Valero Energy Corporation · NYSE:VLO
Valero Energy — ISI Energy Conference 2013
55 slides from Valero Energy's conference presentation, May 7, 2013
Slide 1: ISI Energy Conference May 7-8, 2013
ISI Energy Conference May 7-8, 2013
Slide 2: Safe Harbor Statement
Safe Harbor Statement Statements contained in this presentation that state the Company's or management's expectations or predictions of the future are forward- looking statements intended to be covered by the safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 193
Slide 3: Valero Energy Overview
Valero Energy Overview World's largest independent refiner 16 refineries 2.8 million barrels per day (BPD) of throughput capacity, with average capacity of 187,000 BPD, excluding Aruba More than 7,300 branded marketing sites Nearly 1,900 sites belong to CST Brands, our former retail business that we
Slide 4: Refinery Capacities
Refinery Capacities (000 bpd) Capacities (000 bpd) Nelson Index Refinery Total Through-put Crude Oil Nelson Index Corpus Christi 325 205 20.6 Houston 160 90 15.1 Meraux 135 135 10.2 Port Arthur 310 290 12.7 St. Charles 270 190 15.2 Texas City 245 225 11.1 Three Rivers 100 95 12.4 Gulf Coast 1,545 1,
Slide 5: Unlocked Value via Retail Spinoff
Unlocked Value via Retail Spinoff Spun off our former retail business through a distribution to shareholders on May 1 CST Brands, Inc. trading on the NYSE under the ticker symbol "CST" CST has traded at approximately double the earnings valuation of VLO, unlocking shareholder value Valero received a
Slide 6: VLO Well-Positioned to Benefit from Changing Market Trends
VLO Well-Positioned to Benefit from Changing Market Trends Atlantic Basin refining closures reducing excess capacity U.S. competitively exporting into growing and undersupplied markets Expect abundant and growing U.S. shale oil and Canadian production to provide feedstock cost advantage Low-cost U.S
Slide 7: Atlantic Basin Closures Reduce Excess Capacity
(CHART) Atlantic Basin Closures Reduce Excess Capacity Capacity closures have been concentrated in the Atlantic Basin: U.S. East Coast, Caribbean, Western Europe; expect more will occur Combined with poor reliability and low utilization in Latin American refineries and demand growth in Latin America
Slide 8: Valero in the Atlantic Basin
Valero in the Atlantic Basin 8 8 Aruba Terminal
Slide 9: Gulf Coast Crude Discounts and Product Margins: 1Q13 versus 2Q13 to Date
Gulf Coast Crude Discounts and Product Margins: 1Q13 versus 2Q13 to Date Margins: 1Q13 versus 2Q13 to Date Margins: 1Q13 versus 2Q13 to Date 9 Source: Argus, 2Q13 quarter-to-date pricing is through 4-26-13; Gas crack uses USGC CBOB Valero Gulf Coast Product and Feedstocks vs. ICE Brent In 2013, LLS
Slide 10: Continued Global Demand Growth Important to Refining Margins
(CHART) Continued Global Demand Growth Important to Refining Margins 10 Source: Consultant and Valero estimates World Petroleum Demand Growth Emerging markets are taking the lead in terms of global petroleum demand growth, but refining is a global business and world growth impacts refiners in every
Slide 11: World Refinery Capacity Growth
(CHART) World Refinery Capacity Growth Expect significant new global refining additions in the next several years Mainly new plants in Asia and the Middle East Some investment in Latin America New capacity announcements from Brazil, Mexico, and Colombia will likely be much smaller and much later tha
Slide 12: Rapid Growth in U.S. Crude Supply
Rapid Growth in U.S. Crude Supply 12 (CHART) Shale oil production growth and Mid-Continent heavy-up projects are rapidly increasing domestic light, sweet crude supplies This has created a bottleneck of crude oil that has exceeded the capacity of inland refineries and needs to move to markets outside
Slide 13: Rapid Growth in Logistics to U.S. Gulf Coast
Rapid Growth in Logistics to U.S. Gulf Coast 13 (CHART) Logistics capacity to move inland crude from the Mid-Continent and Texas to the U.S. Gulf Coast is expanding quickly to debottleneck inland markets Significant rail capacity coming online, particularly in Bakken and Canada Popular for East and
Slide 14: Estimate of Marginal Light Crude Oil Costs per Barrel
Valero's Estimate of Marginal Light Crude Oil Costs per Barrel in 12 to 24 Months 14 to USEC Rail $14 to $17/bbl to St. James Rail $12/bbl to Cushing Rail $9/bbl Cushing ICE Brent -$7 to $10 to Houston Pipe $4/bbl Midland ICE Brent -$7 to $10 to Houston Pipe $4/bbl CC to Houston $1/bbl Houston to St
