1.

Independent Refining and Marketing Industry - Rated Companies Senior Unsecured or Corporate Family Rating

Outlook

Domicile

North America Flint Hills Resources, LLC Motiva Enterprises LLC Sunoco, Inc. Valero Energy Corporation CITGO Petroleum Corporation Frontier Oil Corporation Tesoro Petroleum Corporation Giant Industries Inc. Alon USA, Inc. Coffeyville Resources LLC Western Refining Co, L.P. United Refining Company

A1 3 (A2)* Baa2 Baa3 5 (Ba1)* Ba3 Ba3 B1 B2 B2 B2 B3

Stable Stable Stable Stable Stable Stable Review Up Stable Stable Stable Stable Stable

US US US US US US US US US US US US

South America Empresa Nacional del Petrolco S.A. (ENAP) Petroleum Co of Trinidad & Tabago (Petrotrin) Administracion Nacional de Combustibles (ANCAP)

4 (A2)* 5 (Baa2)* 6 (B3)*

Stable Stable Stable

Chile Trinidad & Tobago Uruguay

226,800 165,000 50,000

B1

Stable

Sweden

335,000

A3 Baa1 Baa1 4 (Baa1)* Baa1 4 (Baa3)* Ba1 Ba1 Ba2 Ba2

Stable Stable Stable Stable Stable Stable Stable Positive Stable Review Up

Japan South Korea Japan Thailand Japan India Japan South Korea Japan India

Company

Europe Preem Holdings AB Asia Nippon Oil Corporation GS Caltex Corporation Showa Shell Sekiyu K.K. Thai Oil Public Company Ltd TonenGeneral Sekiyu K.K. Indian Oil Corporation Ltd Cosmo Oil Company, Ltd. SK Corporation Nippon Mining Holdings, Inc Reliance Industries Limited

Crude Distillation Capacity (bbls/day)

746,000 783,000 890,000 2,674,000 865,000 156,000 559,200 103,500 62,000 100,000 90,000 66,700

1,220,000 650,000 517,000 220,000 761,000 1,084,000 595,000 810,000 582,200 663,000

* Numerical rating reflects baseline credit assessment per Moody's Methodology for Government-Related Issuers. Rating in parentheses is Global Local Currency rating or Foreign Currency rating in cases where there is no Global Local Currency rating. For an explanation of baseline credit assessment please refer to Moody’s Special Comment entitled “The Application of Joint Default Analysis to Government-Related Issuers” (April 2005).

2.

2

The refining and marketing companies discussed in this report are "independent" because they are not part of integrated oil companies that participate in both oil and gas exploration and production ("upstream") and in refining and marketing ("downstream"). For a detailed discussion of integrated oil companies, please refer to Moody's Methodology for the Global Integrated Oil & Gas industry (October 2005).

Moody’s Rating Methodology

INDUSTRY CHARACTERISTICS The global refining and marketing industry is fragmented, highly competitive - both regionally and worldwide - and extremely capital intensive. Both its revenues and costs are subject to global and regional commodity price forces, usually beyond any one issuer's control. Worldwide, approximately 674 refineries with crude distillation capacity of over 82 million barrels per day3 process a variety of crude oils and other feedstocks into petroleum products such as gasoline, diesel, heating oil and jet fuel. Some refining and marketing companies also have petrochemical operations with varying scale. Marketing involves the distribution of petroleum products through a variety of wholesale and retail (service stations) channels. Crude and refined products are international commodities that are traded freely on the open market, with major trading hubs located in the Netherlands, the U.S. Gulf Coast and Singapore. Refined product prices are determined by both regional and global supply/demand fundamentals. The industry is inherently cyclical, following global and regional patterns of economic growth and product demand and industry patterns of investment, surplus and shortage. Among the defining trends, during periods of high refining margins, companies find it economical to add capacity. This will pressure margins when demand growth slows or declines.

CURRENT INDUSTRY TRENDS AND RISK FACTORS Capacity Constraints, Rising Demand Global economic growth over the last several years has increased the demand for refined products, particularly gasoline and diesel, to historically high levels, but refining capacity has not kept pace. Although refiners have continued to invest in expansions and upgrades of existing refineries, relatively few new refineries have been built. Several companies have recently announced major expansions, but the supply impact will be several years into the future.

High Refining Margins, Strong Cash Flow Since the most recent cyclical trough in refining margins in 2002, average annual margins have been trending up, exceeding in each year the average for the previous five years. This trend has increased the earnings and cash flow of independent refining and marketing companies to levels not seen in decades, allowing many of them to reduce their financial debt. Some have also been bridging capital spending for long-lead-time capital projects or repurchasing shares under share buyback programs, while others (mainly in the U.S.) have relied on high margins to finance acquisitions. At the same time, refiners have had to use some of this increased cash flow to fund rising working capital needs related to high crude oil prices, as well as higher capital spending to comply with environmental regulations, as explained below. Nevertheless, in general, the current period of high refining margins has been credit positive for independent refiners.

Wide Light/Heavy Spreads; Refineries with High Conversion Capacity Benefit Over time, the world's oil production is becoming heavier. In general, crudes that are heavier (higher gravity) and/or more sour (higher in sulfur content) are less expensive than light, sweet (low-sulfur) crudes. However, relative to the more expensive light sweet crudes, heavier sour crudes yield a far lower proportion of valuable light refined products, and a far higher proportion of undesired low or negative margin by-products. As oil and gas prices have risen, the light/heavy spread has widened considerably. Light sweet crude prices have risen faster than heavy sour crude prices, as they have responded more immediately to the lack of spare light crude production capacity relative to heavy oils. The widening spread has also been a function of refining capacity, because the world lacks sufficient conversion capacity to convert the rising percentage of heavier oils into light products such as gasoline. This has resulted in higher refining margins for those refiners able to process heavy sour crudes, a situation likely to last until new conversion capacity is added.

Volatile Earnings and Cash Flow Refining and retail marketing margins tend to be highly volatile and can cause wide swings in a company's financial performance from quarter to quarter. In general, refining margins are affected by macro factors outside the company's control such as seasonal changes in refined product demand, supply disruptions, changes in feedstock costs, and speculative activity in the commodities markets. Plant reliability also has a major impact on refining costs and profitability. Industry accidents and unplanned downtime tend to increase during periods of high utilization or costcutting. Periodic planned shut-downs for routine maintenance or turnarounds can also affect industry throughput capacity and utilization. 3.

Source: Oil & Gas Journal, December 20, 2004

Moody’s Rating Methodology

3

At the retail level, an increase in wholesale product prices can have a negative effect on marketing margins (at the service station pump) if competition prevents retail prices from rising in line with prices at the refinery gate. Some companies rely on hedging to lock in margins on certain of their refined products, but most are reluctant to hedge a large portion of their product volumes because of the risk of missing out on a sudden price run-up or drop in crude prices.

