Valero Energy Corporation · NYSE:VLO
Valero Energy — Investor Presentation (December 2012)
63 slides from Valero Energy's investor presentation, Dec 10, 2012
Slide 1: Investor Presentation December 2012
Investor Presentation December 2012
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 Today
Valero Energy Today World's largest independent refiner16 refineries3 million barrels per day (BPD) of throughput capacity, with average capacity of 190,000 BPD (187,000 BPD excluding Aruba)Approximately 6,800 branded marketing sitesNearly 1,300 company operated in U.S. and CanadaAnnounced intention
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 in the Atlantic Basin
Valero in the Atlantic Basin 5 5
Slide 6: Update on Potential Retail Separation
(CHART) Update on Potential Retail Separation Making progress on our plan to pursue a separation of our Corner Store retail business and unlock value for shareholdersSubmitted a request for a private letter ruling to the IRS in OctoberCorner Stores Holdings, Inc. filed a draft Form 10 registration s
Slide 7: Valero's Retail Segment Network
Valero's Retail Segment Network 7 U.S. U.S. Canada Canada Total Total Owned 828 81% 296 35% 1,124 60% Leased land, and/or improvements 199 19% 474 56% 673 36% Cardlock 0 0% 79 9% 79 4% Total 1,027 100% 849 100% 1,876 100% As of September 30, 2012
Slide 8: Valero's Retail Segment Performance
Valero's Retail Segment Performance 8 Retail achieved record operating income in 2011, and highest quarter on record in 2Q12. Margins started off well in 4Q12 (CHART) Valero Retail Segment EBITDA (CHART) Number of Valero Retail Segment Sites Note: includes all Canadian motorist sites reported in Can
Slide 9: VLO Well-Positioned to Benefit from Changing Market Trends
VLO Well-Positioned to Benefit from Changing Market Trends Atlantic Basin refining closures reducing excess capacityU.S. competitively exporting into growing and undersupplied marketsExpect abundant and growing U.S. shale oil and Canadian production to provide feedstock cost advantageLow-cost U.S. n
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 Significant new global refining additions seen in the next several yearsMainly new plants in Asia and the Middle East Some investment in Latin AmericaNew capacity announcements from Brazil, Mexico, and Columbia will likely be much smaller and much later than or
Slide 12: 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 occurCombined with poor reliability and low utilization in Latin American refineries and demand growth in Latin America,
Slide 13: Product Margins Responding to Atlantic Basin Closures
(CHART) (CHART) Product Margins Responding to Atlantic Basin Closures 13 With recent closures, Atlantic Basin product margins have increased from prior year levelsMarket focused on gasoline margin improvements earlier in 2012, but more significant impact may be strong diesel support due to tightness
Slide 14: 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 demandLarge quantities of U.S. diesel and gasoline exports to Latin America and diesel exports to EuropeStrong international demand has been "pulling" products and pa
Slide 15: U.S. Refining Capacity Is Globally Competitive
U.S. Refining Capacity Is Globally Competitive 15 U.S. refiners in PADDs 2, 3, and 4 have higher utilization due to structural advantages of increasing access to discounted crude feedstocks and low-cost energy via natural gasPADD 1 and Europe have lower utilization due to structural disadvantages of
Slide 16: Rapid Growth in U.S. Crude Supply
Rapid Growth in U.S. Crude Supply 16 (CHART) Shale oil production growth and Mid-Continent heavy-up projects are rapidly increasing domestic light, sweet crude suppliesThis has created a bottleneck of crude oil that has exceeded the capacity of inland refineries and needs to move to markets outside
Slide 17: Rapid Growth in Logistics to U.S. Gulf Coast
