Valero Energy Corporation · NYSE:VLO
Valero Energy — UBS Global Oil and Gas Conference 2013
67 slides from Valero Energy's conference presentation, May 21, 2013
Slide 1: UBS Global Oil and Gas Conference May 21-22, 2013
UBS Global Oil and Gas Conference May 21-22, 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: Valero's Geographically Diverse Operations
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: Valero's Strategy to Enhance Returns and Increase Long-term Shareholder Value
Valero's Strategy to Enhance Returns and Increase Long-term Shareholder Value Increase Long-term Shareholder Value Increase Long-term Shareholder Value 5
Slide 6: Key Market Trends
Key Market Trends 6 Expect dramatic growth in U.S. shale oil and Canadian oil production to provide North American crude oil cost advantage Industry installing significant infrastructure to move crude oil to refining markets, mainly to U.S. Gulf Coast Lower-cost North American natural gas provides c
Slide 7: U.S. and Canadian Production Growth Provides Resource Advantage to North American Refiners
U.S. and Canadian Production Growth Provides Resource Advantage to North American Refiners Resource Advantage to North American Refiners Resource Advantage to North American Refiners 7 Source: EIA, Consultants, company announcements and Valero estimates; 2013 U.S. Crude imports are YTD as of Februar
Slide 8: Logistics Constraints Create Regional Crude Discounts in U.S. and Canada
Logistics Constraints Create Regional Crude Discounts in U.S. and Canada 8 (CHART) Source: Argus; data as of May 17, 2013 E A B C D F G H I Crude Pricing by Location A B C D E F G H I Premium Discount
Slide 9: U.S. Gulf Coast: Main Destination for Most Cost-Efficient Crude Oil Logistics
U.S. Gulf Coast: Main Destination for Most Cost-Efficient Crude Oil Logistics Rapid increase in pipeline capacities to move inland North American light and heavy crude oils to the Gulf Coast Light crudes have been pricing below LLS in western (Houston, Corpus) parts of Gulf Coast Expect rail to play
Slide 10: Valero's Strategy to Supply Incremental Volumes of Cost-Advantaged Crude Oil
Valero's Strategy to Supply Incremental Volumes of Cost-Advantaged Crude Oil Volumes of Cost-Advantaged Crude Oil Volumes of Cost-Advantaged Crude Oil 10 Insert photos Expect Quebec refinery to benefit and become supplied by U.S. and Canadian crude in three ways: rail, ship, pipeline Rail up to 30 M
Slide 11: Valero's Estimate of Marginal Light Crude Oil Costs per Barrel in 12 to 24 Months
Valero's Estimate of Marginal Light Crude Oil Costs per Barrel in 12 to 24 Months 11 to USEC Rail $14 to $17/bbl to St. James Rail $12/bbl to Cushing Rail $9/bbl Cushing ICE Brent -$5 to -$8 to Houston Pipe $4/bbl Midland ICE Brent -$5 to -$8 to Houston Pipe $4/bbl CC to Houston $1 to $2/bbl Houston
Slide 12: Lower-Cost Natural Gas Provides Structural Advantage to U.S. and Canadian Refiners
Lower-Cost Natural Gas Provides Structural Advantage to U.S. and Canadian Refiners 12 Note: Per barrel cost of 700,000 MCF/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
Slide 13: Global Distillates Demand Growth Yields Higher Margins
Global Distillates Demand Growth Yields Higher Margins 13 Distillate (diesel, kero, jet fuel) margins are significantly higher than gasoline due to less spare distillate production capacity Distillate demand growth rate is much higher than gasoline Europe continues to be short diesel, but long margi
Slide 14: Valero Increasing Distillate Yields
Valero Increasing Distillate Yields 14 (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; gasoline excludes naphtha Valero's refining system distillate yields are estimated to grow from 33%
Slide 15: U.S. Refining Capacity Is Globally Competitive and Taking Market Share
U.S. Refining Capacity Is Globally Competitive and Taking Market Share 15 U.S. flipped from importer to exporter on lower local demand and competitive advantages U.S. refiners in PADDs 2, 3, and 4 have higher utilization due to structural advantages of cost-advantaged crude oil and natural gas U.S.