Capital Intensity Refineries are heavily capital-intensive and have high maintenance costs. Aside from routine maintenance, they require more extensive turnarounds every 4 to 5 years. Refiners must also make refinery modifications periodically to comply with environmental rules. Strategic projects designed to improve a refinery's product slate or to expand its capacity to increase product yields or to reduce the cost of its crude slate (e.g. by installing expensive coking units) can also involve significant amounts of capital. Assessing potential returns from strategic growth investments is challenging in an industry where margins remain volatile and cyclical.

Narrow Windows for Capital Markets Access During periods of low refining margins, it becomes more difficult for refiners to tap the debt and equity capital markets. Therefore, the windows during which they have easy access to capital (during periods of high refining margins) are relatively short. Independent refiners are generally reluctant issuers of common equity because of the uncertainty of future earnings and the risk of shareholder dilution. As a result, independent refiners tend to rely more heavily on debt markets for financing. In the U.S., there have been instances where refiners have been willing to issue equity when making accretive acquisitions. However, when their share prices come under pressure due to low refining margins, they are less willing (or unable) to issue equity to fund these transactions, relying instead on debt, hybrid securities and/or internal cash flow. This increases risks to debt holders.

KEY RATING ISSUES INTO THE NEXT DECADE Sustainability of High Refining Margins as Industry Expands

Incorporating Commodity Price Risk In analyzing the global refining industry, Moody's looks to maintain some consistency of ratings during periods of both high and low commodity prices. Therefore, we need to take into account commodity price volatility and incorporate an expected range of refining margin fluctuations. We do not, however, seek to forecast refining margins precisely. Rather, our price assumptions are derived through an examination of macroeconomic trends, including supply and demand factors; discussions with issuers and market participants across the full spectrum of the industry; and our own element of pragmatism and conservatism. Our current refining margin assumptions are as follows: •

Our medium term (three-year) outlook generally assumes two mid-cycle (average) years and one trough year, with the order depending on our current margin outlook.

•

We assume crack spreads will remain at or above midcycle levels (the 2001-2005 average) for the remainder of 2005. For 2006, we assume in our base case that margins will be at a more conservative mid-cycle level (2000-2004 average), although we recognize that actual margins could differ from our base case assumptions. Our stress test case assumes 2002 levels (the most recent cyclical trough year for refining margins).

•

For the U.S. and Latin American independent refiners, we use the U.S. Gulf Coast 3-2-1 crack spread as a benchmark. For the European independent refiners, we use the Northwest European crack spread. For the Asian independent refiners, we generally use the Tapis 3-2-1 crack spread.

•

For the light/heavy spread (WTI - Maya), we assume $12 per barrel for the remainder of 2005, $9 for the base case and $6 for the stress case.

Our margin assumptions are used to help us project a refiner's earnings, cash flow and base level capital spending over the medium term. We ask companies to give us their plans using our base case assumptions. They are free to use other assumptions as well, but if they do not use our base case, we will sensitize their numbers. We look at the one year projection to help us analyze a company's liquidity, which we incorporate into our Liquidity Risk Assessments (LRAs) for investment grade companies and into our Speculative Grade Liquidity Ratings (SGLs) for non-investment grade companies. We use stress test analysis to examine whether companies can remain profitable at trough margin levels, what levels of cash flow they can be expected to generate, and whether they would be able to reinvest sufficient capital to maintain sound refining operations and comply with environmental mandates.

The Asian economic crisis during the late 1990's, low average refining industry returns, and new environmental regulations requiring significant non-productive capital spending all led to reduced investment in new refining capacity over the past decade. Several large greenfield refinery projects have since been announced in Asia, led by demand growth in China and in India, and others are under 4

Moody’s Rating Methodology

consideration in Latin America. Several significant expansion projects have also been announced, including two in the U.S. and one in Asia, which should make a meaningful dent in meeting the growing demand for refined products. While we expect that the current period of high refining margins will lead to sizable capacity additions, this new capacity will not be on stream for several more years (expansions often take at least three years and it can take four to five years to build a new refinery). Nevertheless, if global economic growth were to slow materially, refining margins would most likely decline. Because the timing of a deceleration in global demand is uncertain, Moody's believes the potential for a cyclical correction in refining margins must be factored into ratings.

Environmental Regulation Environmental concerns are likely to remain a challenge for the refining industry over the next decade. While a relaxation of some rules is possible in the near term in order to alleviate supply constraints (such as the effects of hurricanes and other unexpected events), over the longer term, companies will continue to have to allocate significant capital to comply with environmental mandates. Refiners in countries with less stringent environmental requirements will be somewhat better off, but those that export petroleum products will nonetheless have to invest in upgrading the quality of their refined products in order to remain competitive in their target export markets.

Slower Industry Consolidation Moody's believes the trend of industry consolidation that began in the 1990's in response to low refining margins will likely continue, with major oil companies continuing to sell non-core strategic assets to independent refiners. The pace of consolidation, however, will be slower than that of the past decade. This is mainly because at today's high refining margins, organic investment in capacity expansions or greenfield refineries has become more attractive. There are also fewer refining assets for sale, and companies could be restricted from acquiring assets in certain regions because of restraint-of-trade issues or political concerns. However, certain independent refiners will continue to seek to acquire additional conversion capacity in order to take advantage of wide light/heavy spreads.

About This Methodology In explaining Moody's approach to rating independent refining and marketing companies, we will proceed through the following steps:

1. IDENTIFICATION OF KEY RATING FACTORS The four key rating factors used in Moody's methodology for rating independent refining and marketing companies are as follows: 1. Scale and diversification 2. Refinery profitability 3. Financial flexibility 4. Institutional supports/constraints These factors, which we explain below, are critical to the analysis of independent refining and marketing companies and can be benchmarked across the industry. Other important qualitative factors that can influence ratings are explained near the end of this report. These include competitive market position, liquidity, and event risk.

2. MEASUREMENT OF THE FOUR KEY RATING FACTORS We present a set of measurement criteria (both quantitative and qualitative) that can be used to measure the four key rating factors (please see Table 2 for a summary description of the measurement criteria used). Our measurement criteria comprise both financial statement measurements as well as other measurements that cannot be derived directly from financial statement analysis. In total, the rating methodology incorporates 11 separate measurement criteria across the four key rating factors.

3. MAPPING FACTORS TO THE RATING CATEGORIES For each sub-factor, we describe appropriate ranges for Moody's broad rating categories, i.e. Aaa, Aa, Baa, Ba, B and Caa. For example, we identify the level of refining capacity expected for a Baa credit versus a single-B rated credit. We specify such ranges for each of the measurement criteria.