Slide 15: Keystone XL Pipeline
Keystone XL Pipeline Keystone XL Pipeline Presidential Permit Delay TransCanada 1,661 mile pipeline that will bring 700,000 bpd of Canadian oil into U.S. markets Expected to create 42,000 U.S. manufacturing and construction jobs; $5.2 billion tax revenue in Keystone corridor states over 20 years Can
Slide 16: Ability to Run Discounted Light Crude at Gulf Coast and Memphis
Valero has increased the amount of domestic light crudes processed as additional volumes have become available Valero is evaluating potential projects to further increase its domestic light crude processing capacity Valero's Ability to Run Discounted Light Crude at Gulf Coast and Memphis Refineries
Slide 17: Lower-Cost Natural Gas Provides Structural Advantage to U.S. Refiners
Lower-Cost Natural Gas Provides Structural Advantage to U.S. Refiners 17 Note: Per barrel cost of 700,000 mmBtus/day of natural gas consumption at 90% utilization (2,529 MBPD) of Valero's capacity $1.5 billion higher pre-tax annual costs $3.1 billion higher pre-tax annual costs Expect U.S. natural g
Slide 18: Distillates Are Premium Refined Products with Higher Margins
Distillates Are Premium Refined Products with Higher Margins and Faster Growth 18 Distillate (diesel, kero, jet fuel) margins are significantly higher than gasoline Distillate demand growth rate is much higher than gasoline Europe continues to be short diesel, but long marginal refining capacity and
Slide 19: Successfully Completed Port Arthur Hydrocracker
57,000 BPD Port Arthur hydrocracker completed and operating at or above expectations Unit is performing well and meeting expectations Estimate 60,000 BPD St. Charles HCU mechanical completion and operating in 2Q13 Both hydrocrackers were designed to benefit from the price outlook of high crude and l
Slide 20: Valero Increasing Distillate Yields
Valero Increasing Distillate Yields 20 (CHART) Source: Company Reports and EIA, yield data is for 2012; gasoline and distillate as a percent of total production volumes; distillate includes jet fuel Valero's refining system distillate yields are estimated to grow from 33% in 2010 to 39% in 2013 Prim
Slide 21: Valero Focused on Improving Refinery Operations
Better Better Our goal is to be a 1st-quartile refiner Refining industry benchmark studies show our portfolio continues to improve Seven refineries currently operating in 1st quartile for mechanical availability, the most important Solomon metric Saw results from improvement initiatives in 2011 and
Slide 22: Expect Large Decline in Capital Spending in 2013
Expect Large Decline in Capital Spending in 2013 22 "Stay- in- business" spending 2012 spending was higher mainly due to the two new hydrocrackers 2013 spending includes approximate $60 million for retail (CST Brands) through April 2013 spending increased approximately $140 million from prior guidan
Slide 23: Returning More Cash to Shareholders and Managing Financial Strength
(CHART) Returning More Cash to Shareholders and Managing Financial Strength Returning cash to shareholders Increased quarterly dividend from $0.05 per share in 2Q11 to $0.20 per share in 1Q13 Bought 9.7 million shares for $422 million so far in 2013, and 27.3 million shares for $628 million in 2011
Slide 24: Valero's Strategic Priorities
Valero's Strategic Priorities 24 Constant focus on safety, environmental, and regulatory compliance Produce quality products in safe, reliable, and environmentally responsible manner Maintain investment grade credit rating and continue to reduce debt Select/optimize financial structure for our asset
Slide 25: We Believe Valero Is an Excellent Buy Today
We Believe Valero Is an Excellent Buy Today Well-positioned to benefit from changing market trends Atlantic Basin capacity closures have improved refining fundamentals Benefiting from strong export market/strong competitive position of U.S. refining Expect abundant U.S. shale and Canadian crude oil
Slide 26: Appendix
Ww 2 VALERO | Appendix
Slide 27: Ethanol Segment
Ethanol Segment Total nameplate production capacity of 1.1 billion gallons per year Built position for average of only 35% of estimated replacement cost 2Q09: Acquired 7 plants with 780 million gallons per year of world- scale capacity in advantaged locations 1Q10: Added 3 plants with 330 million ga
Slide 28: Refinery Projects Investment Summary
