Valero Energy Corporation · NYSE:VLO
Valero Energy — Investor Presentation (November 2011)
58 slides from Valero Energy's investor presentation, Nov 21, 2011
Slide 1: Investor Presentation November 2011
Investor Presentation November 2011
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 including recently acquired Pembroke, U.K. and Meraux, Louisiana refineries 3 million barrels per day (BPD) of throughput capacity, with average capacity of 190,000 BPD Approximately 6,800 branded marketing sites Nearly 1,300 c
Slide 4: Meraux Acquisition: Attractive Value for Flexible, High-Quality Assets
Meraux Acquisition: Attractive Value for Flexible, High-Quality Assets On October 1, Valero acquired Murphy Oil Corporation's Meraux refinery in Louisiana and offsite logistics assets for $325 million 135 MBPD refinery value estimated at $270 million Off-site logistics assets value estimated at $55
Slide 5: Pembroke Integration In Progress
Pembroke Integration In Progress On August 1, Valero acquired Chevron's Pembroke refinery, marketing and logistics assets in the United Kingdom and Ireland for $730 million Plus working capital, inventories, and other net assets with estimated value of $900 million 270,000 barrels-per-day refinery w
Slide 6: Acquisitions Enhance Valero's Margin Optimization Strategy in the Atlantic Basin
Acquisitions Enhance Valero's Margin Optimization Strategy in the Atlantic Basin 6
Slide 7: Valero's Geographically Diverse Operations
Valero's Geographically Diverse Operations 7 Refinery Capacities (000 bpd) Capacities (000 bpd) Nelson Index Refinery Total Through-put Crude Oil Nelson Index Aruba 235 235 8.0 Ardmore 90 86 12.0 Benicia 170 145 15.0 Corpus Chris. 325 205 20.6 Houston 160 90 15.1 McKee 170 168 9.5 Memphis 195 180 7.
Slide 8: Continued Global Demand Growth Important to Refining Margins
(CHART) Continued Global Demand Growth Important to Refining Margins Refining is a global business - global demand growth impacts refiners in every market Growth in emerging markets is taking the lead in global petroleum demand OECD demand growth is expected to remain weak in 2011 and 2012 2011 dema
Slide 9: Discounted WTI Is Another Discounted Crude Oil for Valero to Process
(CHART) Discounted WTI Is Another Discounted Crude Oil for Valero to Process 9 $/barrel Source: Argus; 2011 year-to-date through November 11; LLS prices are roll adjusted Heavy sour and WTI discounts have been strong 70% of Valero's capacity can process feedstocks that are discounted versus waterbor
Slide 10: Strong Rebound in Refinery Margins in Most Regions
Strong Rebound in Refinery Margins in Most Regions 10 Source: Argus; 2011 year-to-date through November 11; see Appendix for details on refinery configuration assumptions
Slide 11: Fundamentals Supportive of Margin Outlook
Fundamentals Supportive of Margin Outlook Tighter fundamentals for our products are supportive of margins Days of supply for diesel are much lower than last year Exports continue to remain strong and an important part of the demand story Feedstock discounts remain attractive Gasoline fundamentals ar
Slide 12: Valero's Strategic Priorities
Valero's Strategic Priorities 12 Constant focus on safety, environmental, and regulatory compliance Manage overhead and maintain investment grade credit rating Improve margin capture, operating costs, and reliability Complete major, value-added capital projects at key refineries Optimize portfolio -
Slide 13: Improving Refinery Operations
Better Better Refining industry benchmark studies show our portfolio continues to improve Our goal is to be a 1st-quartile refiner Out of 80 refineries in U.S. and 12 refineries in Canada that participate in Solomon... Corpus Christi refinery ranked #1 in the U.S. group in Maintenance Cost, #2 in Ca
Slide 14: Successful Cost Savings Programs
Successful Cost Savings Programs Successful Cost Savings Programs 14 Ongoing cost savings programs have contributed to Valero's competitiveness and improved financial performance 2011 goal is $100 million, but expect to reach $200 million for year millions (CHART)
Slide 15: Refinery Yield Improvements Contribute to Higher Margin Capture