Moody’s Rating Methodology

5

4. THE RATING METHODOLOGY APPLIED: COMPANY MAPPING FOR EACH FACTOR Finally we explore how each of the 22 independent refining and marketing companies performs on each subfactor and show how the indicated rating for each measurement compares to the company's actual Senior Unsecured or Corporate Family Rating. For each measurement we also identify and comment on examples of favorable and unfavorable outliers, i.e., companies whose performance in a specific factor would be associated with a rating one or two rating categories higher or lower than their actual ratings.

Independent Refining and Marketing Industry - Mapping Grid Aaa

Aa

A

Baa

Ba

B

Caa

Sub-factor Weighting

Factor 1: Scale and Diversification (35% weighting) Crude Distillation Capacity (mm barrels/day) Number of Large-Scale Refineries (over 100,000 barrels/day of crude distillation capacity)

> 4,000

3,000 - 4,000

1,500 - 3,000

850 - 1,500

250 - 850

50 - 250

< 50

10.0%

> 20

11 - 20

8 - 10

5-7

2-4

1

0

15.0%

Downstream Integration

High

Medium

Low

10.0%

Factor 2: Refinery Profitability (20% weighting) EBIT / Total Throughput Barrels (3-Year Average)

> $4.00 $3.00 to $4.00 $2.50 to $3.00

$2.00 to $2.50 $1.50 to $2.00 $1.00 to $1.50 < $1.00

20.0%

Factor 3: Financial Flexibility (35% weighting) Debt / Complexity Barrels (3-Year Average)

< $100

$100 - $200

$200 - $300

$300 - $400

$400 - $500 $500 - $600

> $600

10.0%

EBIT / Interest Expense (3-Year Average)

> 30x

20 - 30x

10 - 20x

4 - 10x

2 - 4x

1 - 2x

< 1x

7.5%

RCF / Debt (3-Year Average)

> 50%

40% - 50%

30% - 40%

20% - 30%

10% - 20%

0% - 10%

< 0%

10.0%

(RCF - Maintenance Capex) / Debt (3-Year Average)

> 40%

30% - 40%

20% - 30%

10% - 20%

5% - 10%

0% - 5%

< 0%

7.5%

Factor 4: Institutional Supports / Constraints (10% weighting) Institutional Supports / Constraints

Very Positive

Positive

Moderately Negative

Negative

10.0%

The Four Key Rating Factors FACTOR 1: SCALE AND DIVERSIFICATION Why it Matters Size per se is not a virtue or a guarantee of acceptable returns in an industry that is susceptible to excess capacity. However, refining is a volume-driven business with a large-fixed cost component that benefits from economies of scale. A company with significant capacity is also generally in a better position than a small refiner to negotiate discounts on crude and other feedstock supplies. It is also more likely to have logistics assets such as pipelines and terminals that can provide more efficient market access. Such companies will also likely benefit from higher margins attributable to lower reliance on third-party distribution channels. Finally, in addition to the benefits of influence and economies of scale, size also tends to facilitate access to the capital markets. Diversification in terms of crude supplies, product mix and geography are important to the stability of a refining company's earnings and cash flow. Moody's considers whether a refiner's crude sources are sufficiently diversified, so that it is not forced to shut down its operations if one source becomes unavailable. A diversified product mix reduces reliance on a single product and usually implies a more valuable product yield. A geographically diverse spread of refining and marketing assets can have a positive portfolio benefit for refiner credit ratings. Exposure to seasonality, different margin characteristics, unplanned refinery outages, and other factors varies from market to market and across national boundaries. We do not measure these aspects of diversification because refiners do not disclose information on their crude sources and product mixes on a consistent basis, mainly for competitive reasons, and because geographic diversification can be national or regional. However, our measurements of scale typically capture these attributes, as companies with 6

Moody’s Rating Methodology

substantial refining capacity and several large-scale refineries usually exhibit a high degree of operational and geographic diversification.

Measurement Criteria • • •

Total crude distillation capacity (barrels per day) Number of large-scale refineries Downstream integration

Notes on Measurement Criteria Number of Large-Scale Refineries: Moody's defines large-scale refineries as those having more than 100,000 barrels per day of crude distillation capacity. A large-scale refinery can benefit from economies of scale to reduce unit costs and is more likely than a smaller unit to be the efficient survivor during a period of low refining margins. Largescale refineries also typically have more options and greater flexibility in terms of expansions and/or upgrades that could benefit the owner. In addition to distillation capacity, Moody's also considers the number of redundant process trains in a refinery, as multiple trains in large-scale refineries provide redundancies that can help mitigate the effects of unplanned downtime. For example, we consider a refinery with 500,000 barrels per day of crude distillation capacity and two full process trains as equivalent to two large-scale refineries. Downstream Integration: The economic integration of refining operations with retail marketing networks or with petrochemical operations can help diversify a refiner's earnings and cash flow. Internal efficiencies are created through the elimination of middlemen and a reduced need for discounting during periods of excess capacity. In addition, because changes in wholesale prices attributable to crude price movements take longer to be reflected in retail prices, marketing earnings tend to be more stable than earnings from refining. Refiners with no retail marketing segment generally exhibit greater margin volatility (higher peaks and lower lows) than companies that have significant retail operations. Because refiners do not publicly disclose data on downstream integration on a consistent basis, Moody's makes a qualitative judgment by discussing with management the impact of the company's marketing and/or chemical operations on its total earnings and cash flow.

Factor Mapping: Scale and Diversification Crude Distillation Capacity (mm barrels/day) Number of Large-Scale Refineries (over 100,000 barrels/day of crude distillation capacity) Downstream Integration

Aaa

Aa

A

Baa

Ba

B

Caa

> 4,000

3,000 - 4,000

1,500 - 3,000

850 - 1,500

250 - 850

50 - 250

< 50

> 20

11 - 20

8 - 10

5-7

2-4

1

0

High

Medium

Low

Moody’s Rating Methodology

7

Company Mapping: Scale and Diversification Company Flint Hills Resources, LLC ENAP Motiva Enterprises LLC Nippon Oil Corporation GS Caltex Corporation Showa Shell Sekiyu K.K. Thai Oil Public Company Ltd TonenGeneral Sekiyu K.K. Petrotrin Sunoco, Inc. Indian Oil Corporation Ltd Valero Energy Corporation CITGO Petroleum Corporation Cosmo Oil Company, Ltd. SK Corporation Nippon Mining Holdings, Inc Reliance Industries Limited Frontier Oil Corporation Tesoro Petroleum Corporation Giant Industries Inc. Preem Holdings AB Alon USA, Inc. Coffeyville Resources LLC Western Refining Co, L.P. ANCAP United Refining Company

Senior Unsecured or Corporate Family Rating A1 4 (A2)* 3 (A2)* A3 Baa1 Baa1 4 (Baa1)* Baa1 5 (Baa2)* Baa2 4 (Baa3)* Baa3 5 (Ba1)* Ba1 Ba1 Ba2 Ba2 Ba3 Ba3 B1 B1 B2 B2 B2 6 (B3)* B3