Slide 16: Valero in the Atlantic Basin
Valero in the Atlantic Basin 16 16 Aruba Terminal
Slide 17: Continued Global Demand Growth Important to Refining Margins
(CHART) Continued Global Demand Growth Important to Refining Margins 17 Source: Consultant and Valero estimates World Petroleum Demand Growth Emerging markets lead in terms of global petroleum demand growth Refining is a global business - world growth impacts refiners in every market because product
Slide 18: 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 , where demand growth is strong New capacity announcements from Brazil, Mexico, and Colombia will likely be much smaller and much later than
Slide 19: Valero's 2013 Capital Spending Focuses on Growth Projects, Mainly Logistics
Valero's 2013 Capital Spending Focuses on Growth Projects, Mainly Logistics 19 "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 Total $2,850 Total $3,410 Decline (CHART)
Slide 20: Logistics Growth Investments
Logistics Growth Investments Strategy Increase access to cost-advantaged crudes Increase capability to export more products and crude Assets qualify for value-creating MLP Investments Pipelines, rail cars, rail unloading, barges, ships, docks, tanks Purchased 5,320 rail cars for delivery 4Q12 throug
Slide 21: Expect to Unlock Value via New MLP
Expect to Unlock Value via New MLP Evaluating formation of a publicly traded MLP for Valero's logistics assets Valero completely divested its first MLP in 2006, now called NuStar Energy Since that separation, Valero has built a portfolio of logistics assets Seeking value creation through higher valu
Slide 22: Distillates Hydrocracking Growth Investments
Strategy Produce diesel and jet fuel partially using hydrogen from natural gas (gas-to-liquids process) Designed to benefit from our price outlook of high crude and low natural gas Growth Investments Recently completed 57 MBPD hydrocracker at Port Arthur refinery performing well Distillates Hydrocra
Slide 23: Valero's 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 23 Note: EBITDA = Pretax operating income + depreciation and amortization, excludes interest expense; see details in appendix; Port Arthur excludes benefit from high-acid crude proj
Slide 24: Investments to Process More Domestic Light Crude Oil
Investments to Process More Domestic Light Crude Oil Strategy Increase processing of North American cost- advantaged crude oil Growth Investments Two new crude oil topping units expected to come online in second-half of 2015 90 MBPD at Houston refinery for $290 million 70 MBPD at Corpus Christi refi
Slide 25: Valero's Growth in Processing Volumes of Cost-Advantaged U.S. and Canadian Crude
Valero's Growth in Processing Volumes of Cost-Advantaged U.S. and Canadian Crude 25 (CHART)
Slide 26: Returning More Cash to Shareholders and Managing Financial Strength
(CHART) Returning More Cash to Shareholders and Managing Financial Strength Spun off 80% of company operated retail, equivalent to $3.25 to $3.50 per share of VLO 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 sh
Slide 27: 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 Meantime between pump repair approaching 60 months Sa
Slide 28: We Believe Valero Is an Excellent Buy Today
We Believe Valero Is an Excellent Buy Today Expect dramatic growth in U.S. shale oil and Canadian oil production to provide North American crude oil cost advantage Industry installing significant infrastructure to move crude oil to refining markets, mainly to U.S. Gulf Coast Lower-cost U.S. and Cana
Slide 29: Appendix
AZ Pe VALERO Appendix
Slide 30: Valero's Ethanol Segment
Valero's Ethanol Segment Total nameplate production capacity of 1.1 billion gallons/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 milli
Slide 31: Refinery Project Estimated Investment and Completion
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 32: 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 $250 Pur
Slide 33: Port Arthur and St. Charles Hydrocracker Projects
Port Arthur and St. Charles Hydrocracker Projects Investment Highlights Favorable economics driven by margin and volume gains Main unit is 57,000 barrels/day hydrocracker (rolling 12-month average per permit) at Port Arthur and 60,000 barrels/day hydrocracker at St. Charles Creates high-value produc
Slide 34: Diamond Green Diesel Joint Venture
Diamond Green Diesel Joint Venture Investment Highlights Building a 9,300 BPD renewable diesel plant adjacent to Valero's St. Charles refinery 50/50 JV project with Darling Int'l, a leading gatherer of used cooking oils and animal fat Uses refinery technology to produce high-quality diesel from low-
Slide 35: Project Price Set Assumptions
Project Price Set Assumptions 35 Commodity Base Case ($/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 36: 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 37: 60,000 BPD Hydrocracker Model Estimates Under Various Price Sets
60,000 BPD Hydrocracker Model Estimates Under Various Price Sets 37 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 38: Unlocked Value via Retail Spinoff
Unlocked Value via Retail Spinoff Spun off to shareholders our retail business on May 1 CST Brands, Inc. trading on the NYSE under the ticker symbol "CST" CST has traded at more than double the earnings valuation of VLO, unlocking shareholder value Valero received approximately $500 million in net c