Rapid Growth in Logistics to U.S. Gulf Coast 17 (CHART) Logistics capacity to move inland crude from the Mid-Continent and Texas to the U.S. Gulf Coast is expanding quickly to debottleneck the inland marketsBakken logistics capacity is primarily unit-trains that can go to any site with unloading cap
Slide 18: Expect U.S. and Canadian Crude Supply to Provide Feedstock Cost Advantage
(CHART) Expect U.S. and Canadian Crude Supply to Provide Feedstock Cost Advantage 18 Light/Medium Sweet Crude Imports to U.S. Gulf Coast Movements of inland crude to the U.S. Gulf Coast have caused Gulf Coast light/medium sweet crude imports to decline by about 1 MMBPD since 2010Expect all Gulf Coas
Slide 19: LLS Discount to Brent Improves Gulf Coast Competitiveness
LLS Discount to Brent Improves Gulf Coast Competitiveness 19 (CHART) Source: Argus, 2012 data through 11-30-12 Brent 5-3-2 products crack,product prices set by Brent Brent is the marginal Atlantic Basin crude LLS Medium sour (e.g. Mars) Heavy sour (e.g. Maya) Medium and heavy continue to have wide c
Slide 20: Valero's Ability to Run Discounted Light Crude
Valero's Ability to Run Discounted Light Crude Valero has increased its exposure to domestic light crude processing as additional volumes have become availableGulf Coast system including Memphis has the ability to add an additional 125 MBPD of domestic crude throughput by year-endIn addition, evalua
Slide 21: Lower-Cost Natural Gas Provides Structural Advantage to U.S. Refiners
Lower-Cost Natural Gas Provides Structural Advantage to U.S. Refiners 21 Note: Per barrel cost of 600,000 mmBtus/day of natural gas consumption at 90% utilization (2,529 MBPD) of Valero's capacity $1.3 billion higher pre-tax annual costs $2.6 billion higher pre-tax annual costs Expect U.S. natural g
Slide 22: Distillates Have Higher Margins and Faster Growth
Distillates Have Higher Margins and Faster Growth Faster Growth Faster Growth World Product Demand Growth Source: Consultant, IEA, and Valero estimates 22 Distillate (diesel, kero, jet fuel) margins are significantly higher than gasolineDistillate demand growth rate is much higher than gasolineEurop
Slide 23: Valero's Key Economic Projects
Refinery Project Estimated Total Investment (millions) Estimated Annual EBITDA Base Case1 (millions) Estimated IRR2 using Base Case Estimated Annual EBITDA1 using 2011 Prices (millions) LLS-based Port Arthur New Hydrocracker $1,521 $520 23% $634 St. Charles New Hydrocracker $1,525 $380 17% $487 Vale
Slide 24: 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 24 Note: EBITDA = Pretax operating income + depreciation and amortization, excludes interest expense; see details in appendix millions
Slide 25: Valero Increasing Distillate Yields
Valero Increasing Distillate Yields 25 (CHART) Source: Company Reports and EIA, yield data is for 2010; gasoline and distillate as a percent of total production volumes; distillate includes jet fuel Valero's refining system distillate yields are expected to grow from 33% in 2010 to 39% in 2013Primar
Slide 26: Improving Refinery Operations
Better Better Our goal is to be a 1st-quartile refinerRefining industry benchmark studies show our portfolio continues to improveSeven refineries currently operating in 1st quartile for mechanical availability, the most important Solomon metricSaw results from improvement initiatives in 2011 and YTD
Slide 27: Expect Large Decline in Capital Spending After Completion of Key Projects
Expect Large Decline in Capital Spending After Completion of Key Economic Growth Projects 27 "Stay-in-business" spending 2012 capital high due to spending on economic growth projects, mainly the hydrocrackersExpect a significant decline in capital spending after 2012 $1,610 $1,735 $1,645 $1,510 Tota
Slide 28: Managing Financial Strength and Growing Cash Yield
Managing Financial Strength and Growing Cash Yield Expect significant contributions of free cash flow from reduced capital spending and earnings from major capital projects in 2013Returning cash to shareholdersTripled quarterly dividend to $0.15 per share in 3Q11 and increased it again in 3Q12 to $0