Outlook Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Positive Stable Review Up Stable Review Up Stable Stable Stable Stable Stable Stable Stable

Crude Distillation Capacity Ba B Ba Baa Ba Ba Ba Ba B Baa Baa A Baa Ba Ba Ba Ba B Ba B Ba B B B Caa B

Number of LargeScale Refineries Ba Ba Ba Baa Ba Ba Ba Ba B Baa Baa Aa Ba Ba Ba Ba Ba B Ba Caa Ba Caa B B Caa Caa

Downstream Integration Ba B Aa Aa A A B Aa Caa Aa A B A A A Aa A Caa Ba B Ba Ba B Caa B Ba

* Reflects Moody's Methodology for Government-Related Issuers Positive Outlier Negative Outlier

Observations Valero Energy's size and diversification is a positive outlier, reflecting its position as the largest refiner in North America with substantial crude distillation capacity (2.7 million barrels per day pro-forma for its recent merger with Premcor) and high average refinery complexity. The company's geographic diversification helps mitigate some of the volatility in its refining margins, and its ability to process sour crudes allows it to take advantage of discounts to sweet crudes. However, Valero's elevated financial leverage and event risk constrain its debt ratings. The company's acquisition-based growth strategy and financial policies are more aggressive relative to those of its investment-grade independent refining company peers. Flint Hills Resources (FHR) is a negative outlier on this factor because of its smaller size (crude distillation capacity of 746,000 barrels per day) and more limited diversification (three refineries) when compared to the largest industry peers (Nippon and Valero). However, all of FHR's refineries operate in profitable niche markets and have logistically advantages. Further, the company maintains low financial leverage and strong liquidity. Adding additional strength, FHR's ratings are supported by its strategic importance to its parent, Koch Industries, LLC (KILLC, rated Aa1 senior unsecured), a wholly-owned subsidiary of privately owned Koch Industries, Inc., and by a flexible capital retention policy that supports FHR's own expansion plans. KILLC does not guarantee FHR's debt, but its implicit support of FHR provides ratings uplift.

FACTOR 2: REFINERY PROFITABILITY Why it Matters Analyzing trends in a refiner's profitability allows Moody's to determine the key drivers of the company's earnings and cash flow through cycles of varying margin volatility. Understanding these key drivers allows Moody's to form an

8

Moody’s Rating Methodology

overall opinion on the earnings power of a refiner's asset base and its ability to make the capital investments necessary to remain profitable going forward. Fundamentally, reliable levels of profitability indicate whether the refiner can be expected to remain as a going concern, regardless of industry conditions. A refinery's gross margin (or crack spread) is determined by the price it receives for its refined products less feedstock costs (over 80% of which comprise crude oil). The larger the proportion of "light" or high-value products such as gasoline, diesel and jet fuel in a refinery's product yield, the more complex the refinery (i.e. the more processing units it needs) and the higher the value of its refined product output. Refineries that produce large amounts of residual fuel oil, for example, will generate lower revenue than those whose product slates have a high motor fuel component. Raw material costs are affected by the general level of crude oil prices, by the types of crude oils a refinery can process (its crude slate), as determined by the refinery's configuration (the processing units within the refinery), and by transportation costs. The margins of refining companies that can process large volumes of heavy or sour crudes will benefit from a widening in the light/heavy spread. Because refineries are characterized by high operating leverage and are volume-driven, our review also focuses on the company's cost structure and management's track record in operating its refineries with minimum unplanned downtime. Cost and reliability are both captured in the profitability measure explained below. In addition to reviewing the company's overall profitability, Moody's believes it is important to examine the profitability of each individual refinery--particularly in the case of small refining companies with relatively few assets. The refinery-by-refinery analysis is helpful in assessing whether the company will need to make capital investments in the future to improve that refinery's operating performance and profitability. It can also assist with refinery valuation, in the event that debt is secured by refining assets. Finally, as ratings are meant to be relative measures of creditworthiness, Moody's also compares a refining company's profitability with that of its regional and international peers to determine its relative performance at different refining margin levels.

Measurement Criteria •

EBIT/Total Throughput (three-year average)

Notes on Measurement Criteria To assess a refiner's profitability, Moody's analyzes the company's three-year historical average consolidated unit EBIT (refining-only EBIT, which would exclude retail marketing, petrochemicals and other non-refining businesses, is not publicly reported on a consistent basis). As explained above, Moody's also looks at three-year projections, sensitized for different margin environments. While unit gross margins and cash operating costs would also be useful measures, companies often do not report this data publicly because of competitive concerns. When they do, the methods used to calculate refining and retail margins can vary, making comparisons difficult. For refiners that capitalize turnaround costs, Moody's adjusts EBIT in order to account for these costs as operating expenses. We also adjust EBIT for items such as underfunded defined benefit pensions, operating leases, securitizations, and unusual and non-recurring items, as per Moody's standard adjustments.4 Moody's believes it is more useful to measure a refiner's unit EBIT as opposed to absolute EBIT, and hence we divide EBIT by the total throughput of all of its refineries (throughput is defined as crude and other feedstock volumes processed by the refineries over a one-year period). A unit measure results in a more fair comparison of one refiner to another by eliminating distortions created by differences in refining capacity. For example, one refiner may generate larger absolute EBIT than another, but when measured against throughput volume, it may actually be less profitable.

Factor Mapping: Refinery Profitability EBIT /Total Throughput Barrels (3-Year Average)

4.

Aaa

Aa

A

Baa

Ba

B

Caa

> $4.00

$3.00 - $4.00

$2.50 - $3.00

$2.00 - $2.50

$1.50 - $2.00

$1.00 - $1.50

< $1.00

Moody's Approach to Global Standard Adjustments in the Analysis of Financial Statements for Non-Financial Corporations - Part I (July 2005).

