- --------------------------------------------------------------------------------

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2002

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 1-11392

THE PREMCOR REFINING GROUP INC.
(Exact name of registrant as specified in its charter)

Delaware 43-1491230
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

1700 East Putnam Avenue
Suite 500 06870
Old Greenwich, Connecticut (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code (203) 698-7500

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

Number of shares of registrant's common stock, $.01 par value, outstanding
as of May 10, 2002, 100, all of which were owned by Premcor USA Inc.

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The Premcor Refining Group Inc.
Form 10-Q
March 31, 2002
Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
Independent Accountants' Report ............................................................... 2
Consolidated Balance Sheets as of December 31, 2001 and March 31, 2002 ........................ 3
Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and 2002 ...... 4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2002 ...... 5
Notes to Consolidated Financial Statements .................................................... 6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ......... 12

Item 3. Quantitative and Qualitative Disclosures about Market Risk .................................... 20

PART II. OTHER INFORMATION

Item 1. Legal Proceedings ............................................................................. 21

Item 6. Exhibits and Reports on Form 8-K .............................................................. 21

Signature

FORM 10-Q - PART I
ITEM 1. FINANCIAL STATEMENTS

INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------

To the Board of Directors of The Premcor Refining Group Inc.:

We have reviewed the accompanying consolidated balance sheet of The Premcor
Refining Group Inc. and subsidiaries (the "Company") as of March 31, 2002, and
the related consolidated statements of operations and cash flows for the
three-month periods ended March 31, 2001 and 2002. These financial statements
are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of December 31, 2001, and the related consolidated statements of
operations, stockholder's equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 11, 2002 (March 5, 2002 as
to Note 18), we expressed an unqualified opinion on those consolidated financial
statements.

Deloitte & Touche LLP

St. Louis, Missouri
May 8, 2002

THE PREMCOR REFINING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in millions, except share data)

December 31, March 31,
2001 2002
-------------- -------------
(unaudited)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................................... $ 259.7 $ 207.5
Short-term investments ............................................ 1.7 1.7
Accounts receivable ............................................... 148.3 214.6
Receivable from affiliates ........................................ 60.8 65.2
Inventories ....................................................... 278.2 316.3
Prepaid expenses and other ........................................ 31.2 37.9
Net assets held for sale .......................................... -- 61.0
--------- ---------
Total current assets ......................................... 779.9 904.2

PROPERTY, PLANT AND EQUIPMENT, NET ..................................... 666.3 550.5
DEFERRED INCOME TAXES .................................................. -- 50.3
NOTE RECEIVABLE FROM AFFILIATE ......................................... 4.9 2.4
OTHER ASSETS ........................................................... 126.4 133.3
--------- ---------
$ 1,577.5 $ 1,640.7
========= =========

LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
Accounts payable .................................................. $ 284.1 $ 334.6
Payable to affiliates ............................................. 63.4 114.4
Accrued expenses and other ........................................ 74.4 95.3
Accrued taxes other than income ................................... 30.8 23.4
--------- ---------
Total current liabilities .................................... 452.7 567.7

LONG-TERM DEBT ......................................................... 784.0 784.1
DEFERRED INCOME TAXES .................................................. 6.0 --
OTHER LONG-TERM LIABILITIES ............................................ 109.1 143.8
COMMITMENTS AND CONTINGENCIES .......................................... -- --

COMMON STOCKHOLDER'S EQUITY:
Common stock ($0.01 par value per share; 1,000 shares authorized
and 100 shares issued and outstanding) ......................... -- --
Paid-in capital ................................................... 133.4 140.8
Retained earnings ................................................. 92.3 4.3
--------- ---------
Total common stockholder's equity ............................ 225.7 145.1
--------- ---------
$ 1,577.5 $ 1,640.7
========= =========

The accompanying notes are an integral part of these financial statements.

THE PREMCOR REFINING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, dollars in millions)

For the Three Months
Ended March 31,
---------------------------
2001 2002
---------- ----------

NET SALES AND OPERATING REVENUES .................................... $ 1,717.7 $ 1,255.9

EXPENSES:
Cost of sales .................................................. 1,550.9 1,123.1
Operating expenses ............................................. 91.6 88.3
General and administrative expenses ............................ 11.6 14.9
Depreciation ................................................... 8.3 7.2
Amortization ................................................... 8.6 9.8
Refinery restructuring and other charges ....................... 150.0 142.0
---------- ----------
1,821.0 1,385.3
---------- ----------

OPERATING LOSS ...................................................... (103.3) (129.4)

Interest and finance expense ................................... (20.3) (16.0)
Interest income ................................................ 2.9 1.4
---------- ----------

LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES ..................................................... (120.7) (144.0)

Income tax benefit ............................................. 54.9 56.0
---------- ----------

LOSS FROM CONTINUING OPERATIONS ..................................... (65.8) (88.0)

Discontinued operations:
Loss from operations, net of tax benefit of $5.5 ............... (8.5) --
---------- ----------

NET LOSS ............................................................ $ (74.3) $ (88.0)
========== ==========

The accompanying notes are an integral part of these financial statements.

THE PREMCOR REFINING GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, dollars in millions)

For the Three Months
Ended March 31,
----------------------
2001 2002
-------- --------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................................... $ (74.3) $ (88.0)
Discontinued operations ........................................................ 8.5 --
Adjustments
Depreciation .............................................................. 8.3 7.2
Amortization .............................................................. 10.3 11.6
Deferred income taxes ..................................................... (46.7) (56.3)
Refinery restructuring and other charges .................................. 121.1 101.2
Other, net ................................................................ 0.5 10.1

Cash provided by (reinvested in) working capital -
Accounts receivable, prepaid expenses and other ........................... 32.8 (73.0)
Inventories ............................................................... (14.6) (38.1)
Accounts payable, accrued expenses, and taxes other than income ........... (79.2) 64.6
Affiliate receivables and payables ........................................ 23.2 49.1
-------- --------
Net cash used in operating activities of continuing operations .......... (10.1) (11.6)
Net cash used in operating activities of discontinued operations ........ (2.5) (1.5)
-------- --------
Net cash used in operating activities ................................... (12.6) (13.1)
-------- --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant, and equipment .............................. (13.7) (14.4)
Expenditures for turnaround .................................................. (29.8) (27.5)
Proceeds from disposal of property, plant and equipment ...................... -- 3.2
Purchases of short-term investments .......................................... (1.7) --
Sales and maturities of short-term investments ............................... 1.7 --
-------- --------
Net cash used in investing activities ................................ (43.5) (38.7)
-------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Capital lease payments ....................................................... (0.4) (0.4)
-------- --------
Net cash used in financing activities ................................ (0.4) (0.4)
-------- --------

NET DECREASE IN CASH AND CASH EQUIVALENTS ......................................... (56.5) (52.2)
CASH AND CASH EQUIVALENTS, beginning of period .................................... 214.8 259.7
-------- --------
CASH AND CASH EQUIVALENTS, end of period .......................................... $ 158.3 $ 207.5
======== ========

The accompanying notes are an integral part of these statements.

FORM 10-Q - PART I
ITEM 1. FINANCIAL STATEMENTS (continued)

The Premcor Refining Group Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2002
(tabular dollar amounts in millions of U.S. dollars)

1. Basis of Preparation and Recent Developments

The Premcor Refining Group Inc. is a privately held company with two wholly
owned subsidiaries, Premcor P.A. Pipeline Company and Premcor Investments Inc.
The Company is 100% owned by Premcor USA Inc., which in turn is 100% owned by
Premcor Inc.

On February 28, 2002, the Company announced its intention to discontinue
operations at the 70,000 barrel per day Hartford refinery in October 2002. The
Company has concluded that there is no economically viable manner of
reconfiguring the refinery to produce fuels which meet the new gasoline and
diesel fuel specifications mandated by the federal government. During the period
prior to closing the refinery, the focus will continue to be on employee safety
and environmental performance. Additionally, the Company intends to pursue all
opportunities, including a sale of the refinery, to mitigate loss of jobs and
refining capacity in the Midwest.