Refinery Yield Improvements Contribute to Higher Margin Capture 15 Note: Does not include Aruba, Pembroke, Meraux, Paulsboro or Delaware City refineries Higher-value products and liquid volume yield are important with high crude prices Liquid products have a much higher value than solid products lik
Slide 16: Valero Increasing Use of Lower-Cost Crude Oils
Valero Increasing Use of Lower-Cost Crude Oils Constantly evaluating opportunities to process lower-cost, higher-yield crude oils In 2010, we ran 86 different crude oils McKee and Ardmore process WTI or other crudes that price at or below WTI Rapid growth in Eagle Ford shale crude oil production low
Slide 17: Strong Contribution from Ethanol
Strong Contribution from Ethanol 17 Large, efficient plants in great location have competitive advantage on costs Acquired world-class ethanol plants at an average of 35% of replacement cost In just 2 1/2 years, cumulative EBITDA was $671 million, or 89% of ethanol plants purchase prices (CHART) Eth
Slide 18: Retail Business Continues to Perform Well
Retail Business Continues to Perform Well 18 Retail achieved excellent results Improvement in retail earnings with smaller asset base = better returns (CHART) Valero Retail Operating Income (U.S. and Canada)
Slide 19: Financial Strength Provides Opportunity for Growth
(CHART) (CHART) Financial Strength Provides Opportunity for Growth Returning cash to shareholders Bought 13.5 million shares for $268 million, or 2% of outstanding shares in 3Q11 Board approved tripling of dividend to $0.15/sh quarterly rate at October meeting Continuing to purchase shares in 4Q11 I
Slide 20: Capital Program Focused on Completion of Large Economic Growth Projects
Capital Program Focused on Completion of Large Economic Growth Projects 20 "Stay- in- business" spending 2012 capital spending is expected to be similar to 2011 as we complete our large economic growth projects Expect a significant decline in capital spending after 2012 $1,650 $1,735 $1,770 $1,455 U
Slide 21: Economic Projects Offer Significant Earnings Growth Potential
Refinery Project Estimated Completion Date Estimated Annual EBITDA Base Case1 (millions) Estimated IRR2 using Base Case Estimated Annual EBITDA1 using 2011 Fwd Curve Prices3 (millions) WTI-based LLS-based Estimated Annual EBITDA1 using 2011 Fwd Curve Prices3 (millions) WTI-based LLS-based Memphis FC
Slide 22: Successfully Completed Large FCC Revamps
Successfully Completed Large FCC Revamps St. Charles Recent test run verified that the revamp design basis is being achieved by the unit Estimated annualized EBITDA benefit of $150 million using 3Q11 prices Improved liquid volume yield Lower energy costs Lower catalyst costs Reliability benefits 22
Slide 23: Two Hydrocracker Projects Are Progressing on Schedule and on Budget
Two Hydrocracker Projects Are Progressing on Schedule and on Budget 23 Recently increased planned operating rates from 50,000 BPD to 60,000 BPD for St. Charles and 57,000 BPD (rolling 12-month average per permit) for Port Arthur No additional capital costs Increased capacity improves economics Expec
Slide 24: Why Valero Is an Excellent Buy Today
Why Valero Is an Excellent Buy Today Good fundamentals, particularly for diesel, with potential upside from economic recovery Improved refinery performance as shown in industry surveys Achieved significant overhead cost savings Increased margin capture via liquid volume yields and lower-cost feedsto
Slide 25: Appendix
VALERO Appendix
Slide 26: Meraux Refinery Utilizes Flexible Feedstock and Product Slate
Meraux Refinery Utilizes Flexible Feedstock and Product Slate Significant feedstock flexibility Currently processes between 50% and 80% medium sour depending on crude oil economics Remainder typically light sweet grades Pipeline connectivity to LOOP opens ability to process dozens of foreign crude g
Slide 27: Meraux One of Highest Conversion Capacity in U.S. Gulf Coast
Meraux One of Highest Conversion Capacity in U.S. Gulf Coast 27 Source: O&G Journal, Conversion capacity consists of FCC, HCU, Coking and ROSE unit capacity; refineries with 50,000 bpd crude throughput minimum
Slide 28: Attractive Acquisition Price for Meraux and Pembroke
Attractive Acquisition Price for Meraux and Pembroke 28 (CHART) @ $25 per share