Moody’s Rating Methodology

9

Company Mapping: Refinery Profitability Senior Unsecured or Corporate Family Rating A1 4 (A2)* 3 (A2)* A3 Baa1 Baa1 4 (Baa1)* Baa1 5 (Baa2)* Baa2 4 (Baa3)* Baa3 5 (Ba1)* Ba1 Ba1 Ba2 Ba2 Ba3 Ba3 B1 B1 B2 B2 B2 6 (B3)* B3

Company Flint Hills Resources, LLC ENAP Motiva Enterprises LLC Nippon Oil Corporation GS Caltex Corporation Showa Shell Sekiyu K.K. Thai Oil Public Company Ltd TonenGeneral Sekiyu K.K. Petrotrin Sunoco, Inc. Indian Oil Corporation Ltd Valero Energy Corporation CITGO Petroleum Corporation Cosmo Oil Company, Ltd. SK Corporation Nippon Mining Holdings, Inc Reliance Industries Limited Frontier Oil Corporation Tesoro Petroleum Corporation Giant Industries Inc. Preem Holdings AB Alon USA, Inc. Coffeyville Resources LLC Western Refining Co, L.P. ANCAP United Refining Company

Outlook Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Positive Stable Review Up Stable Review Up Stable Stable Stable Stable Stable Stable Stable

EBIT / Total Throughput Barrels Aaa Baa Baa Aa Aa Baa A Baa Aa Ba Aaa Baa Baa A Aa Aaa Aaa Ba Ba Ba A Baa Ba B Aa B

* Reflects Moody's Methodology for Government-Related Issuers Positive Outlier Negative Outlier

Observations GS Caltex is a positive outlier on refinery profitability, as its average EBIT/Total Throughput is among the highest of the investment-grade industry peers, reflecting its large-scale, complex refinery, efficient retail network and substantial petrochemical operations. However, the company's strong performance in this metric is partially offset by its single refinery complex (although we note it has multiple process trains), high Debt/Complexity Barrels, and management's plans to elevate capital spending over the next several years. Motiva is a negative outlier in the area of refinery profitability, as its performance on EBIT/Total Throughput is one rating category below the level implied by its rating. However, this factor is outweighed by Motiva's strong downstream integration; its considerable financial flexibility, including flexibility on owner distributions; and the implicit support of its parents, Shell Oil Company (rated Aa2) and Saudi Refining Inc. (not rated), a wholly owned subsidiary of Saudi Aramco, the state oil company of Saudi Arabia. Moreover, we expect the company's profitability to improve as a result of the divestiture of its lowest return refinery in 2004 and a recently completed extensive retail re-branding and upgrading program.

FACTOR 3: FINANCIAL FLEXIBILTY Why it Matters An over-reliance on debt financing is detrimental to a refiner's credit quality, given the sector's potential for sudden declines in margins and cash flow and the extreme capital intensity of the business. Moody's thus seeks to determine the extent to which a refiner's cash flow, after funding of capital spending and dividends, can service its debt through a refining cycle. Refiners have limited ability to cut or defer scheduled maintenance and refinery turnarounds for more than a short period, as these are essential to reliable performance. Strategic capital for capacity expansions or de-bottlenecking projects, however, is easier to pare back than is mandatory 10

Moody’s Rating Methodology

capital spending for maintenance and environmental compliance (however, once an expansion project is underway, refiners have less flexibility to shut it down). Although refiners can capitalize turnaround costs and strategic capital spending in order to delay their impact on earnings, their negative impact on cash flow is immediate. A large debt burden only adds to these already substantial fixed costs.

Measurement Criteria • • • •

Debt/Complexity Barrels (three-year average) EBIT/Interest Expense (three-year average) RCF/Debt (three-year average) RCF-Maintenance Capital Expenditures/Debt (three-year average)

Notes on Measurement Criteria In measuring a company's financial flexibility, Moody's focuses on financial leverage and earnings and cash flow coverage. We analyze three years of historical data and three-years of financial projections, sensitized for different refining margin environments, as explained above. Debt/Complexity Barrels: This asset leverage ratio measures a company's debt burden relative to its Nelson complexity barrels5, an industry classification that indicates a refinery's value-adding process capacity to convert a barrel of crude oil into high value end products. A company with a high weighted average Nelson Complexity Factor6 is able to process cheaper, heavy sour crude oils that are more difficult to refine, yet still yield a high proportion of valuable light transportation fuels, specialty lubricants, or petrochemicals. A high Nelson Complexity Factor for a refinery indicates a high level of capital investment in sophisticated process units, a higher cash margin potential per barrel of throughput (offsetting higher unit operating costs) and greater refinery asset value per unit of distillation capacity. In effect, the Debt/Complexity Barrels ratio measures the debt burden per value-adjusted barrel of refining capacity. In theory, a more complex refinery will be able to bear more leverage based on the yield of more profitable, higher value products it produces from the cheaper heavier sour crudes it can run. Moody's adjusts each refiner's balance sheet debt for off-balance sheet items such as operating leases, unfunded pension liabilities, securitizations, and the debt component of hybrid securities, including preferred stock, in accordance with Moody's standard adjustments. For refining and marketing companies with other substantial businesses such as exploration and production or chemicals, we allocate a portion of the debt to these other businesses and then calculate the standalone refining and marketing leverage. EBIT/Interest Expense: This ratio is a measure of a company's ability to cover its interest expense with pre-tax operating income. We do not add back depreciation to EBIT, as refiners must "spend" the bulk of their depreciation over time on maintenance, as described below. Consistent with Moody's standard adjustments, interest expense includes capitalized interest. RCF-Maintenance Capex/Debt: This coverage ratio measures the degree to which a refining company's Retained Cash Flow after maintenance capital expenditures covers its financial obligations. Maintenance capital is the minimum amount the company must re-invest to maintain refinery reliability. Moody's generally assumes maintenance capital expenditures are equal to 80% of a refining company's annual depreciation and amortization expense. Retained Cash Flow (cash flow from operations before working capital changes less dividends) is a useful measure of a refiner's after-tax cash flow. It takes into account a refiner's interest expense burden, which Moody's views as a fixed obligation, and eliminates the impact of volatile working capital changes (although these changes are important in assessing a refiner's liquidity, as discussed below). In general, independent refiners do not pay high dividends, and high-yield refiners typically do not pay any dividends at all. However, for investment-grade refiners and state-owned companies that do pay dividends, it is important to view these payments as "fixed" because of the highly volatile nature of refinery cash flows and the reluctance of most companies to cut their dividends except as a last resort. Moody's adjusts Retained Cash Flow (cash flow from operations before working capital changes less dividends) for items such as underfunded pension liabilities, operating leases, capitalized interest, securitizations, and hybrid

5. 6.

Nelson Complexity Barrels = Total Crude Distillation Capacity (barrels per day) x Weighted Average Nelson Complexity Factor. The sum of each refinery's Nelson Complexity Factor weighted by its crude distillation capacity. Moody’s Rating

Methodology

11

securities, according to Moody's standard adjustments. For refiners that capitalize turnaround costs, Moody's adjusts Retained Cash Flow to reclassify these costs from investing cash out flows to operating cash outflows.