The accompanying unaudited consolidated financial statements of The Premcor
Refining Group Inc. and subsidiaries (the "Company") are presented pursuant to
the rules and regulations of the Securities and Exchange Commission in
accordance with the disclosure requirements for Form 10-Q. In the opinion of the
management of the Company, the unaudited consolidated financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary to fairly state the results for the interim periods presented.
Operating results for the three-month period ended March 31, 2002 were not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. These unaudited financial statements should be read in
conjunction with the audited financial statements and notes included in the
Company's 2001 Annual Report on Form 10-K.

2. New and Proposed Accounting Standards

On January 1, 2002, the Company adopted Statement of Financial Accounting
Standard ("SFAS") No. 142, Goodwill and Other Intangible Assets, and SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets. The
adoption of these standards did not have a material impact on the Company's
financial position and results of operations; however, SFAS No. 144 was utilized
in the accounting for the Company's announced intention to discontinue refining
operations at the Hartford, Illinois refinery in October 2002. See Note 3,
Refinery Restructuring and Other Charges, for details of the Hartford refinery
shutdown.

In July 2001, the Financial Accounting Standards Board approved SFAS No.
143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses when a
liability should be recorded for asset retirement obligations and how to measure
this liability. The initial recording of a liability for an asset retirement
obligation will require the recording of a corresponding asset that will be
required to be amortized. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. The implementation of SFAS No. 143 is not expected to have
a material impact on the Company's financial position or results of operations.

The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued an exposure draft of a proposed
statement of position ("SOP") entitled Accounting for Certain Costs and
Activities Related to Property, Plant and Equipment. If adopted as proposed,
this SOP will require companies to expense as incurred turnaround costs, which
it terms as "the non-capital portion of major maintenance costs." Adoption of
the proposed SOP would require that any existing unamortized turnaround costs be
expensed immediately. If this proposed change were in effect at March 31, 2002,
the Company would have been required to write-off unamortized turnaround costs
of approximately $110 million. Unamortized turnaround costs will change in 2002
as maintenance turnarounds are performed and past maintenance turnarounds are
amortized. If adopted in its present form, charges related to this proposed
change would be taken in the first quarter of 2003 and would be reported as a
cumulative effect of an accounting change, net of income tax, in the
consolidated statements of operations.

3. Refinery Restructuring and Other Charges

In the first quarter of 2002, the Company recorded refinery restructuring
and other charges of $142.0 million. This charge consisted of a $131.2 million
charge related to the announced shutdown of refining operations at the Hartford,
Illinois refinery in October 2002, a $15.8 million charge related to the
restructuring of the Company's management team, and income of $5.0 million
related to the sale of a portion of the Blue Island refinery assets previously
written off. In 2001, refinery restructuring and other charges consisted of a
$150.0 million charge related to the January 2001 closure of the Company's Blue
Island, Illinois refinery.

Company Management Restructuring

In February 2002, the Company began the restructuring of its executive
management team and subsequently its administrative functions with the hiring of
Thomas D. O'Malley as chairman, chief executive officer, and president and
William E. Hantke as executive vice president and chief financial officer. In
the first quarter of 2002, related to the resignation of the officers who
previously held these positions, the Company recognized severance expense of
$5.0 million and non-cash compensation expense of $5.8 million resulting from
modifications of stock option terms. In addition, the Company incurred a charge
of $5.0 million for the cancellation of a monitoring agreement with an affiliate
of Blackstone. The Company will recognize additional expenses in the second
quarter of 2002 in relation to the continued restructuring of the Company's
administrative functions.

Hartford Refinery

In February 2002, the Company announced that it would shutdown refining
operations at the Hartford, Illinois refinery in October 2002. Although the
Hartford refinery has contributed to the Company's earnings in the past, the
Company has concluded that there is no economically viable manner of
reconfiguring the refinery to produce fuels which meet new gasoline and diesel
fuel standards mandated by the federal government. Additionally, the Company
intends to pursue all other options including the sale of the refinery, to
mitigate the loss of jobs and refinery capacity in the Midwest. Since the
Hartford refinery operation had been only marginally profitable over the last 10
years and since substantial investment would be required to meet new required
product specifications in the future, the Company's reduced refining capacity
resulting from the shutdown is not expected to have a significant negative
impact on net income or cash flow from operations. The only anticipated effect
on net income and cash flow in the future will result from the actual shutdown
process, including recovery of realizable asset value, and subsequent
environmental site remediation, which will occur over a number of years. Unless
there is a need to adjust the shutdown reserve in the future, there should be no
significant effect on net income beyond 2002.

A pretax charge of $131.2 million was recorded in the first quarter of
2002. This charge included $73.6 million of non-cash asset write-offs in excess
of an estimated $61.0 million net realizable value. The net realizable value was
recorded as a current asset under the caption assets held for sale on the
balance sheet. The total charge also included a reserve for future costs of
$57.6 million, consisting of $16.6 million for employee severance, $8.0 million
for the safe shutdown of operations, and $33.0 million for site clean-up and
other environmental matters.

Management adopted an exit plan that details the shutdown of the process
units at the refinery and the subsequent environmental remediation of the site.
The shutdown of the process units will be completed in the fourth quarter of
2002. The Company estimates that 315 employees, both hourly (covered by
collective bargaining agreements) and salaried, will be terminated due to this
shutdown, 98% of which will be terminated in October of 2002. The site clean-up
and environmental reserve takes into account costs that are reasonably
foreseeable at this time. As the site remediation plan is refined and work is
performed, further adjustments of the reserve may be necessary.

Blue Island Closure Reserve

In the first quarter of 2002 the Company sold certain of the Blue Island
refinery equipment for proceeds of $5.0 million. Since no salvage value was
previously recorded, the proceeds from the sale were recorded as a reduction in
the restructuring charge. The Blue Island restructuring reserve balance and net
cash activity as of March 31, 2002 is as follows:

Reserve as of
December 31, Net Cash Reserve as of
2001 Outlay March 31, 2002
---------------- ------------- ------------------

Employee severance .............................. $ 2.1 $ 0.9 $ 1.2
Plant closure/equipment remediation ............. 13.9 1.3 12.6
Site clean-up/environmental matters ............. 20.5 1.2 19.3
------- ------- -------
$ 36.5 $ 3.4 $ 33.1
======= ======= =======

The Company expects to spend approximately $16 million in 2002 related to
the reserve for future costs, with the majority of the remainder to be spent
over the next several years. The site clean-up and environmental reserve takes
into account costs that are reasonably foreseeable at this time. As the site
remediation plan is finalized and work is performed, further adjustments of the
reserve may be necessary.

4. Inventories

The carrying value of inventories consisted of the following:

December 31, March 31,
2001 2002
----------------- -------------

Crude oil ........................................ $ 38.9 $ 73.1
Refined products and blendstocks ................. 217.1 221.3
Warehouse stock and other ........................ 22.2 21.9
---------- ---------
$ 278.2 $ 316.3
========== =========

The market value of crude oil, refined products and blendstocks inventories
at March 31, 2002 was approximately $114.0 million (December 31, 2001 - $4.9
million) above carrying value.

5. Other Assets

Other assets consisted of the following:

December 31, March 31,
2001 2002
---------------- ----------

Deferred turnaround costs .................................. $ 97.9 $ 109.8
Deferred financing costs ................................... 16.7 15.1
Cash restricted for investment in capital additions ........ 9.9 6.7
Other ...................................................... 1.9 1.7
--------- ---------
$ 126.4 $ 133.3
========= =========

Amortization of deferred financing costs for the three-month period ended
March 31, 2002 was $1.6 million (2001 - $2.1 million) and was included in
"Interest and finance expense".

6. Related Party Transactions

Port Arthur Coker Company L.P.