Refinery Project Estimated Total Investment (millions) Estimated 2013 Spend (millions) Estimated Completion Date Estimated Key Economic Benefit Key Drivers/Additional Comments McKee 25 MBPD Crude Unit Project $130 $40 2Q14 $9 mm per year of EBITDA for every $1/bbl of Brent - WTI Brent - WTI differen
Slide 29: Refinery Project Categories and Investment
Refinery Project Category Estimated Total Investment (millions) Estimated 2013 Spend (millions) Key Driver/Additional Comments Quebec Crude Logistics $110-$200 $50 Enables substitution of cheaper North American crude oil versus more expensive imports Various locations Rail Car Purchase $750 $250 Pur
Slide 30: Port Arthur and St. Charles Hydrocracker Projects
Port Arthur and St. Charles Hydrocracker Projects Investment Highlights Favorable economics driven by margin and volume gains Main unit is 57,000 barrels/day hydrocracker (rolling 12-month average per permit) at Port Arthur and 60,000 barrels/day hydrocracker at St. Charles Creates high-value produc
Slide 31: Diamond Green Diesel Joint Venture
Diamond Green Diesel Joint Venture Investment Highlights Building a 9,300 BPD renewable diesel plant adjacent to Valero's St. Charles refinery 50/50 JV project with Darling Int'l, a leading gatherer of used cooking oils and animal fat Uses refinery technology to produce high-quality diesel from low-
Slide 32: Project Price Set Assumptions
Project Price Set Assumptions 32 Commodity Base Case ($/bbl) 2008 ($/bbl) 2009 ($/bbl) 2010 ($/bbl) 2011 ($/bbl) 2012 ($/bbl) LLS Crude oil1 85.00 102.07 62.75 81.64 111.09 112.20 LLS - USGC HS Gas Oil -3.45 2.03 -2.86 -2.72 -5.75 -7.59 USGC Gas Crack 6.00 2.47 6.91 5.32 5.11 4.66 USGC ULSD Crack 11
Slide 33: Key Drivers for a 60,000 BPD Hydrocracker
12,000 BPD (20%) volume expansion Hydrocracker Unit Operating Costs Hydrocracker Unit Operating Costs Heat, power, labor, etc. $1.50 per barrel (per barrel amount based on hydrocracker unit volumes) (per barrel amount based on hydrocracker unit volumes) Synergies with Plant Synergies with Plant With
Slide 34: Hydrocracker Projects Show Profits Under Various Price Sets
Valero's Hydrocracker Projects Show Profits Under Various Price Sets Under Various Price Sets Under Various Price Sets 34 Note: EBITDA = Pretax operating income + depreciation and amortization, excludes interest expense; see details in appendix; millions
Slide 35: 60,000 BPD Hydrocracker Model Estimates Under Various Price Sets
60,000 BPD Hydrocracker Model Estimates Under Various Price Sets 35 Key Drivers and Prices 2008 Prices 2008 Prices 2009 Prices 2009 Prices 2010 Prices 2010 Prices 2011 Prices 2011 Prices 2012 Prices 2012 Prices LLS /bbl $102.07 $62.75 $81.64 $111.09 $112.20 LLS - HSVGO /bbl $2.03 -$2.86 -$2.72 -$5.7
Slide 36: RINflation! - Expect Consumers to Pay Higher Cost of RFS Mandate
RINflation! - Expect Consumers to Pay Higher Cost of RFS Mandate 36 Situation RFS mandates a specific volume of renewable fuels to be blended with gasoline and diesel Due to lower annual gasoline demand, the mandated renewable volume exceeds the possible blended volume (E-10 and E-85), creating the
Slide 37: Growth of Crude Logistics to U.S. Gulf Coast
Growth of Crude Logistics to U.S. Gulf Coast 37 Throughput Capacities, '000 bpd 2010 2011 2012 2013E 2014E 2015E Cushing Seaway 150 400 850 850 Keystone 550 830 830 Rail - 60 230 271 271 411 Total - 60 380 1,221 1,951 2,091 Permian Longhorn 225 225 225 BridgeTex 300 300 SXL Permian Express 150 350 3
Slide 38: U.S. Oil and Natural Gas Production Increasing While Crude Imports Decreasing
U.S. Oil and Natural Gas Production Increasing While Crude Oil Imports Decreasing While Crude Oil Imports Decreasing While Crude Oil Imports Decreasing 38 Source: DOE (CHART) Local resource provides cost-advantage of refiners
Slide 39: Global Refining Capacity Rationalization
*Partial closure of refinery captured in capacity Note: This data represents refineries currently closed, ownership may choose to restart or sell listed refinery Sources: Industry and Consultant reports and Valero estimates 1The Petit Couronne refinery has shut completely when processing deal with S
Slide 40: Global Refining Capacity For Sale or Under Strategic Review
Global Refining Capacity For Sale or Under Strategic Review 40 Location Owner CDU Capacity (MBPD) Gothenburg, Sweden Shell 80 Kapolei, HI Chevron 54 Milford Haven, UK Murphy 108 Whitegate, Ireland Phillips 66 70 Mazeikai, Lithuania PKN 190 Various Japanese Locations JX Energy 400 Incheon, South Kore