Factor Mapping: Financial Flexibility Aaa

Aa

A

Baa

Ba

B

Caa

Debt / Complexity Barrels (3-Year Average)

< $100

$100 - $200

$200 - $300

$300 - $400

$400 - $500

$500 - $600

> $600

EBIT / Interest Expense (3-Year Average)

> 30x

20 - 30x

10 - 20x

4 - 10x

2 - 4x

1 - 2x

< 1x

RCF / Debt (3-Year Average)

> 50%

40% - 50%

30% - 40%

20% - 30%

10% - 20%

0% - 10%

< 0%

(RCF - Maintenance Capex) / Debt (3-Year Average)

> 40%

30% - 40%

20% - 30%

10% - 20%

5% - 10%

0% - 5%

< 0%

Company Mapping: Financial Flexibility Company Flint Hills Resources, LLC ENAP Motiva Enterprises LLC Nippon Oil Corporation GS Caltex Corporation Showa Shell Sekiyu K.K. Thai Oil Public Company Ltd TonenGeneral Sekiyu K.K. Petrotrin Sunoco, Inc. Indian Oil Corporation Ltd Valero Energy Corporation CITGO Petroleum Corporation Cosmo Oil Company, Ltd. SK Corporation Nippon Mining Holdings, Inc Reliance Industries Limited Frontier Oil Corporation Tesoro Petroleum Corporation Giant Industries Inc. Preem Holdings AB Alon USA, Inc. Coffeyville Resources LLC Western Refining Co, L.P. ANCAP United Refining Company

Senior Unsecured or Corporate Family Rating Outlook A1 Stable 4 (A2)* Stable 3 (A2)* Stable A3 Stable Baa1 Stable Baa1 Stable 4 (Baa1)* Stable Baa1 Stable 5 (Baa2)* Stable Baa2 Stable 4 (Baa3)* Stable Baa3 Stable 5 (Ba1)* Stable Ba1 Stable Ba1 Positive Ba2 Stable Ba2 Review Up Ba3 Stable Ba3 Review Up B1 Stable B1 Stable B2 Stable B2 Stable B2 Stable 6 (B3)* Stable B3 Stable

Debt / Complexity Barrels Aaa Caa A Caa Caa Caa Caa Baa Caa Baa Caa Baa A Caa Caa Caa Caa Aa Ba Ba Caa Ba B Baa Caa B

EBIT / Interest Expense Aaa Baa Baa Baa Baa Baa Baa A Baa Ba Baa Baa Baa Ba Ba Ba Baa Baa Ba Ba Ba Ba Ba Baa Baa B

RCF / Debt Aaa Ba A Ba Baa Ba A Ba Baa Baa Baa Baa Baa B Ba B Baa Baa Ba Ba Ba Ba Caa Baa Baa B

(RCF Maintenance Capex) / Debt Aaa Ba A Baa A Ba A B Ba Baa Baa Baa Baa B Baa Ba A Baa Ba Baa Baa Ba Caa A A B

* Reflects Moody's Methodology for Government-Related Issuers Positive Outlier Negative Outlier

Observations Citgo Petroleum is a positive outlier on financial flexibility based on its low financial leverage (as measured by Debt/ Complexity Barrels) and reasonable coverage metrics. Citgo further benefits from the size and scale of its refining operations and its strong profitability relative to its investment-grade peers. At the same time, Citgo's ratings are constrained by its ownership by Petroleos de Venezuela (rated B1 local currency, B2 foreign currency), Venezuela's state-owned oil company, which raises risks such as supply disruption, capitalization and balance sheet risk, and ownership risk. Frontier Oil, also a positive outlier, shows strength in the area of financial flexibility relative to its low rating. The company's small size and limited diversification (it has two refineries and only one is large-scale), which are 12

Moody’s Rating Methodology

characteristics associated with most high-yield refiners, its lack of downstream integration and its weak profitability outweigh its reasonable cash flow coverage and low financial leverage. Empresa Nacional del Petroleo (ENAP), Chile's state-owned oil company, is a negative outlier on financial flexibility because of its relatively weak cash flow coverage and financial leverage metrics. The company is also a negative outlier on scale and diversification, based on its relatively small refining system. However, strong implicit support of ENAP from the Chilean government (rated A1 local currency, Baa1 foreign currency) creates significant ratings uplift.

FACTOR 4: INSTITUTIONAL SUPPORTS/CONSTRAINTS Why it Matters While the factors we have discussed above are generic across the global independent refining and marketing industry, certain company-specific or regional institutional factors, both positive and negative, can influence a refiner's ability to meet its external debt obligations. Such factors would include government influence, the regulatory environment, and parental and other institutional support.7 Government Influence: Government policies can be supportive of or detrimental to a refiner's credit quality. For example, in some countries where the petroleum sector is strategic, domestic product prices are allowed to exceed international parity prices in order to ensure the survival of domestic refiners. In others, governments use price controls to mitigate the potential negative effects of commodity price spikes on economic growth and inflation. Intense political pressure can also prompt refiners to reduce refined product prices voluntarily. For state-owned companies, onerous taxation and high distributions can have a negative effect on credit quality. Environmental Regulation: Environmental regulations add costs to refiners and hence are a drag on their credit quality. In the US, the petroleum industry is heavily regulated, and refiners must comply with environmental rules that require substantial non-capacity-related capital investment. Regulatory compliance also tends to increase a US refiner's operating costs. In certain instances, as with the banning of MTBE, an oxygenate used to make governmentmandated reformulated gasoline, environmental regulation can also expose a refiner to legal liabilities. Parental Support: In certain situations, implied support from a highly rated parent can provide significant lift to a refiner's rating. In its analysis of parent support, Moody's considers whether the parent has incentives to support its subsidiary in times of stress, based on, for example, the strategic nature of the subsidiary or a significant contribution by the subsidiary to the parent company's downstream portfolio in terms of operational integration and/or retail presence. Moody's also considers whether the refiner has a track record of flexible dividend policies.8 A relationship with a parent can also be negative. For example, a parent can increase the debt of its subsidiary to fund a large dividend payment, thereby weakening the subsidiary's credit quality. Other Institutional Support: In Asia, large refiners are likely to receive government or banking support in the event of financial difficulties because of the strategic importance of the oil sector and the heavy reliance on oil imports in the Asian countries.

7.

8.

For state-owned refining and marketing companies, extraordinary government support is considered as an additional rating factor once a company's baseline credit risk assessment is determined using the approach discussed in this methodology. Please refer to Moody's Special Comment entitled "The Application of Joint Default Analysis to Government-Related Issuers" (April 2005). Rating Non-Guaranteed Subsidiaries: Credit Considerations in Assigning Subsidiary Ratings In The Absence Of Legally Binding Parent Support

Moody’s Rating Methodology

13

In Japan, where the government views the petroleum industry as vital to Japan's national security, it is reasonable to assume that in periods of crisis some form of support would be afforded to Japanese refiners on a selected basis. In addition, the local commercial banks are highly supportive of Japanese refining companies. During the 1990's, when the Japanese refiners were suffering losses because of excess capacity, the Japanese banks remained generally supportive and did not overreact, giving the companies time to restructure their operations and return to profitability. In South Korea, the government has a strong desire to support the major refiners to keep oil supplies stable. The government demonstrated such support by providing financial assistance to SK Corp. in 2003 following the financial crisis at its trading affiliate.