The Company and Port Arthur Coker Company L.P. the, (the "Port Arthur Coker
Company") have entered into certain agreements associated with the operations
between the coking, hydrocracking, and sulfur removal facilities of the Port
Arthur Coker Company and the Company's Port Arthur refinery. Port Arthur Coker
Company's general partner, Sabine

River Holding Corp., is 90% owned by Premcor Inc. Balances and activity related
to a services and supply, product purchase, and ancillary lease agreement
between the Company and Port Arthur Coker Company were as follows:

As of March 31, 2002, the Company had an outstanding receivable from Port
Arthur Coker Company of $31.0 million (December 31, 2001 - $26.8 million) and a
payable to Port Arthur Coker Company of $62.5 million (December 31, 2001 - $25.1
million) related to ongoing operations. As of March 31, 2002, the Company had a
note receivable from Port Arthur Coker Company of $5.0 million (December 31,
2001 - $7.7 million) related to construction management services of which $2.4
million (December 31, 2001 - $4.9 million) was accounted for as a long-term
asset and the remainder as a current asset.

The Company generated $27.6 million and $40.8 million in revenues for the
three-month periods ended March 31, 2002 and 2001, respectively, related to
lease and pipeline tariff fees and to the sale of feedstocks and hydrogen to
Port Arthur Coker Company. The Company incurred $418.6 million and $496.0
million in costs of sales for purchases of finished and intermediate refined
products and crude oil from Port Arthur Coker Company for the three-month
periods ended March 31, 2002 and 2001, respectively. The Company recorded
reimbursements of operating expenses of $9.1 million and $14.6 million for
services provided to Port Arthur Coker Company for the three-month periods ended
March 31, 2002 and 2001, respectively.

7. Interest and Finance Expense

Interest and finance expense included in the statements of operations
consisted of the following:

For the Three Months
Ended March 31,
---------------------
2001 2002
----- -----
Interest expense ................. $ 18.9 $ 16.2
Financing costs .................. 2.1 1.6
Capitalized interest ............. (0.7) (1.8)
------- --------
$ 20.3 $ 16.0
======= =======

Cash paid for interest for the three-month period ended March 31, 2002 was
$16.5 million (2001 - $19.3 million).

8. Income Taxes

The Company made no net cash income tax payments nor received any net cash
income tax refunds during the first quarter of 2002 (2001 - $0.4 million net
cash payments). The income tax benefit of $54.9 million on the loss from
continuing operations before income taxes for the three month period ended March
31, 2001 included the effect of a decrease of $12.4 million in the deferred tax
valuation allowance. During the first quarter of 2001, the Company reversed its
remaining deferred tax valuation allowance as a result of the Company's analysis
of the likelihood of realizing the future tax benefit of its federal and state
tax loss carryforwards, alternative minimum tax credits and federal and state
business tax credits.

9. Discontinued Operations

In 2001, the Company recorded a pretax charge of $14.0 million, $8.5
million net of income taxes, related to the environmental liabilities of the
discontinued retail operations. This charge represented an increase in estimate
regarding the Company's environmental clean up obligation and was prompted by
the availability of new information concerning site by site clean up plans and
changing postures of state regulatory agencies.

10. Stock Option Plans

In conjunction with the management change discussed in Note 3 above,
Premcor Inc. adopted two new stock incentive plans. The 2002 Special Stock
Incentive Plan was adopted in connection with the employment of Thomas D.
O'Malley and allows for the issuance of options for the purchase of Premcor Inc.
common stock. Under this plan, options on 3,400,000 shares of Premcor Inc.
common stock may be awarded. As of March 31, 2002, options on 2,200,000 shares
of Premcor Inc. common stock had been granted at an exercise price of $10 per
share, vesting 1/3 on each of the first three anniversaries of the date of
grant. The 2002 Equity Incentive Plan was adopted to award key employees,
directors, and consultants with various stock options, stock appreciation
rights, restricted stock, performance-based awards and other common stock based
awards of Premcor Inc. common stock. Under the 2002 Equity Incentive Plan,
options on 1,500,000 shares of Premcor Inc.

common stock may be awarded. As of March 31, 2002, options on 350,000 shares of
Premcor Inc. common stock were granted at an exercise price of $10 per share.
Options granted under this plan vest 1/3 on each of the first three
anniversaries of the date of grant.

As a result of the granting of these options as well as the modification of
terms for the options previously granted under the 1999 Stock Incentive Plan to
severed employees, the Company will record in the aggregate non-cash
compensation expense and additional paid-in capital from Premcor Inc. of $36.3
million over the applicable vesting periods. As of March 31, 2002, the Company
recorded $7.5 million of non-cash compensation expense and paid-in capital
related to these options. Of this amount, $5.8 million related to modifications
of the exercise period of options for certain executives severed during the
restructuring. This amount is included in "refinery restructuring and other
charges". The remaining $1.7 million is related to option grants under the two
new plans described above and is included in "general and administrative
expenses".

11. Commitments and Contingencies

Legal and Environmental

As a result of its activities, the Company is the subject of a number of
material pending legal proceedings, including proceedings related to
environmental matters. All such matters with material changes during the three
months ended March 31, 2002 or to which a governmental authority is a party and
which involve potential monetary sanctions of $100,000 or greater are described
below.

Blue Island: Federal and State Enforcement. In September 1998, the federal
government filed a complaint, United States v. Clark Refining & Marketing, Inc.,
alleging that the Blue Island refinery violated federal environmental laws
relating to air, water and solid waste. The Illinois Attorney General intervened
in the case. The State of Illinois and Cook County had also brought an action
several years earlier, People ex rel. Ryan v. Clark Refining & Marketing, Inc.,
also alleging violations under environmental laws. In the first quarter of 2002,
the Company reached an agreement to settle both cases. The consent order in the
state case was formally approved and entered by the state court judge on April
8, 2002, and it is anticipated that the federal court will approve the proposed
settlement in the second quarter of 2002. The consent order in the federal case
requires the payment of $6.25 million as a civil penalty and requires limited
ongoing monitoring at the now-idled refinery. The Company has accrued for this
obligation in its legal and environmental reserves. The consent order in the
state case requires an ongoing tank inspection program along with enhanced
reporting obligations and requires that the parties enter a process to complete
an appropriate site remediation program at the Blue Island refinery. The consent
orders dispose of both the federal and state cases.

Legal and Environmental Reserves. As a result of its normal course of
business, the Company is a party to a number of legal and environmental
proceedings. As of March 31, 2002, the Company had accrued a total of
approximately $74 million (December 31, 2001 - $77 million), on an undiscounted
basis, for legal and environmental-related obligations that may result from the
matters noted above and other legal and environmental matters. The Company is of
the opinion that the ultimate resolution of these claims, to the extent not
previously provided for, will not have a material adverse effect on the
consolidated financial condition, results of operations or liquidity of the
Company. However, an adverse outcome of any one or more of these matters could
have a material effect on quarterly or annual operating results or cash flows
when resolved in a future period.

Environmental Product Standards

Tier 2 Motor Vehicle Emission Standards. In February 2000, the EPA
promulgated the Tier 2 Motor Vehicle Emission Standards Final Rule for all
passenger vehicles, establishing standards for sulfur content in gasoline. These
regulations mandate that the sulfur content of gasoline at any refinery not
exceed 30 ppm during any calendar year by January 1, 2006. These requirements
will be phased in beginning on January 1, 2004. It is the Company's intent to
meet these specifications from the Port Arthur and Lima refineries on a timely
basis. Modifications will be required at the Port Arthur and Lima refineries as
a result of the Tier 2 standards. The Company believes, based on current
estimates, that compliance with the new Tier 2 gasoline specifications will
require capital expenditures in the aggregate through 2005 of approximately $175
million at those refineries. More than 95% of the total investment to meet the
Tier 2 gasoline specifications is expected to be incurred during 2002 through
2004 with the greatest concentration of spending occurring in 2003.

off-road consumers. If regulations are promulgated to regulate the sulfur
content of off-road diesel, the Company expects the sulfur requirement to be
either 500 ppm, which is the current on-road limit, or 15 ppm, which will be the
future on-road limit. It is the Company's intent to meet these specifications
from the Port Arthur and Lima refineries on a timely basis. The Company
estimates capital expenditures in the aggregate through 2006 required to comply
with the diesel standards at our Port Arthur and Lima refineries, utilizing
existing technologies, is approximately $115 million. More than 90% of the
projected investment is expected to be incurred during 2004 through 2006 with
the greatest concentration of spending occurring in 2005.