Slide 29: Valero's Strategic Priorities
Valero's Strategic Priorities 29 Constant focus on safety, environmental, and regulatory complianceMaintain investment grade credit ratingContinue improvement in refining portfolio performance to 1st quartile levelsComplete major, value-added capital projectsOptimize portfolio - continue "high-gradi
Slide 30: We Believe Valero Is an Excellent Buy Today
We Believe Valero Is an Excellent Buy Today Seeking shareholder value creation via retail separationWell-positioned to benefit from changing market trendsAtlantic Basin capacity closures have improved refining fundamentalsBenefiting from strong export marketExpect abundant U.S. shale and Canadian cr
Slide 31: Appendix
Vv | VALERO Appendix
Slide 32: Made Excellent Ethanol Acquisitions
Made Excellent Ethanol Acquisitions Built position for average of only 35% of estimated replacement cost2Q09: Acquired 7 plants with 780 million gallons per year of world-scale capacity in advantaged locations1Q10: Added 3 plants with 330 million gallons per year of capacity 32 Expect margins to imp
Slide 33: Attractive Acquisition Prices for Meraux and Pembroke
Attractive Acquisition Prices for Meraux and Pembroke 33 (CHART) @ $32 per share
Slide 34: Port Arthur Hydrocracker Project Investment Highlights
Port Arthur Hydrocracker Project Investment HighlightsFavorable economics driven by margin and volume gainsMain unit is 57,000 barrels/day hydrocracker (rolling 12-month average per permit)Creates high-value products from low- value feedstocks plus hydrogen sourced from relatively inexpensive natura
Slide 35: St. Charles Hydrocracker Project Investment Highlights
St. Charles Hydrocracker Project Investment HighlightsFavorable economics driven by margin and volume gainsMain unit is 60,000 barrels/day hydrocrackerCreates high-value products from low- value feedstocks plus hydrogen sourced from relatively inexpensive natural gasUnit has volume expansion up to 3
Slide 36: Montreal Pipeline Project Investment Highlights
Montreal Pipeline Project Investment HighlightsFavorable economics driven by reducing transportation costs and growing volumesNew pipeline with 100,000 barrels/day of throughput capacityPlanned closure of Shell Montreal refinery allows Valero to place additional products into Montreal and Ontario ma
Slide 37: Diamond Green Diesel Joint Venture Investment Highlights
Diamond Green Diesel Joint Venture Investment HighlightsBuilding a 9,300 BPD renewable diesel plant adjacent to Valero's St. Charles refinery50/50 JV project with Darling Int'l, a leading gatherer of used cooking oils and animal fatUses refinery technology to produce high- quality diesel from low-qu
Slide 38: Project Price Set Assumptions
Project Price Set Assumptions 38 Commodity Base Case ($/barrel) 2008 ($/barrel) 2009 ($/barrel) 2010 ($/barrel) 2011 ($/barrel) LLS Crude oil1 85.00 102.07 62.75 81.64 111.09 LLS - USGC HS Gas Oil -3.45 2.03 -2.86 -2.72 -5.75 USGC Gas Crack 6.00 2.47 6.91 5.32 5.11 USGC ULSD Crack 11.00 20.5 7.26 8.
Slide 39: Project Price Sensitivities
Project Price Sensitivities 39 EBITDA1 Sensitivities (Delta $ millions/year) Port Arthur HCU St. Charles HCU Crude oil, + $1/BBL 4 3.6 Crude oil - USGC HS Gas Oil, + $1/BBL 16.7 17.8 USGC Gas Crack, + $1/BBL 12.9 13.3 USGC ULSD Crack, + $1/BBL 18.4 20.8 Natural Gas, - $1/MMBTU 18.3 19.7 Total Invest
Slide 40: 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 41: 60,000 BPD Hydrocracker Model Estimates Under Various Price Sets
60,000 BPD Hydrocracker Model Estimates Under Various Price Sets 41 Key Drivers and Prices 2008 Prices 2008 Prices 2009 Prices 2009 Prices 2010 Prices 2010 Prices 2011 Prices 2011 Prices 2012 YTD Prices 2012 YTD Prices LLS /bbl $102.07 $62.75 $81.64 $111.09 $112.33 LLS - HSVGO /bbl $2.03 -$2.86 -$2.