Measurement Criteria • • •

History of government interference in the refining sector Severity of environmental mandates Evidence of past institutional support

Notes on Measurement Criteria Moody's assessment of institutional support is a judgment call based on observations of the historical behavior of governments or financial institutions toward the refining and marketing sector. We also consider the government's current policies, including environmental regulation, and the strategic importance of the industry to the country's economy and national security. Weighting of Factors is Case-Specific: Moody's weightings for this factor will vary by region, and in certain instances, by company. Our starting point is to assign a 10% weighting to this factor, adjusting it as appropriate. An increase/decrease in the weighting would result in a downward/upward adjustment to the weightings of the other three key rating factors, with the change distributed equally among them. Overall, our broad rule set is as follows: US and Europe: Moody's generally assigns a 10% weighting to this factor when rating US and European refiners. This reflects the incremental burden of environmental regulation on their returns and cash flows. Latin America: In Latin America, we typically use 10% to reflect government influence and environmental regulation. Asia: We increase the weighting to 15% in rating Asian refiners based on the unusually high level of institutional support available to these companies.

Factor Mapping: Institutional Supports / Constraints Aaa Institutional Supports / Constraints

14

Moody’s Rating Methodology

Aa

Very Positive

A Positive

Baa

Ba

Moderately Negative

B

Caa Negative

Company Mapping: Institutional Supports / Constraints Senior Unsecured or Corporate Family Rating A1 4 (A2)* 3 (A2)* A3 Baa1 Baa1 4 (Baa1)* Baa1 5 (Baa2)* Baa2 4 (Baa3)* Baa3 5 (Ba1)* Ba1 Ba1 Ba2 Ba2 Ba3 Ba3 B1 B1 B2 B2 B2 6 (B3)* B3

Company Flint Hills Resources, LLC ENAP Motiva Enterprises LLC Nippon Oil Corporation GS Caltex Corporation Showa Shell Sekiyu K.K. Thai Oil Public Company Ltd TonenGeneral Sekiyu K.K. Petrotrin Sunoco, Inc. Indian Oil Corporation Ltd Valero Energy Corporation CITGO Petroleum Corporation Cosmo Oil Company, Ltd. SK Corporation Nippon Mining Holdings, Inc Reliance Industries Limited Frontier Oil Corporation Tesoro Petroleum Corporation Giant Industries Inc. Preem Holdings AB Alon USA, Inc. Coffeyville Resources LLC Western Refining Co, L.P. ANCAP United Refining Company

Outlook Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Positive Stable Review Up Stable Review Up Stable Stable Stable Stable Stable Stable Stable

Institutional Supports / Constraints Aa Aa Aa Aa Aa Aa A Aa Baa Ba Ba Ba B A Aa A Ba Ba Ba Ba Baa B Ba B B B

* Reflects Moody's Methodology for Government-Related Issuers Positive Outlier Negative Outlier

Observations The Japanese and Korean refiners are positive outliers on this measurement based on the strong support from government and institutions as cited above. With the exception of Nippon Oil, the ratings of the Asian refiners are otherwise constrained by their relatively small refining systems when compared to those of their larger investmentgrade global industry peers. Nippon Oil's ratings and those of most of its regional peers are constrained by their elevated asset leverage as measured by Debt/Complexity Barrels. The investment-grade US refiners are negative outliers because of relatively stringent environmental regulation, as discussed above. However, their ratings benefit from their capacity to finance substantial non-capacity-related environmental capital expenditures without impairing their credit quality.

Moody’s Rating Methodology

15

Other Considerations There are several other important qualitative factors that can influence the ratings Moody's assigns to independent refining and marketing companies. These would include competitive market position, liquidity, and event risk, as follows:

Competitive Market Position A dominant market position--whether through a monopoly (such as those in Trinidad and Uruguay), or because the company is the dominant player in its market in terms of refining, petroleum product distribution, pipeline and terminal logistics, and product imports (as is the case for companies in Chile and India)-- could provide ratings uplift. Entry barriers can also be positive for ratings. In Japan and Korea, for example, government-mandated infrastructure requirements are sufficiently onerous to discourage new market entrants. Specific market dynamics become more important in our credit assessment of smaller refining and marketing companies, as they are typically regional and less diversified than their larger peers. The location of a refinery has implications for its margins, feedstock, energy and transportation costs (land-locked, on a river, near ports), and vulnerability to import competition. In countries such as the US where the refined product market is highly competitive, a niche market position in a region with few refineries and low competition from imports because of limited pipeline access can be beneficial to a company's ratings. Proprietary pipelines or access to third party transportation capacity can be particularly beneficial to refiners in regions with excess supplies seeking to ship their products to higher-return markets. In addition, refiners with regional integrated crude oil sourcing incur lower transportation costs as compared to refiners that must import crude. However, regional crude production that is mature and declining exposes a refinery to margin deterioration and could result in ratings drag.

Liquidity Liquidity is an important component of financial flexibility and, like market position, also weights more heavily in the ratings of small refining and marketing companies. Liquidity becomes particularly important during weak margin environments, which can limit a refiner's liquidity by reducing its cash flow. Periods of high crude prices also reduce cash flow and require higher inventory investment, increasing a refiner's liquidity requirements as well. High yield refiners must often post letters of credit in support of crude purchases. Moody's assesses both internal and external liquidity, including a company's internally generated cash flow, cash balances, and committed bank credit facilities (for loans and letters of credit). Moody's also reviews bank covenant compliance and the extent to which a refiner has assets that could be collateralized in order to secure financing.

Event Risk Another important rating factor is the possibility that an unexpected "special event" could cause a sudden and sharp decline in an issuer's fundamental creditworthiness. Typical special events include mergers and acquisitions, capital restructuring programs such as large share repurchases, and, at the extreme, leveraged buy-outs. In the independent refining and marketing sector, the most common special events are mergers and acquisitions (mainly in the US). A track record of growth through acquisitions and aggressive financial policies tends to create ratings drag. Moody's typically reflects high event risk in a refiner's credit rating by positioning the rating at least one notch below the level implied by its key rating factors.

