1110805--3/14/2006--VALERO_L

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{customer, product, revenue}

{gas, price, oil}

{operation, natural, condition}

{cost, regulation, environmental}

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{financial, litigation, operation}

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Description of Largest Terminal Facilities Demand for Refined Petroleum Products Demand for and Sources of Refined Products Demand for and Sources of Anhydrous Ammonia OUR RELATIONSHIP WITH VALERO ENERGY CAPITAL EXPENDITURES ATTRIBUTABLE TO COMPLIANCE WITH ENVIRONMENTAL REGULATIONS RISKS RELATED TO OUR BUSINESS We may not be able to generate sufficient cash from operations to enable us to pay distributions at current levels to our unitholders every quarter A decline in production at the Valero Energy refineries we serve or the Tesoro Mandan refinery could materially reduce the volume of crude oil and refined petroleum products we transport or store in our assets Our future financial and operating flexibility may be adversely affected by restrictions in our debt agreements and by our and Valero Energy's leverage We depend on Valero Energy for a significant portion of our revenues and throughputs of crude oil and refined products. Any reduction in the crude oil and refined products that we transport or store for Valero Energy, as a result of scheduled or unscheduled refinery maintenance, upgrades or shutdowns or otherwise, could result in a decline in our revenues, earnings and cash available to pay distributions Increases in natural gas and power prices could adversely affect our ability to make distributions to our unitholders Our operations are subject to federal, state and local laws and regulations relating to environmental protection and operational safety that could require us to make substantial expenditures Increases in interest rates could adversely affect our business and the trading price of our units Our pipeline integrity program may subject us to significant costs and liabilities Our operations are subject to operational hazards and unforeseen interruptions for which we may not be adequately insured Our exposure to a diversified national and international geographic asset and product mix may have an adverse impact on our results of operations Reduced demand for refined products could affect our results of operations and ability to make distributions to our unitholders We may not be able to integrate effectively and efficiently with Kaneb or any future businesses or operations we may acquire. Any future acquisitions may substantially increase the levels of our indebtedness and contingent liabilities We may sell additional limited partnership units, diluting existing interests of our unitholders Valero Energy and its affiliates have conflicts of interest and limited fiduciary responsibilities, which may permit them to favor their own interests to the detriment of our unitholders The rates that we may charge on our interstate pipelines are subject to regulation by various federal and state agencies, such as the FERC and the STB Our pipeline operations are subject to FERC rate-making principles that could have an adverse impact on our ability to recover the full cost of operating our pipeline facilities and our ability to make distributions to our unitholders Terrorist attacks and the threat of terrorist attacks have resulted in increased costs to our business. Continued hostilities in the Middle East or other sustained military campaigns may adversely impact our results of operations TAX RISKS TO OUR UNITHOLDERS If we were treated as a corporation for federal or state income tax purposes, then our cash available for distribution to unitholders would be substantially reduced A successful IRS contest of the federal income tax positions we take may adversely impact the market for our units, and the costs of any contest will reduce cash available for distribution to our unitholders Even if unitholders do not receive any cash distributions from us, they will be required to pay taxes on their respective share of our taxable income The sale or exchange of 50% or more of our capital and profits interests, within a twelve-month period, will result in the termination of our partnership for federal income tax purposes Tax gain or loss on the disposition of our units could be different than expected Tax-exempt entities and foreign persons face unique tax issues from owning units that may result in adverse tax consequences to them We will treat each purchaser of our units as having the same tax benefits without regard to the units purchased. The IRS may challenge this treatment, which could adversely affect the value of our units

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1110805--3/14/2006--VALERO_L_P