Maximum Available Control Technology. On April 11, 2002, the EPA
promulgated regulations to implement Phase II of the petroleum refinery Maximum
Achievable Control Technology rule under the federal Clean Air Act, referred to
as MACT II, which regulates emissions of hazardous air pollutants from certain
refinery units. The Company expects to spend approximately $45 million in the
next three years related to these new regulations with the greatest
concentration of spending likely in 2003 and 2004.

Other Commitments

Crude Oil Purchase Commitment. In 1999, the Company sold crude oil linefill
in the pipeline system supplying the Lima refinery. An agreement is in place
that requires the Company to repurchase approximately 2.7 million barrels of
crude oil in this pipeline system on September 30, 2002 at then current market
prices. The Company has hedged the economic price risk related to the repurchase
obligations through the purchase of exchange-traded futures contracts.

12. Subsequent Events

On May 3, 2002, Premcor Inc. completed an initial public offering of 20.7
million shares of common stock. The initial public offering, plus the concurrent
purchase of 850,000 shares in the aggregate by Thomas D. O'Malley, the Company's
chairman of the board, chief executive officer and president, and two directors
of the Company, netted proceeds to Premcor Inc. of approximately $482 million.
The proceeds from the offering are committed to retire debt of its subsidiaries.

On May 3, 2002, the Company called for the redemption on its 9 1/2% Senior
Notes due 2004. The notes will be redeemed at par on June 3, 2002. Additionally,
Premcor USA Inc. gave notice of redemption on May 8, 2002 with respect to its
10 7/8% Senior Notes due 2005. The notes will be redeemed on June 7, 2002 at
103.625% of their principal amount.

On May 9, 2002, Premcor Inc. effected the open market purchase of $50.1
million in aggregate principal amount of Premcor USA's 11 1/2 % Subordinated
Debentures at 105.75% of their principal amount. The transaction is expected to
settle on May 14, 2002.

ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements in this document are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These statements are subject to the safe harbor
provisions of this legislation. Words such as "expects," "intends," "plans,"
"projects," "believes," "estimates," "will" and similar expressions typically
identify such forward-looking statements.

Even though we believe our expectations regarding future events are based
on reasonable assumptions, forward-looking statements are not guarantees of
future performance. Important factors that could cause actual results to differ
materially from those contained in our forward-looking statements include, among
others, changes in:

. Industry-wide refining margins;
. Crude oil and other raw material costs, embargoes, industry
expenditures for the discovery and production of crude oil, and
military conflicts between, or internal instability in, one or more
oil-producing countries, and governmental actions;
. Market volatility due to world and regional events;
. Availability and cost of debt and equity financing;
. Labor relations;
. U.S. and world economic conditions;
. Supply and demand for refined petroleum products;
. Reliability and efficiency of our operating facilities which are
effected by such potential hazards as equipment malfunctions, plant
construction/repair delays, explosions, fires, oil spills and the
impact of severe weather;
. Actions taken by competitors which may include both pricing and
expansion or retirement of refinery capacity;
. Civil, criminal, regulatory or administrative actions, claims or
proceedings and regulations dealing with protection of the environment,
including refined petroleum product composition and characteristics;
. Other unpredictable or unknown factors not discussed.

Because of all of these uncertainties, and others, you should not place
undue reliance on our forward-looking statements.

Results of Operations

The following tables reflects our financial and operating highlights for
the three-month periods ended March 31, 2001 and 2002.

Financial Results For the Three Months Ended
(in millions, except as noted) March 31,
--------------------------------
2001 2002
---------------- ---------------

Net sales and operating revenues ............. $ 1,717.7 $ 1,255.9
Cost of sales ................................ 1,550.9 1,123.1
---------------- ---------------
Gross margin .............................. 166.8 132.8
Operating expenses ........................... 91.6 88.3
General and administrative expenses .......... 11.6 14.9
---------------- ---------------
Adjusted EBITDA ........................... 63.6 29.6
Depreciation & amortization .................. 16.9 17.0
Refinery restructuring and other charges ..... 150.0 142.0
---------------- ---------------
Operating loss ............................ (103.3) (129.4)
Interest expense and finance income, net ..... (17.4) (14.6)
Income tax benefit ........................... 54.9 56.0
---------------- ---------------
Loss from continuing operations ........... (65.8) (88.0)
Discontinued operations ...................... (8.5) --
---------------- ---------------
Net loss .................................. $ (74.3) $ (88.0)
================ ===============

Market Indicators For the Three Months
(dollars per barrel, except as noted) Ended March 31,
------------------------------
2001 2002
---- ----

West Texas Intermediate (WTI) crude oil ...... $ 28.81 $ 21.59
Crack Spreads (3/2/1):
Gulf Coast .............................. 5.01 2.80
Chicago ................................. 5.94 3.68
Crude Oil Differentials:
WTI less WTS (sour) ..................... 4.08 1.32
WTI less Maya (heavy sour) .............. 10.62 5.43
WTI less Dated Brent (foreign) .......... 2.90 0.42
Natural gas (per mmbtu) ...................... 7.00 2.20

For the Three Months
Selected Volumetric and Per Barrel Data Ended March 31,
(in thousands of barrels per day, except as ------------------------------
noted) 2001 2002
---- ----

Crude oil and intermediate throughput by
refinery:
Port Arthur:
Crude oil ................................ 56.4 20.5
Port Arthur Coker Company intermediates .. 169.9 205.7
--------------- --------------
226.3 226.2
Lima crude oil ............................ 133.1 139.7
Hartford crude oil ........................ 64.5 62.8
Blue Island crude oil ..................... 15.9 --
--------------- --------------
Total throughput ........................ 439.8 428.7

Per barrel of throughput (in dollars):
Gross margin .............................. $ 4.21 $ 3.44
Operating expenses ........................ $ 2.31 $ 2.29

Three Months Ended Three Months Ended
March 31, 2001 March 31, 2002
------------------------------------------- --------------------------------------------
Selected Volumetric Data Port Percent Port Percent
(in thousands of barrels per day) Arthur Midwest Total of Total Arthur Midwest Total of Total
---------- --------- ------- -------- ---------- ----------- ------- --------

Feedstocks:
Crude oil throughput
Sweet -- 139.8 139.8 31.4% -- 134.4 134.4 32.3%
Light/medium sour 23.9 70.9 94.8 21.3 3.0 60.3 63.3 15.2
Heavy sour 32.5 2.8 35.3 7.9 17.5 7.8 25.3 6.1
---------- --------- ------- -------- ---------- ----------- ------- --------
Total crude oil 56.4 213.5 269.9 60.6 20.5 202.5 223.0 53.6
PACC intermediate throughput 169.9 -- 169.9 38.1 205.7 -- 205.7 49.5
Unfinished and blendstocks 4.7 1.3 6.0 1.3 (16.7) 3.7 (13.0) (3.1)
---------- --------- ------- -------- ---------- ----------- ------- --------
Total feedstocks 231.0 214.8 445.8 100.0% 209.5 206.2 415.7 100.0%
========== ========= ======= ======== ========== =========== ======= ========

Production:
Light Products:
Conventional gasoline 78.2 100.6 178.8 39.7% 72.6 110.9 183.5 43.9%
Premium and reformulated gasoline 21.4 24.3 45.7 10.2 13.9 15.0 28.9 6.9
Diesel fuel 78.3 49.5 127.8 28.3 64.3 36.9 101.2 24.2
Jet fuel 14.3 18.8 33.1 7.4 26.9 22.7 49.6 11.9
Petrochemical feedstocks 21.3 10.1 31.4 7.0 15.9 11.4 27.3 6.5
---------- --------- ------- -------- ---------- ----------- ------- --------
Total light products 213.5 203.3 416.8 92.6 193.6 196.9 390.5 93.4
Petroleum coke and sulfur 15.7 6.5 22.2 4.9 7.4 7.8 15.2 3.6
Residual oil 6.2 4.8 11.0 2.5 9.7 2.9 12.6 3.0
---------- --------- ------- -------- ---------- ----------- ------- --------
Total production 235.4 214.6 450.0 100.0% 210.7 207.6 418.3 100.0%
========== ========= ======= ======== ========== =========== ======= ========

First Quarter 2002 Compared to First Quarter 2001

Overview. Net loss increased $13.7 million to $88.0 million in the
first quarter of 2002 from a loss of $74.3 million in the corresponding
period in 2001. Operating loss increased $26.1 million to $129.4 million in
the first quarter of 2002 from $103.3 million in the corresponding period
in 2001.