Slide 42: Keystone XL Pipeline
Keystone XL Pipeline Keystone XL Pipeline Presidential Permit DelayTransCanada 1,661 mile pipeline that will bring 700,000 bpd of Canadian oil into U.S. marketsExpected to create 20,000 U.S. manufacturing and construction jobs; $5.2 billion tax revenue in Keystone corridor states over 20 yearsCanadi
Slide 43: 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 refinerySources: Industry and Consultant reports and Valero estimates1The Petit Couronne refinery has reduced capacity by 60 MBPD with Shell to sup
Slide 44: Global Refining Capacity For Sale or Under Strategic Review
Global Refining Capacity For Sale or Under Strategic Review 44 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 45: Low-Cost U.S. Natural Gas Provides Competitive Advantage
Low-Cost U.S. Natural Gas Provides Competitive Advantage 45 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 futureVLO refinery operat
Slide 46: Gasoline Fundamentals
(CHART) Gasoline Fundamentals 46 (CHART) USGC LLS Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) (CHART) Source: Argus; 2012 data through November 30 Source: DOE weekly data; 2012 data through week ending November 30 Source: DOE weekly data; 2012 data through week ending November 30 U.S. Gaso
Slide 47: Distillate Fundamentals
Distillate Fundamentals 47 47 (CHART) USGC LLS On-road Diesel Crack (per bbl) U.S. Distillate Demand (mmbpd) (CHART) (CHART) Source: Argus; 2012 data through November 30 Source: DOE weekly data; 2012 data through week ending November 30 Source: DOE weekly data; 2012 data through week ending November
Slide 48: U.S. Transport Indicators: Trucking Indicators
U.S. Transport Indicators: Trucking Indicators 48
Slide 49: U.S. Transport Indicators
U.S. Transport Indicators 49 Latest data Week 47, 2012 Latest data Week 47, 2012
Slide 50: Mexico Statistics
(CHART) (CHART) Mexico Statistics Diesel Gross Imports (MBPD) Source: PEMEX, latest data October 2012 Gasoline Gross Imports (MBPD) Source: PEMEX, latest data October 2012 (CHART) Crude Unit Throughput (MBPD) Crude Unit Utilization (CHART) 50 Source: Mexico Secretary of Energy, latest data October 2
Slide 51: Venezuelan Exports to the U.S.
Venezuelan Exports to the U.S. 51 (CHART) Source: EIA, September 2012
Slide 52: Competitively Exporting into Growing Markets
(CHART) Competitively Exporting into Growing Markets Source: DOE Petroleum Supply Monthly with data as of September 2012, 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 clo
Slide 53: 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 September 2012 MBPD Diesel net exports continue to rise significantly, with U.S. refiners sending a net of 881 MBPD to other
Slide 54: 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 Month
Slide 55: 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 September 2012. 4 Week Average estimate from Wee
Slide 56: 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 September 2012. 4 Week Average estimate from Weekly Petroleum Statistics Re
Slide 57: U.S. Diesel Imports by Source
U.S. Diesel Imports by Source Diesel imports continue to fall in 2012 due to less volume from Latin America Source: DOE Petroleum Supply Monthly with data as of September 2012. 4 Week Average estimate from Weekly Petroleum Statistics Report 57 (CHART) MBPD 12 Month Moving Average
Slide 58: U.S. Crude and Natural Gas Production - Tight Oil Supply Growth
U.S. Crude and Natural Gas Production - Tight Oil Supply Growth The furthest along in development are in North Dakota (Bakken) and South Texas (Eagle Ford)Each could see 500+ MBPD of growth in the next few years and potentially more thereafterUtica (Ohio) is potentially a large play, but is not as f
Slide 59: Ethanol and Retail Reconciliation of Operating Income to EBITDA
Ethanol and Retail Reconciliation of Operating Income to EBITDA Income to EBITDA Income to EBITDA 59 Retail (millions) 2005 2006 2007 2008 2009 2010 2011 3Q12 LTM U.S. Operating Income $81 $113 $154 $260 $170 $200 $213 $210 + U.S. depreciation and amortization expense $60 $60 $59 $70 $70 $73 $77 $77
Slide 60: Most Crude Oil Discounts Improving
(CHART) Most Crude Oil Discounts Improving 60 $/barrel Source: Argus; 2012 year-to-date through November 30; LLS prices are roll adjusted
Slide 61: Regional Refinery Indicator Margins
Regional Refinery Indicator Margins 61 Source: Argus; 2012 year-to-date through November 30; see Appendix for details on refinery configuration assumptions
Slide 62: 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% + (Group
Slide 63: Investor Relations Contacts
Investor Relations Contacts For more information, please contact:Ashley Smith, CFA, CPAVice President, Investor Relations210.345.2744ashley.smith@valero.comMatthew JacksonInvestor Relations Specialist210.345.2564matthew.jackson@valero.com 63
Valero Energy — Investor Presentation (December 2012) on 6ix