Slide 41: Low-Cost U.S. Natural Gas Provides Competitive Advantage
Low-Cost U.S. Natural Gas Provides Competitive Advantage 41 U.S. natural gas trading at a significant discount to Brent crude oil price (on energy equivalent basis) Expect U.S. natural gas prices will remain low and disconnected from global oil and gas prices for foreseeable future VLO refinery oper
Slide 42: Gasoline Fundamentals
(CHART) Gasoline Fundamentals 42 (CHART) USGC LLS Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) (CHART) Source: Argus; 2013 data through April 26 Source: DOE weekly data; 2012 data through week ending April 26 Source: DOE weekly data; 2012 data through week ending April 26 U.S. Gasoline Days
Slide 43: Distillate Fundamentals
Distillate Fundamentals 43 43 (CHART) USGC LLS On-road Diesel Crack (per bbl) U.S. Distillate Demand (mmbpd) (CHART) (CHART) Source: Argus; 2013 data through April 26 Source: DOE weekly data; 2012 data through week ending April 26 Source: DOE weekly data; 2012 data through week ending April 26 Sourc
Slide 44: U.S. Transport Indicators
U.S. Transport Indicators 44 Latest data Week 16, 2013 (CHART) (CHART)
Slide 45: U.S. Transport Indicators: Trucking Indicators
U.S. Transport Indicators: Trucking Indicators 45 (CHART) (CHART) (CHART) (CHART) ATA data through Feb-13, TSI data through Feb-13
Slide 46: Mexico Statistics
(CHART) (CHART) Mexico Statistics Diesel Gross Imports (MBPD) Source: PEMEX, latest data March 2013 Gasoline Gross Imports (MBPD) Source: PEMEX, latest data March 2013 (CHART) Crude Unit Throughput (MBPD) Crude Unit Utilization (CHART) 46 Source: Mexico Secretary of Energy, latest data March 2013 So
Slide 47: Venezuelan Exports to the U.S.
Venezuelan Exports to the U.S. 47 (CHART) Source: EIA, February 2013
Slide 48: U.S. Gasoline Exports by Destination
(CHART) U.S. Gasoline Exports by Destination Gasoline exports remain at elevated levels due to the strong demand from Latin America, including Mexico Note: Gasoline represents all finished gasoline plus all blendstocks (including ethanol, MTBE, and other oxygenates) Source: DOE Petroleum Supply Mont
Slide 49: U.S. Gasoline Imports by Source
U.S. Gasoline Imports by Source Gasoline imports have declined steadily since 2007 Note: Gasoline represents all finished gasoline plus all blendstocks (including ethanol, MTBE, and other oxygenates) Source: DOE Petroleum Supply Monthly with data as of February 2013. 4 Week Average estimate from Wee
Slide 50: U.S. Diesel Exports by Destination
U.S. Diesel Exports by Destination Diesel exports to Latin America continue to exceed exports to Europe, but over two- thirds of diesel export growth in 2011 was to Europe Source: DOE Petroleum Supply Monthly with data as of February 2013. 4 Week Average estimate from Weekly Petroleum Statistics Rep
Slide 51: U.S. Shifted to Net Exporter
The transition of the U.S. refining system to being a net exporter to the world market has mitigated the impact of declining domestic demand Large quantities of U.S. diesel and gasoline exports to Latin America and diesel exports to Europe Strong international demand has been "pulling" products and
Slide 52: U.S. Shifted to Net Exporter
(CHART) U.S. Shifted to Net Exporter Net Imports Net Exports Note: Gasoline includes ethanol, MTBE, and other oxygenates; Source: DOE Petroleum Supply Monthly with data as of February 2013 MBPD Diesel net exports remain strong, with U.S. refiners sending a net of 608 MBPD to other countries in 2013.
Slide 53: U.S. Competitively Exporting into Growing Markets
(CHART) U.S. Competitively Exporting into Growing Markets Source: DOE Petroleum Supply Monthly with data as of February 2013, Latin America includes South and Central America plus Mexico U.S. has become a net exporter of refined products due to growth in developing countries, Atlantic Basin capacity
Slide 54: Assumed Regional Indicator Margins
Assumed Regional Indicator Margins Gulf Coast Indicator: (GC Colonial 85 CBOB A grade- LLS) x 60% + (GC ULSD 10ppm Colonial Pipeline prompt - LLS) x 40% + (LLS - Maya Formula Pricing) x 40% + (LLS - Mars Month 1) x 40% Mid-con Indicator: [(Group 3 Conv 87 Gasoline prompt - WTI Month 1) x 60% + (Grou
Slide 55: Investor Relations Contacts
Investor Relations Contacts For more information, please contact: Ashley Smith, CFA, CPA Vice President, Investor Relations 210.345.2744 ashley.smith@valero.com Matthew Jackson Investor Relations Specialist 210.345.2564 matthew.jackson@valero.com 55