Operating loss included pre-tax refinery restructuring and other
charges of $142.0 million and $150.0 million for the first quarter of 2002
and 2001, respectively. Excluding the refinery restructuring and other
charges, we had operating income of $12.6 million and $46.7 million in the
first quarter of 2002 and 2001, respectively. Operating income, excluding
the refinery restructuring and other charges, decreased in the first
quarter of 2002 compared to the same period in 2001 principally due to
significantly weaker market conditions in the first quarter of 2002.

In January of 2001, we shutdown our refining operations at our Blue
Island, Illinois refinery. Our operating results in the first quarter of
2001 include one month of operating results of the Blue Island refinery.

Net Sales and Operating Revenue. Net sales and operating revenues
decreased $461.8 million, or 27%, to $1,255.9 million in the first quarter
of 2002 from $1,717.7 million in the corresponding period in 2001. This
decrease was mainly attributable to lower prices in the first quarter of
2002 as compared to the same period of 2001 as evidenced by a $7.22 per
barrel decrease in the average value of WTI.

Gross Margin. Gross margin decreased $34.0 million to $132.8 million
in the first quarter of 2002 from $166.8 million in the corresponding
period in 2001. The decrease was principally driven by significantly weaker
market conditions in the first quarter of 2002 compared to 2001. Refining
margins remained at depressed levels through most of the first quarter of
2002 as high distillate and gasoline inventories and low demand continued.
Mild winter weather, decreased air travel compared to historic levels, a
weak industrial sector, and an overall sluggish economy resulted in
inventories remaining at high levels at 2001 year-end and into the first
quarter of 2002. Refining margins recovered somewhat in March 2002 as
supply tightened due to heavy maintenance turnaround activity in the
industry. The average Gulf Coast and Chicago crack

spreads were approximately 40% lower in the first quarter of 2002 than the same
period of 2001. The crude oil differentials on sour and heavy sour crude oil
were also significantly lower than the prior year. The negative impact on gross
margin from depressed crack spreads and crude oil differentials was partially
offset by more favorable margins from processing Port Arthur Coker Company
intermediate throughput, which accounted for approximately 50% of our total
throughput.

In February 2002, Port Arthur Coker Company, our affiliate who operates a
heavy oil processing facility at our Port Arthur refinery, shutdown its coker
unit for ten days for unplanned maintenance. We took advantage of the coker
outage to make repairs to the distillate and naphtha hydrotreaters, including
turnaround maintenance that was originally planned for later in the year.
Throughput rates were restricted by approximately 18,000 barrels per day, or
bpd, during this time, but returned to near capacity of 250,000 bpd following
the maintenance. In January 2002, we shut down the fluid catalytic cracking
(FCC) unit, gas oil hydrotreating unit and sulfur plant for approximately 39
days at our Port Arthur refinery for planned turnaround maintenance. This
turnaround maintenance did not affect throughput rates but did lower gasoline
production. We sold more unfinished products during the first quarter of 2002
due to the shutdown. Both the Lima and Hartford refineries experienced
restricted crude oil throughput rates during the first quarter of 2002 due to
poor refining market conditions.

In the first quarter of 2001, throughput rates at the Port Arthur refinery
were below capacity as units downstream were in start-up operations and did not
run at full capacity during the first quarter. In January of 2001, Port Arthur
Coker Company's new hydrocracker was brought on-line and its new coker unit and
sulfur plant were still in start-up operations, having begun operations in
December 2000. In the first quarter of 2001, crude oil throughput rates were
below capacity at our Lima refinery due to crude oil delivery delays caused by
bad weather in the Gulf Coast as well as at our Hartford refinery due to coker
unit repairs. We shut down the Blue Island refinery operations in January 2001,
therefore first quarter 2001 reflected only one month of operations.

Operating Expenses. Operating expenses decreased $3.3 million to $88.3
million in the first quarter of 2002 from $91.6 million in the corresponding
period in 2001. The decrease in the first quarter of 2002 was principally due to
significantly lower natural gas prices partially offset by higher repair and
maintenance costs at our Port Arthur refinery.

General and Administrative Expenses. General and administrative expenses
increased $3.3 million to $14.9 million in the first quarter of 2002 from $11.6
million in the corresponding period in 2001. The increase was principally due to
higher employee benefits, particularly related to non-cash compensation expense
recognized for stock options granted and employee medical benefit costs.

Depreciation and Amortization. Depreciation and amortization expenses were
relatively flat in the first quarter of 2002 as compared to the same period in
2001.

Refinery Restructuring and Other Charges. In 2002, we recorded refinery
restructuring and other charges of $142.0 million. This charge consisted of a
$131.2 million charge related to the announced shutdown of refining operations
at the Hartford, Illinois refinery in October 2002, a $15.8 million charge
related to the restructuring of our management team, and income of $5.0 million
related to the unanticipated sale of a portion of the Blue Island refinery
assets previously written off. In 2001, refinery restructuring and other charges
consisted of a $150.0 million charge related to the January 2001 closure of our
Blue Island, Illinois refinery.

Hartford Refinery

In February 2002, we announced that we would shut down refining operations
at our Hartford, Illinois refinery in October 2002. Although the Hartford
refinery has contributed to our earnings in the past, we have concluded that
there is no economically viable manner of reconfiguring the refinery to produce
fuels which meet new gasoline and diesel fuel standards mandated by the federal
government. Additionally, we intend to pursue all other options, including the
sale of the refinery, to mitigate the loss of jobs and refinery capacity in the
Midwest. Since the Hartford refinery operation had been only marginally
profitable over the last 10 years and since substantial investment would be
required to meet new required product specifications in the future, our reduced
refining capacity resulting from the shutdown is not expected to have a
significant negative impact on net income or cash flow from operations. The only
anticipated effect on net income and cash flow in the future will result from
the actual shutdown process, including recovery of realizable asset value, and
subsequent environmental site remediation, which will occur over a number of
years. Unless there is a need to adjust the shutdown reserve in the future,
there should be no significant effect on net income beyond 2002.

A pretax charge of $131.2 million was recorded in the first quarter of
2002. This charge included $73.6 million of non-cash asset write-offs in excess
of an estimated $61.0 million net realizable value. The net realizable value was
recorded as a current asset on the balance sheet. The total charge also included
a reserve for future costs of $57.6 million, consisting of $16.6 million for
employee severance, $8.0 million for the safe shutdown of operations, and $33.0
million for site clean-up and other environmental matters.

Management adopted an exit plan that details the shutdown of the process
units at the refinery and the subsequent environmental remediation of the site.
The shutdown of the process units is planned to be completed in the fourth
quarter of 2002. We estimate that 315 employees, both hourly (covered by
collective bargaining agreements) and salaried, will be terminated due to this
shutdown, 98% of which will be terminated in October of 2002. The site clean-up
and environmental reserve takes into account costs that are reasonably
foreseeable at this time. As the site remediation plan is refined and work is
performed, further adjustments of the reserve may be necessary.