Slide 39: Valero's Wholesale Segment
Valero's Wholesale Segment VLO markets branded and unbranded refined products on a wholesale basis through an extensive rack marketing network The Valero-branded family operates in the U.S., Canada, and U.K with approximately 1,000 branded sites in the U.K. and Ireland These sites are independently
Slide 40: Refining Crude & Feedstock Supply
(CHART) Refining Crude & Feedstock Supply 40 Valero crude and feedstock runs were approximately 2.3 million bpd in 2012 Valero ran 94 unique crudes in 2012 Crude inventory typically ranges from 44 to 52 million barrels throughout the year Intermediate inventory ranges from 12 to 15 million barrels a
Slide 41: Issues with Processing Light Crudes
Issues with Processing Light Crudes 41 Refineries are designed for a specific range of crude oil properties, otherwise build costs would be very high Lighter crudes contain significantly more light components, e.g., propane, butane, straight run gasoline, naphtha Be careful about generalizing crude
Slide 42: Valero Focused on Safety and Environmental Performance
Safety is our highest priority: our goal is zero injuries Tier 1 process safety events - significant focus to continue improving Environmental and regulatory compliance - even more important today (CHART) (CHART) *Source: U.S. Bureau of Labor Statistics (CHART) Valero Focused on Safety and Environme
Slide 43: RINflation! Expect Consumers to Pay Higher Cost of RFS Mandate
RINflation! - Expect Consumers to Pay Higher Cost of RFS Mandate 43 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 44: U.S. Oil and Natural Gas Production Increasing While Crude Oil 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 44 Source: DOE (CHART) Local resource provides cost-advantage of refiners
Slide 45: Canadian Heavy Crudes Have Several Options to the Gulf Coast
45 Source: Company Reports Canadian Heavy Crudes Have Several Options to the Gulf Coast Pipeline - industry has several options in various stages to move crude oil from Alberta, Canada to the U.S. Gulf Coast Seaway Currently shipping light and heavy sour from Cushing to Gulf Coast Expansion expected
Slide 46: Growth of Pipeline Crude Logistics to U.S. Gulf Coast
Growth of Pipeline Crude Logistics to U.S. Gulf Coast 46 Year-End Throughput Capacities, '000 bpd 2011 2012 2013E 2014E 2015E Announced Start-up Cushing Seaway 150 400 850 850 2Q12, 1Q13, 1Q14 Keystone - - 550 550 830 4Q13, 2015 Total - 150 950 1,400 1,680 Permian Longhorn 225 225 225 2Q at 75; 225
Slide 47: 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 48: 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 49: Global Refining Capacity For Sale or Under Strategic Review
Global Refining Capacity For Sale or Under Strategic Review 49 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 50: Low-Cost U.S. Natural Gas Provides Competitive Advantage
Low-Cost U.S. Natural Gas Provides Competitive Advantage 50 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 51: Gasoline Fundamentals
(CHART) Gasoline Fundamentals 51 (CHART) USGC LLS Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) (CHART) Source: Argus; 2013 data through May 17 Source: DOE weekly data; 2012 data through week ending May 10 Source: DOE weekly data; 2012 data through week ending May 10 U.S. Gasoline Days of Su
Slide 52: Distillate Fundamentals
Distillate Fundamentals 52 52 (CHART) USGC LLS On-road Diesel Crack (per bbl) U.S. Distillate Demand (mmbpd) (CHART) (CHART) Source: Argus; 2013 data through May 17 Source: DOE weekly data; 2012 data through week ending May 10 Source: DOE weekly data; 2012 data through week ending May 10 Source: DOE
Slide 53: U.S. Transport Indicators
U.S. Transport Indicators 53 Latest data Week 16, 2013 (CHART) (CHART)
Slide 54: U.S. Transport Indicators: Trucking Indicators
U.S. Transport Indicators: Trucking Indicators 54 (CHART) (CHART) (CHART) (CHART) ATA data through Feb-13, TSI data through Feb-13
Slide 55: 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) 55 Source: Mexico Secretary of Energy, latest data March 2013 So
Slide 56: Venezuelan Exports to the U.S.
Venezuelan Exports to the U.S. 56 (CHART) Source: EIA, February 2013
Slide 57: 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 58: 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 59: 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 60: 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 61: 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 62: 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 63: Crude Oil Discounts
(CHART) Crude Oil Discounts 63 $/barrel Source: Argus; 2013 year-to-date through May 17; LLS prices are roll adjusted
Slide 64: Regional Refinery Indicator Margins
Regional Refinery Indicator Margins 64 Source: Argus; 2013 year-to-date through May 17; see Appendix for details on refinery configuration assumptions
Slide 65: 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 66: Ethanol Reconciliation of Operating Income to EBITDA
Ethanol Reconciliation of Operating Income to EBITDA EBITDA EBITDA 66
Slide 67: 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 67
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