Slide 29: Pembroke One of Largest, Most Complex Refineries in Western Europe
Pembroke One of Largest, Most Complex Refineries in Western Europe Source: PIRA, All data based on firm capacities based on period ending 2Q 2011 29
Slide 30: Valero Has High Conversion Refining System
Valero Has High Conversion Refining System Valero Has High Conversion Refining System 30 Note: CDU = crude distillation unit; conversion capacity is the sum of each company's FCC, hydrocracking, and coking capacity Source: PIRA Energy Group 08/05/11 (CHART) We believe size and conversion ratio matte
Slide 31: Made Excellent Ethanol Acquisitions
Made Excellent Ethanol Acquisitions Built position for average of only 35% of estimated replacement cost 2Q09: acquired 7 plants with 780 million gallons per year of world-scale capacity in advantaged locations 1Q10: Added 3 plants with 330 million gallons per year of capacity 31 Favorable margin ou
Slide 32: Valero's Gulf Coast System Well-Positioned for Global Export Opportunities
Valero's Gulf Coast System Well-Positioned for Global Export Opportunities 32 Our large, complex refineries on Gulf Coast are competitive due to low-cost operations and feedstocks Structural supply-demand imbalance in Latin America and diesel-shortage in Europe provide higher-margin export opportuni
Slide 33: Valero Has Competitive, Low-Cost Refining Operations
(CHART) Valero Has Competitive, Low-Cost Refining Operations 33 Refining Cash Operating Expenses less Natural Gas Usage ($/bbl) Source: Macquarie Capital
Slide 34: Memphis FCC Revamp Project Investment Highlights
Memphis FCC Revamp Project Investment Highlights Favorable economics driven by better reliability and gains on margin and volume Improves flexibility to run lower- quality feedstocks Improves FCC reliability and increases run length between turnarounds to four years from 1.5 years Increase in run le
Slide 35: St. Charles MSCC to FCC Conversion Project Investment Highlights
St. Charles MSCC to FCC Conversion Project Investment Highlights Favorable economics driven by better reliability and gains on margin and volume Improves FCC reliability and increases run length between turnarounds to four years from 1.5 years Adds 5%+ volume expansion through FCC Improves energy ef
Slide 36: Hydrogen Plant Projects
Hydrogen Plant Projects 36 Summary of Project Status and Economics1 Summary of Project Status and Economics1 Summary of Project Status and Economics1 Estimated completion date 4Q11 4Q11 Estimated total investment (mil.) $180 $180 Cumulative spend thru 3Q11 (mil.) $112 $112 Estimated Incremental EBIT
Slide 37: Port Arthur Hydrocracker Project Investment Highlights
Port Arthur Hydrocracker Project Investment Highlights Favorable economics driven by margin and volume gains Main unit is 57,000 barrels/day (rolling 12- month average per permit) hydrocracker plus facilities to process over 150,000 barrels/day of high-acid, heavy sour crudes (e.g. Canadian and Lati
Slide 38: St. Charles Hydrocracker Project Investment Highlights
St. Charles Hydrocracker Project Investment Highlights Favorable economics driven by margin and volume gains Main unit is 60,000 barrels/day hydrocracker Creates high-value products from low- value feedstocks plus hydrogen sourced from relatively inexpensive natural gas Unit has volume expansion up
Slide 39: Montreal Pipeline Project Investment Highlights
Montreal Pipeline Project Investment Highlights Favorable economics driven by reducing transportation costs and growing volumes New pipeline with 100,000 barrels/day of throughput capacity Planned closure of Shell Montreal refinery allows Valero to place additional products into Montreal and Ontario
Slide 40: Diamond Green Diesel Joint Venture Investment Highlights
Diamond Green Diesel Joint Venture Investment Highlights Building a 9,300 BPD renewable diesel plant adjacent to Valero's St. Charles refinery 50/50 JV project with Darling Int'l, a leading gatherer of used cooking oils and animal fat Uses refinery technology to produce high- quality diesel from low
Slide 41: Project Price Set Assumptions