Company Management Restructuring

In February 2002, we began the restructuring of our executive management
team and subsequently our administrative functions with the hiring of Thomas D.
O'Malley as chairman, chief executive officer, and president and William E.
Hantke as executive vice president and chief financial officer. In the first
quarter of 2002, related to the resignation of the officers who previously held
these positions, we recognized severance expense of $5.0 million and non-cash
compensation expense of $5.8 million resulting from modifications of stock
option terms. In addition, we incurred a charge of $5.0 million for the
cancellation of a monitoring agreement with an affiliate of Blackstone. We will
recognize additional expenses in the second quarter of 2002 in relation to the
continued restructuring of our administrative functions.

Interest Expense and Finance Income, net. Interest expense and finance
income, net decreased $2.8 million to $14.6 million in the first quarter of 2002
from $17.4 million in the corresponding period in 2001. This decrease related
primarily to lower interest rates on our floating rate notes and lower interest
expense due to the repurchase of certain securities in the third quarter of
2001.

Income Tax Benefit. Income tax benefit increased $1.1 million to $56.0
million in the first quarter of 2002 from $54.9 million in the corresponding
period in 2001. The income tax benefit of $54.9 million for 2001 included the
effect of a decrease of $12.4 million in the deferred tax valuation allowance.
During the first quarter of 2001, we reversed our remaining deferred tax
valuation allowance as a result of the analysis of the likelihood of realizing
the future tax benefit of our federal and state tax loss carryforwards,
alternative minimum tax credits and federal and state business tax credits.

Discontinued Operations. In 2001, we recorded a pretax charge of $14.0
million, $8.5 million net of income taxes, related to environmental liabilities
of the discontinued retail operations. This charge represented an increase in
estimate regarding our environmental clean up obligation and was prompted by the
availability of new information concerning site by site clean up plans and
changing postures of state regulatory agencies.

Outlook

Market. Refining margins for the second and third quarter of 2002 are
expected to be considerably lower than the historical highs seen in 2001. In
2001, we entered the summer driving season with low product inventories and then
supply disruptions and unplanned refinery downtime further limited supply and
spiked refining margins, particularly the Chicago crack spread. In 2002, despite
the typical demand increase for gasoline as we enter the summer driving season,
high inventories and very little projected downtime should provide adequate
supply.

Planned Cost Reductions. As part of our focus on continuing to be a
low-cost refiner, in the second quarter of 2002 we implemented a restructuring
of our organization that will result in a future reduction of our general and
administrative and other costs. We will recognize additional restructuring
expenses in the second quarter of 2002 in relation to this initiative.

Liquidity and Capital Resources

Cash Flows from Operating Activities

Net cash used in operating activities for the three months ended March 31,
2002 was $13.1 million compared to $12.6 million in the year-earlier period.
Working capital as of March 31, 2002 was $336.5 million, a 1.59-to-1 current
ratio, versus $327.2 million as of December 31, 2001, a 1.72-to-1 current ratio.

In general, our short-term working capital requirements fluctuate with the
price and payment terms of crude oil and refined petroleum products. We have a
credit agreement which provides for the issuance of letters of credit up to the
lesser of $650 million or the amount of a borrowing base calculated with respect
to our cash and eligible cash equivalents, eligible investments, eligible
receivables, eligible petroleum inventories, paid but unexpired letters of
credit, and net obligations on swap contracts. The credit agreement provides for
direct cash borrowings up to $50 million. Borrowings under the credit agreement
are secured by a lien on substantially all of our cash and cash equivalents,
receivables, crude oil and refined product inventories and trademarks. The
borrowing base associated with such facility at March 31, 2002 was $728.6
million with $365.3 million of the facility utilized for letters of credit. As
of March 31, 2002, there were no direct cash borrowings under the credit
agreement.

The credit agreement contains covenants and conditions that, among other
things, limit our dividends, indebtedness, liens, investments and contingent
obligations. We are also required to comply with certain financial covenants,
including the maintenance of working capital of at least $150 million, the
maintenance of tangible net worth of at least $150 million, and the maintenance
of minimum levels of balance sheet cash (as defined therein) of $75 million at
all times. The covenants also provide for a cumulative cash flow test that from
July 1, 2001 must not be less than zero. In March 2002, we received a waiver
regarding the maintenance of the tangible net worth covenant which allows for
the exclusion of $120 million of the restructuring charge related to the closure
of the Hartford refinery.

In January 2001, we shutdown the refining operations at our Blue Island,
Illinois refinery. The Blue Island restructuring reserve balance and net cash
activity as of March 31, 2002 is as follows:

Reserve as of
December 31, Net Cash Reserve as of
2001 Outlay March 31, 2002
---------------- -------- -----------------

Employee severance ........................... $ 2.1 $ 0.9 $ 1.2
Plant closure/equipment remediation .......... 13.9 1.3 12.6
Site clean-up/environmental matters .......... 20.5 1.2 19.3
------- -------- -------
$ 36.5 $ 3.4 $ 33.1
======= ======== =======

In 1999, we sold crude oil linefill in the pipeline system supplying the
Lima refinery. An agreement is in place that requires us to repurchase
approximately 2.7 million barrels of crude oil in this pipeline system in
September 2002 at market prices, unless extended by mutual consent. The Company
has hedged the economic price risk related to the repurchase obligation though
the purchase of exchange-traded futures contracts.

Cash Flows from Investing Activities

Cash flows used in investing activities in the three months ended March 31,
2002 were $38.7 million as compared to $43.5 million in the year-earlier period.
We classify our capital expenditures into two categories, mandatory and
discretionary. Mandatory capital expenditures, such as for turnarounds and
maintenance, are required to maintain safe and reliable operations or to comply
with regulations pertaining to soil, water and air contamination or pollution
and occupational, safety and health issues. Our total mandatory capital and
refinery maintenance turnaround expenditure budget, excluding Tier 2 gasoline
standards, on-road diesel regulations and the MACT II regulations, is
approximately $75 million in 2002, of which $31.4 million has been spent as of
March 31, 2002. Discretionary capital expenditures are
undertaken by us on a voluntary basis after thorough analytical review and
screening of projects based on the expected return on

incremental capital employed. Discretionary capital projects generally involve
an expansion of existing capacity, improvement in product yields and/or a
reduction in operating costs. Accordingly, total discretionary capital
expenditures may be less than budget if cash flow is lower than expected and
higher than budget if cash flow is better than expected. Our discretionary
capital expenditure budget is approximately $20 million in 2002, of which $7.6
million has been spent as of March 31, 2002. We plan to fund both mandatory and
discretionary capital expenditures with cash flow from operations.

In addition to mandatory capital expenditures, we expect to incur
significant costs in order to comply with environmental regulations discussed
below. The Environmental Protection Agency has promulgated new regulations under
the Clean Air Act that establish stringent sulfur content specifications for
gasoline and on-road diesel fuel designed to reduce air emissions from the use
of these products.

Low Sulfur Diesel Standards. In January 2001, the EPA promulgated its
on-road diesel regulations, which will require a 97% reduction in the sulfur
content of diesel fuel sold for highway use by June 1, 2006, with full
compliance by January 1, 2010. The EPA has estimated that the overall cost to
fuel producers of the reduction in sulfur content would be approximately $0.04
per gallon. The EPA has also announced its intention to review the sulfur
content in diesel fuel sold to off-road consumers. If regulations are
promulgated to regulate the sulfur content of off-road diesel, the Company
expects the sulfur requirement to be either 500 ppm, which is the current
on-road limit, or 15 ppm, which will be the future on-road limit. It is the
Company's intent to meet these specifications from the Port Arthur and Lima
refineries on a timely basis. The Company estimates capital expenditures in the
aggregate through 2006 required to comply with the diesel standards at our Port
Arthur and Lima refineries, utilizing existing technologies, is approximately
$115 million. More than 90% of the projected investment is expected to be
incurred during 2004 through 2006 with the greatest concentration of spending
occurring in 2005.

Maximum Available Control Technology. On April 11, 2002, the EPA
promulgated regulations to implement Phase II of the petroleum refinery Maximum
Achievable Control Technology rule under the federal Clean Air Act, referred to
as MACT II, which regulates emissions of hazardous air pollutants from certain
refinery units. We expect to spend approximately $45 million in the next three
years related to these new regulations with the greatest concentration of
spending likely in 2003 and 2004.