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Moody’s Rating Methodology

Summary Considerations In this report, we have discussed Moody's methodology for assigning credit ratings to companies in the global independent refining and marketing industry. We have highlighted favorable and unfavorable outliers of one or more alphanumeric rating bands (Aaa, Aa, A, Baa, Ba, B and Caa). Overall, we weight the four key rating factors as follows: Key Rating Ractor Scale and diversification Refinery profitability Financial flexibility Institutional supports/constraints Total

Weighting 35% 20% 35% 10% 100%

We note that there is a natural interrelationship among these factors. For example, in general, refining and marketing companies with significant scale and diversification are more likely to benefit from institutional support. Refiners that lack size and diversification will have less financial flexibility. Poor profitability generally goes hand-inhand with limited financial flexibility (high financial leverage and weak earnings and cash flow coverage). We consider scale and diversification and financial flexibility as the most important rating drivers, followed by refinery profitability and institutional supports/constraints. However, for certain companies, institutional supports or constraints will be weighted more heavily, depending on the region in which the refiner is located, or on the specific circumstances of a particular company. Other factors that can influence refining and marketing company ratings but that are not captured in the model (such as competitive market position, liquidity and event risk) would be overlaid on the model score. The respective weighting of these factors may vary according to the specifics of the company and the rating committee members' insight about it. Of the 26 companies included in this methodology, 88% have actual ratings (or for government related issuers, baseline credit assessments) within two notches of their indicated alpha rating levels. Four companies have actual ratings at the indicated alpha rating levels, four have actual ratings one alpha rating level up from the methodology level and seven have actual ratings one alpha rating down from the methodology level. In cases where the actual rating is lower than the indicated alpha rating, there are certain overriding factors, such as small size, weak diversification, high financial leverage and institutional constraints, that influence the actual ratings.

Moody’s Rating Methodology

17

18

Independent Refining and Marketing Industry - Outlier Outcome Summary Moody’s Rating Methodology

Company Flint Hills Resources, LLC ENAP Motiva Enterprises LLC Nippon Oil Corporation GS Caltex Corporation Showa Shell Sekiyu K.K. Thai Oil Public Company Ltd TonenGeneral Sekiyu K.K. Petrotrin Sunoco, Inc. Indian Oil Corporation Ltd Valero Energy Corporation CITGO Petroleum Corporation Cosmo Oil Company, Ltd. SK Corporation Nippon Mining Holdings, Inc Reliance Industries Limited Frontier Oil Corporation Tesoro Petroleum Corporation Giant Industries Inc. Preem Holdings AB Alon USA, Inc. Coffeyville Resources LLC Western Refining Co, L.P. ANCAP United Refining Company *

Refinery Profitability

Scale and Diversification

Financial Flexibility

Senior Unsecured or Corporate Family Rating

Outlook

Crude Distillation Capacity

Number of Large-Scale Refineries

Downstream Integration

EBIT / Total Throughput Barrels

Debt / Complexity Barrels

EBIT / Interest Expense

RCF / Debt

(RCF Maintenance Capex) / Debt

Institutional Supports / Constraints

Indicated Rating

A1 4 (A2)* 3 (A2)* A3 Baa1 Baa1 4 (Baa1)* Baa1 5 (Baa2)* Baa2 4 (Baa3)* Baa3 5 (Ba1)* Ba1 Ba1 Ba2 Ba2 Ba3 Ba3 B1 B1 B2 B2 B2 6 (B3)* B3

Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Stable Positive Stable Review Up Stable Review Up Stable Stable Stable Stable Stable Stable Stable

Ba B Ba Baa Ba Ba Ba Ba B Baa Baa A Baa Ba Ba Ba Ba B Ba B Ba B B B Caa B

Ba Ba Ba Baa Ba Ba Ba Ba B Baa Baa Aa Ba Ba Ba Ba Ba B Ba Caa Ba Caa B B Caa Caa

Ba B Aa Aa A A B Aa Caa Aa A B A A A Aa A Caa Ba B Ba Ba B Caa B Ba

Aaa Baa Baa Aa Aa Baa A Baa Aa Ba Aaa Baa Baa A Aa Aaa Aaa Ba Ba Ba A Baa Ba B Aa B

Aaa Caa A Caa Caa Caa Caa Baa Caa Baa Caa Baa A Caa Caa Caa Caa Aa Ba Ba Caa Ba B Baa Caa B

Aaa Baa Baa Baa Baa Baa Baa A Baa Ba Baa Baa Baa Ba Ba Ba Baa Baa Ba Ba Ba Ba Ba Baa Baa B

Aaa Ba A Ba Baa Ba A Ba Baa Baa Baa Baa Baa B Ba B Baa Baa Ba Ba Ba Ba Caa Baa Baa B

Aaa Ba A Baa A Ba A B Ba Baa Baa Baa Baa B Baa Ba A Baa Ba Baa Baa Ba Caa A A B

Aa Aa Aa Aa Aa Aa A Aa Baa Ba Ba Ba B A Aa A Ba Ba Ba Ba Baa B Ba B B B

A Ba Baa A Baa Baa Baa Baa Ba Baa Baa Baa Baa Baa Baa Baa Baa Ba Ba Ba Ba Ba B Ba Ba B

Numerical rating reflects baseline credit assessment per Moody's Methodology for Government-Related Issuers. Rating in parentheses is Global Local Currency rating or Foreign Currency rating in cases where there is no Global Local Currency rating. For an explanation of baseline credit assessment please refer to Moody’s Special Comment entitled “The Application of Joint Default Analysis to Government-Related Issuers” (April 2005). Positive Outlier Negative Outlier

Related Research Rating Methodologies: Global Integrated Oil & Gas Industry, October 2005 (94696) Global Independent Exploration and Production (E&P) Industry, October 2005 (94692) Moody's Approach to Global Standard Adjustments in the Analysis of Financial Statements for Non-Financial Corporations - Part I, July 2005 (93570) The Application of Joint Default Analysis to Government Related Issuers, April 2005 (92432) Piercing the Country Ceiling: An Update, January 2005 (91215) Industry Outlook: Asia's Oil & Gas Sector: Stable-to-Positive Rating Outlook as Solid Credit Fundamentals Continue, August 2005 (93919) Japanese Oil Industry Outlook: Stable for Rated Companies, October 2005 (94623) To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All research may not be available to all clients.

Moody’s Rating Methodology

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© Copyright 2005, Moody’s Investors Service, Inc. and/or its licensors including Moody’s Assurance Company, Inc. (together, “MOODY’S”). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided “as is” without warranty of any kind and MOODY’S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling. MOODY’S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MOODY’S have, prior to assignment of any rating, agreed to pay to MOODY’S for appraisal and rating services rendered by it fees ranging from $1,500 to $2,400,000. Moody’s Corporation (MCO) and its wholly-owned credit rating agency subsidiary, Moody’s Investors Service (MIS), also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually on Moody’s website at www.moodys.com under the heading “Shareholder Relations — Corporate Governance — Director and Shareholder Affiliation Policy.” Moody’s Investor Services Pty Limited does not hold an Australian financial services licence under the Corporations Act. This credit rating opinion has been prepared without taking into account any of your objectives, financial situation or needs. You should, before acting on the opinion, consider the appropriateness of the opinion having regard to your own objectives, financial situation and needs. PRINTED IN U.S.A.

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Moody’s Rating Methodology