Project Price Set Assumptions 41 Commodity Base Case ($/barrel) 2011 Actuals and Fwd Curve as of 11/11/11 ($/barrel) WTI LLS1 2011 Actuals and Fwd Curve as of 11/11/11 ($/barrel) WTI LLS1 Crude oil 85.00 94.94 112.10 Crude oil - USGC HS Gas Oil -3.45 -23.91 -6.74 USGC Gas Crack 6.00 22.46 5.29 USGC
Slide 42: Project Price Sensitivities
Project Price Sensitivities 42 EBITDA1 Sensitivities (Delta $ millions/year) Port Arthur HCU St. Charles HCU Memphis & McKee Hydrogen Plants Memphis FCC St. Charles FCC Montreal Products Pipeline Crude oil, + $1/BBL 4 3.6 2.5 0.4 1.4 N/A Crude oil - USGC HS Gas Oil, + $1/BBL 16.7 17.8 N/A N/A N/A N/
Slide 43: Global CDU Capacity and Additions
43 Source: Valero and Consultant Estimates MMBPD (CHART) Global CDU Capacity and Additions New Adds 1.8 MMBPD Closures 0.3 MMBPD New Adds 1.3 MMBPD + Restarts 0.7 MMBPD - Closures 0.8 MMBPD
Slide 44: Key Drivers of Large Feedstock Discounts
Key Drivers of Large Feedstock Discounts 44 Light-sweet waterborne crude oils are the marginal feedstock when demand is strong Examples: LLS, Brent, among others Libyan outage plus North Sea maintenance has tightened light-sweet market Lower-quality and logistically constrained crude oils seeing wid
Slide 45: Continued Global Demand Growth Important to Refining Margins
(CHART) (CHART) Continued Global Demand Growth Important to Refining Margins 45 Source: Consultant and Valero estimates Source: Consultant and Valero estimates MMBPD MMBPD Forecast Forecast
Slide 46: World Demand Favors Diesel
World Demand Favors Diesel World Demand Favors Diesel World Demand MMBPD History Forecast Source: Consultant, IEA, and Valero estimates 46 Diesel demand is expected to recover past prior highs and grow rapidly Diesel demand has grown to become much larger than gasoline globally Growing global diesel
Slide 47: Rationalization of Industry Capacity Continues
(CHART) (CHART) Rationalization of Industry Capacity Continues Source: Valero Energy Note: 2011 and 2012 estimates include announced future capacity closures MBPD 47 Source: Valero Energy MBPD As we said previously, refining capacity continues to shut down in the industry, particularly marginal plan
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 Global Refining Capacity Rationalization 2008 Limited refinery closures, beg
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 ConocoPhillips 70 Mazeikai, Lithuania PKN 190 Various Japanese Locations JX Energy 400 Incheon, South K
Slide 50: Global Spare Capacity
Note: Availability of world CDU capacity assumed to average ~94%; Historical CDU capacity data from the DOE; USGC 5/3/2 = 3*USGC Gasoline+2*USGC ULSD-5*WTI Estimated global spare refining capacity fell from 7 million BPD of at end of 2009 to 5.7 million BPD at end of 2010 (CHART) MMBPD Margin/bbl Go
Slide 51: Gasoline Fundamentals
Gasoline Fundamentals 51 51 (CHART) USGC LLS Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) (CHART) Source: Argus; 2011 data through November 4 Source: DOE weekly data; 2011 data through week ending November 4 Source: DOE weekly data; 2011 data through week ending November 4 Source: DOE weekl
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; 2011 data through November 4 Source: DOE weekly data; 2011 data through week ending November 4 Source: DOE weekly data; 2011 data through week ending November 4
Slide 53: U.S. Transport Indicators: Trucking Indicators
U.S. Transport Indicators: Trucking Indicators 53
Slide 54: U.S. Transport Indicators
(CHART) U.S. Transport Indicators 54 54 Latest data 41 W 2011
Slide 55: Mexico Statistics
(CHART) (CHART) Mexico Statistics Diesel Net Imports (MBPD) Source: PEMEX, latest data Sep-11 Gasoline Net Imports (MBPD) Source: PEMEX, latest data Sep-11 (CHART) Crude Unit Throughput (MBPD) Crude Unit Utilization (CHART) 55 Source: Mexico Secretary of Energy, latest data Aug-11 Source: Mexico Sec
Slide 56: Venezuelan Exports to the U.S.
Venezuelan Exports to the U.S. 56 (CHART) Source: EIA, August 2011
Slide 57: Assumed Regional Indicator Margins
Assumed Regional Indicator Margins Gulf Coast Indicator: (GC Conv 87 Gasoline Prompt - LLS) x 60% + (GC ULSD 10ppm Colonial Pipeline - 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% + (Group 3 ULS
Slide 58: 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 58
Valero Energy — Investor Presentation (November 2011) on 6ix