Our budget for complying with the Tier 2, low sulfur diesel and MACT II
regulations is approximately $45 million in 2002, of which $1.4 million has been
spent as of March 31, 2002. In conjunction with the work being performed to
comply with the above regulations, we have initiated a project to expand the
Port Arthur refinery to 300,000 barrels per day of crude oil throughput
capacity.

Cash Flows from Financing Activities

Cash flow used in financing activities for the three months ended March 31,
2002 of $0.4 million was flat with the cash flow used in the same period last
year.

We continue to evaluate the most efficient use of capital and, from time to
time, depending upon market conditions, may seek to purchase certain of our
outstanding debt securities in the open market or by other means, in each case
to the extent permitted by existing covenant restrictions. In May 2002, our
ultimate parent company, Premcor Inc., completed a public offering of its common
stock and committed to using a portion of the proceeds to prepay our 9 1/2%
senior notes and pay down other debt. On May 3, 2002, we called for the
redemption of our 9 1/2% Senior Notes due 2004. The notes will be redeemed at
par on June 3, 2002. Subsequently, Premcor USA Inc., our direct parent, gave
notice of redemption on May 8, 2002 with respect to its 10 7/8% Senior Notes due
2005. The notes will be redeemed on June 7, 2002 at 103.625% of their principal
amount.

On April 1, 2002, Premcor USA exchanged its 11 1/2% exchangeable preferred
stock for 11 1/2% subordinated debentures due October 2009. The October 2002
interest payment on these debentures may be made in cash or by issuing
additional securities; however, as of April 1, 2003, Premcor USA will be
required to make cash interest payments for these debentures on a semiannual
basis. On May 9, 2002, Premcor Inc. effected the purchase of $50.1 million in
principal amount of these debentures at 105.75% of their principal amount. The
transaction is expected to settle on May 14, 2002.

Premcor USA relies on us for substantially all of its liquidity in order to
meet its interest and other costs. Subsequent to the redemption of the 10 7/8%
notes, Premcor USA's liquidity needs will consist only of the interest payments
on its 11 1/2% subordinated debentures and any administrative costs. Premcor
USA's ability to access our cash flows from operating activities is limited by
covenants governing certain of our outstanding debt securities. Under the most
restrictive covenants, we are not able to return additional capital to Premcor
USA as of March 31, 2002. Cash, cash equivalents, and short-term investments
owned by Premcor USA amounted to $25.6 million at March 31, 2002.

Funds generated from operating activities together with existing cash, cash
equivalents and short-term investments and proceeds from asset sales are
expected to be adequate to fund existing requirements for working capital and
capital expenditure programs for the next year. Due to the commodity nature of
our products, our operating results are subject to rapid and wide fluctuations.
While we believe that our maintenance of large cash, cash equivalents and
short-term investment balances and our operating philosophies will be sufficient
to provide us with adequate liquidity through the next year, there can be no
assurance that market conditions will not be worse than anticipated. Future
working capital, discretionary capital expenditures, environmentally mandated
spending and acquisitions may require additional debt or equity capital.

New and Proposed Accounting Standards

The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued an exposure draft of a proposed
statement of position ("SOP") entitled Accounting for Certain Costs and
Activities Related to Property, Plant and Equipment. If adopted as proposed,
this SOP will require companies to expense as incurred turnaround costs, which
it terms as "the non-capital portion of major maintenance costs." Adoption of
the proposed SOP would require that any existing unamortized turnaround costs be
expensed immediately. If this proposed change were in effect at March 31, 2002,
we would have been required to write-off unamortized turnaround costs of
approximately $110 million. Unamortized turnaround costs will change in 2002 as
maintenance turnarounds are performed and past maintenance turnarounds are
amortized. If adopted in its present form, charges related to this proposed
change would be taken in the first quarter of 2003 and would be reported as a
cumulative effect of an accounting change, net of income tax, in the
consolidated statements of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The risk inherent in our market risk sensitive instruments and positions is
the potential loss from adverse changes in commodity prices and interest rates.
None of our market risk sensitive instruments are held for trading.

Commodity Risk

Our earnings, cash flow and liquidity are significantly affected by a
variety of factors beyond our control, including the supply of, and demand for,
commodities such as crude oil, other feedstocks, gasoline and other refined
products. The demand for these refined products depends on, among other factors,
changes in domestic and foreign economies, weather conditions, domestic and
foreign political affairs, planned and unplanned downtime in refineries,
pipelines and production facilities, production levels, the availability of
imports, the marketing of competitive fuels and the extent of government
regulation. As a result, crude oil and refined product prices fluctuate
significantly, which directly impacts our net sales and operating revenues and
costs of goods sold.

The movement in petroleum prices does not necessarily have a direct
long-term relationship to net income. The effect of changes in crude oil prices
on our operating results is determined more by the rate at which the prices of
refined products adjust to reflect such changes. We are required to fix the
price on our crude oil purchases approximately two to three weeks prior to the
time when the crude oil can be processed and sold. As a result, we are exposed
to crude oil price movements relative to refined product price movements during
this period. In addition, earnings may be impacted by the write-down of our LIFO
based inventory cost to market value when market prices drop dramatically
compared to our LIFO inventory cost. These potential write-downs may be
recovered in subsequent periods as our inventories turn and market prices rise.
We utilize limited risk management tools to mitigate risk associated with
fluctuations in petroleum prices on our normal operating petroleum inventories.
We believe this policy is appropriate since inventories are required to operate
the business and are expected to be owned for an extended period of time. We
believe the cost of using such tools on an extended basis to manage normal
operating petroleum inventories outweighs the benefits.

We occasionally use several strategies to minimize the impact on
profitability of volatility in feedstock costs and refined product prices. These
strategies generally involve the purchase and sale of exchange-traded,
energy-related futures and options with a duration of six months or less. To a
lesser extent we use energy swap agreements similar to those traded on the
exchanges, such as crack spreads and crude oil options, to better match the
specific price movements in our markets as opposed to the delivery point of the
exchange-traded contract. These strategies are designed to minimize, on a
short-term basis, our exposure to the risk of fluctuations in crude oil prices
and refined product margins. The number of barrels of crude oil and refined
products covered by such contracts varies from time to time. Such purchases and
sales are closely managed and subject to internally established risk standards.
The results of these hedging activities affect refining cost of sales and
inventory costs. We do not engage in speculative futures or derivative
transactions.

We prepared a sensitivity analysis to estimate our exposure to market risk
associated with derivative commodity positions. This analysis may differ from
actual results. The fair value of each derivative commodity position was based
on quoted futures prices. As of March 31, 2002, a 10% change in quoted futures
prices would result in a $14 million change to the fair market value of the
derivative commodity position and correspondingly the same change in operating
income.

PART II. - OTHER INFORMATION

ITEM 1. - Legal Proceedings

The following is an update of developments during the quarter of material
pending legal proceedings to which we or any of our subsidiaries are a party or
to which any of our or their property is subject, including environmental
proceedings that involve potential monetary sanctions of $100,000 or more and to
which a governmental authority is a party.

Blue Island: Federal and State Enforcement. In September 1998, the federal
government filed a complaint, United States v. Clark Refining & Marketing, Inc.,
alleging that the Blue Island refinery violated federal environmental laws
relating to air, water and solid waste. The Illinois Attorney General intervened
in the case. The State of Illinois and Cook County had also brought an action
several years earlier, People ex rel. Ryan v. Clark Refining & Marketing, Inc.,
also alleging violations under environmental laws. In the first quarter of 2002,
the Company reached an agreement to settle both cases. The consent order in the
state case was formally approved and entered by the state court judge on April
8, 2002, and it is anticipated that the federal court will approve the proposed
settlement in the second quarter of 2002. The consent order in the federal case
requires the payment of $6.25 million as a civil penalty and requires limited
ongoing monitoring at the now-idled refinery. The consent order in the state
case requires an ongoing tank inspection program along with enhanced reporting
obligations and requires that the parties enter a process to complete an
appropriate site remediation program at the Blue Island refinery. The consent
orders dispose of both the federal and state cases.

Legal and Environmental Reserves. As a result of normal course of business,
we are a party to a number of legal and environmental proceedings. As of March
31, 2002, we had accrued a total of approximately $74 million, on an
undiscounted basis, for legal and environmental-related obligations that may
result from the matters noted above and other legal and environmental matters.
We are of the opinion that the ultimate resolution of these claims, to the
extent not previously provided for, will not have a material adverse effect on
our consolidated financial condition, results of operations or liquidity.
However, an adverse outcome of any one or more of these matters could have a
material effect on quarterly or annual operating results or cash flows when
resolved in a future period.

ITEM 6. - Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit
Number Description
------- -----------
3.1 Restated Certificate of Incorporation of The Premcor Refining
Group Inc. ("PRG") (f/k/a Clark Refining & Marketing, Inc.
and Clark Oil & Refining Corporation) effective as of
February 1, 1993 (Incorporated by reference to Exhibit 3.1
filed with PRG's Annual Report on Form 10-K, for the year
ended December 31, 2000 (Commission File No. 1-11392))

3.2 Certificate of Amendment to Certificate of Incorporation of
PRG (f/k/a Clark Refining & Marketing, Inc. and Clark Oil &
Refining Corporation) effective as of September 30, 1993
(Incorporated by reference to Exhibit 3.2 filed with PRG's
Annual Report on Form 10-K, for the year ended December 31,
2000 (Commission File No. 1-11392))

3.3 Certificate of Amendment of Restated Certificate of
Incorporation of PRG (f/k/a Clark Refining & Marketing, Inc.
and Clark Oil & Refining Corporation) effective as of May 9,
2000 (Incorporated by reference to Exhibit 3.3 filed with
PRG's Annual Report on Form 10-K, for the year ended December
31, 2000 (Commission File No. 1-11392))

3.4 By-laws of PRG (f/k/a Clark Refining & Marketing, Inc. and
Clark Oil & Refining Corporation) (Incorporated by reference
to Exhibit 3.2 filed with PRG's Registration Statement on
Form S-1 (Registration No. 33-28146))

4.1 Indenture dated as of August 10, 1998 between PRG (f/k/a
Clark Refining & Marketing, Inc. and Clark Oil & Refining
Corporation) and Bankers Trust Company, as Trustee, including
the form of the 8?% Senior Notes due 2008 (Incorporated by
reference to Exhibit 4.1 filed with PRG's Form S-4
(Registration No. 333-64387))

Exhibit
Number Description
------- -----------
4.2 Indenture between PRG (f/k/a Clark Refining & Marketing, Inc.
and Clark Oil & Refining Corporation) and NationsBank of
Virginia, N.A. including the form of 9 1/2% Senior Notes due
2004 (Incorporated by reference to Exhibit 4.1 filed with
PRG's Registration Statement on Form S-1 (File No. 33-50748))

4.3 Supplemental Indenture between PRG (f/k/a Clark Refining &
Marketing, Inc. and Clark Oil & Refining Corporation) and
NationsBank of Virginia, N.A., dated February 17, 1995
(Incorporated by reference to Exhibit 4.6 filed with PRG's
Annual Report on Form 10-K for the year ended December 31,
1994 (File No. 33-59144))

4.4 Indenture between PRG (f/k/a Clark Refining & Marketing, Inc.
and Clark Oil & Refining Corporation) and Bankers Trust
Company, dated as of November 21, 1997, including the form of
8?% Senior Notes due 2007 (Incorporated by reference to
Exhibit 4.5 filed with PRG's Registration Statement on Form
S-4 (Registration No. 333-42431))

4.5 Indenture between PRG (f/k/a Clark Refining & Marketing, Inc.
and Clark Oil & Refining Corporation) and Marine Midland
Bank, dated as of November 21, 1997, including the form of
8?% Senior Subordinated Notes due 2007 (Incorporated by
reference to Exhibit 4.6 filed with PRG's Registration
Statement on Form S-4 (Registration No. 333-42431))

4.6 Supplemental Indenture between PRG (f/k/a Clark Refining &
Marketing, Inc. and Clark Oil & Refining Corporation) and
Marine Midland Bank, dated as of November 21, 1997
(Incorporated by reference to Exhibit 6.1 filed with PRG's
Registration Statement on Form S-4 (Registration No.
333-42431))

10.1 Employment Agreement, dated as of January 30, 2002, of Thomas
D. O'Malley (Incorporated by reference to Exhibit 10.13 filed
with PRG's (f/k/a/ Clark Refining & Marketing, Inc.) Annual
Report on Form 10-K for the year ended December 31, 2001
(File No. 1-11392)).

10.2 First Amended to Employment Agreement, dated March 18, 2002,
of Thomas D. O'Malley (Incorporated by reference to Exhibit
10.14 filed with PRG's (f/k/a/ Clark Refining & Marketing,
Inc.) Annual Report on Form 10-K for the year ended December
31, 2001 (File No. 1-11392)).

10.3 Employment Agreement, dated February 1, 2002, of William E.
Hantke (Incorporated by reference to Exhibit 10.16 filed with
PRG's (f/k/a/ Clark Refining & Marketing, Inc.) Annual Report
on Form 10-K for the year ended December 31, 2001 (File No.
1-11392)).

10.4 First Amendment to Employment Agreement, dated March 18,
2002, of William E. Hantke (Incorporated by reference to
Exhibit 10.17 filed with PRG's (f/k/a/ Clark Refining &
Marketing, Inc.) Annual Report on Form 10-K for the year
ended December 31, 2001 (File No. 1-11392)).

10.5 Employment Agreement, dated as of March 1, 2002, of Joseph D.
Watson (Incorporated by reference to Exhibit 10.18 filed with
PRG's (f/k/a/ Clark Refining & Marketing, Inc.) Annual Report
on Form 10-K for the year ended December 31, 2001 (File No.
1-11392)).

10.6 Premcor 2002 Equity Incentive Plan (Incorporated by reference
to Exhibit 10.19 filed with PRG's (f/k/a/ Clark Refining &
Marketing, Inc.) Annual Report on Form 10-K for the year
ended December 31, 2001 (File No. 1-11392)).

10.7 Premcor 2002 Special Stock Incentive Plan (Incorporated by
reference to Exhibit 10.20 filed with PRG's (f/k/a/ Clark
Refining & Marketing, Inc.) Annual Report on Form 10-K for
the year ended December 31, 2001 (File No. 1-11392)).

Exhibit
Number Description
------- ------------
10.8 Letter Agreement, dated as of February 1, 2002, between
Premcor Inc. and Wilkes McClave III (Incorporated by
reference to Exhibit 10.21 filed with PRG's (f/k/a/ Clark
Refining & Marketing, Inc.) Annual Report on Form 10-K for
the year ended December 31, 2001 (File No. 1-11392)).

10.9 Letter Agreement, dated as of February 1, 2002, between
Premcor Inc. and Jefferson F. Allen (Incorporated by
reference to Exhibit 10.22 filed with PRG's (f/k/a/ Clark
Refining & Marketing, Inc.) Annual Report on Form 10-K for
the year ended December 31, 2001 (File No. 1-11392)).

(b) Reports on Form 8-K

We filed the following reports on Form 8-K during the period
covered by this report and up to and including the date of filing of
this report:

(1) a report dated February 5, 2002 (announcing that Premcor Inc. had
appointed Thomas D. O'Malley Chairman, Chief Executive Officer and
President of Premcor);

(2) a report dated February 12, 2002 (announcing that Premcor Inc. had
announced its fourth quarter and full year results); and

(3) a report dated February 28, 2002 (announcing Premcor Inc.'s
decision to discontinue refining operations at its Hartford, Illinois
refinery in October 2002).

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

THE PREMCOR REFINING GROUP INC.
(Registrant)

/s/ Dennis R. Eichholz
-------------------------------------
Dennis R. Eichholz
Controller (principal
accounting officer and
duly authorized officer)

May 13, 2002