Valero Energy Corporation · NYSE:VLO
Valero Energy — Investor Presentation (February 2015)
71 slides from Valero Energy's investor presentation, Feb 23, 2015
Slide 1: Investor Presentation February 2015
Investor Presentation February 2015 Exhibit 99.01
Slide 2: Who We Are
World’s Largest Independent Refiner • 15 refineries, 2.9 million barrels per day (BPD) of high-complexity throughput capacity • Greater than 70% of refining capacity located in U.S. Gulf Coast and Mid-Continent • Approximately 10,000 employees Large Logistics Infrastructure with Focus on Growth • Ge
Slide 3: Assets Concentrated in Advantaged Locations
Assets Concentrated in Advantaged Locations Refinery Capacities (MBPD) Nelson Index Throughput Crude Oil Corpus Christi 19.9 Houston 15.4 Meraux 9.7 Port Arthur 12.4 St. Charles 16.0 Texas City 11.1 Three Rivers 13.2 Gulf Coast 1,660 1,284 14.0 Ardmore 12.1 McKee 9.5 Memphis 7.9 Mid-Con 9.3 Pembroke
Slide 4: Strategy to Enhance Stockholder Returns
Operations Excellence Capital Returns to Stockholders Disciplined Capital Investments Unlocking Asset Value Strategy to Enhance Stockholder Returns • Demonstrate commitment to safe and reliable operations • Continuously improve our top-tier operating performance • Optimize margins with refining syst
Slide 5: Key Market Trends
U.S. and Canadian crude oil, natural gas, and natural gas liquids (NGLs) production growth is providing cost advantages to North American refiners - Lower crude prices may temporarily constrain production growth rate Location-advantaged refiners in U.S. Gulf Coast, Mid-Continent, and Canada benefit
Slide 6: Production Growth Provides Resource Advantage to North American Refiners
Production Growth Provides Resource Advantage to North American Refiners Source: DOE (for 2014, data through November) Source: DOE (for 2014, data through November)
Slide 7: Persistent Focus Drives Results in Safety, Environmental, and Regulatory Compliance
Operations Excellence Persistent Focus Drives Results in Safety, Environmental, and Regulatory Compliance (1)Source: U.S. Bureau of Labor Statistics. All 2014 values are estimates. Statistics are for Refining only.
Slide 8: Top-Tier Operating Performance through Continuous Improvements
Source: Solomon Associates and Valero Energy, includes Pembroke and Meraux 2012 2010 2008 • Reliability drives safe and profitable operations Seven of our refineries are first quartile in mechanical availability • Initiated new reliability programs beginning mid-2000s • Significant gains made in ope
Slide 9: Reliability Programs and Commercial Optimization Drive Higher Utilization Rates
Sustained high availability and favorable margin environment enable higher capacity utilization rates Reliability Programs and Commercial Optimization Drive Higher Utilization Rates System-wide mechanical availability near st Quartile since
Slide 10: Optimizing Margins with Feedstock Flexibility in Our Complex Refinery System
• Capability to adjust feedstocks and optimize margins as crude price environment shifts among grades: light, medium, heavy, sweet, sour • Focus on optimization activities • Expect additional light crude flexibility with completion of topper units in progress Optimizing Margins with Feedstock Flexib
Slide 11: Port Arthur and St. Charles Hydrocrackers Performing Better Than Expected
• 120 MBPD of combined new capacity successfully started end of 2012 and mid-2013 • Designed to produce high-quality distillates from low-quality feedstocks and natural gas • Approximately half of benefits visible in margin capture rate increase of >4% and balance of benefits in 100 MBPD throughput
Slide 12: Disciplined Capital Allocation Framework Emphasizes Stockholders
Dividend Growth • Focus on sustainability • Increase competition for cash flow versus reinvestments (growth capex and acquisitions) Sustaining Capex • Estimate $1.5 billion or lower annual “stay-in- business” spend • Key to safe and reliable operations Debt and Cash • Maintain investment grade credi
Slide 13: Increasing Focus on Dividends and Stock Buybacks
• Increased dividend by 45% in 1Q15 versus 4Q14 • Regular dividend increases over last three years • Accelerated stock buybacks in 2013 and 2014 • Approximately $1.5 billion of stock repurchase authorization at end of 4Q14 Increasing Focus on Dividends and Stock Buybacks Targeting >50% total payout
Slide 14: Disciplined Capital Investment
Disciplined Capital Investment Advancing Growth Investments While Managing Capital Spending Lower (1) Excludes estimated placeholder for methanol project of $150 million in 2015 and $300 million in 2016 as evaluation remains in progress (1) • Focus on logistics growth after 2015 spending to complete
Slide 15: Valero
Aa VALERO
Slide 16: Crude Topper Investments Very Attractive
• 160 MBPD new topping capacity designed to process up to 50 API domestic sweet crude Lowers feedstock cost by generating 55 MBPD low sulfur resid Increases net throughput capacity by 105 MBPD • Expect startup in 1H16 • Expect 50% IRR on 2014 prices, >25% IRR with Brent and LLS even • Corpus Christi
Slide 17: Other Growth Projects: Hydrocracker Expansions, Methanol Plant, Alkylation Unit
Hydrocracker Expansions Evaluating Methanol Plant at St. Charles Evaluating Houston Alkylation Unit • 1.6 – 1.7 million tonnes per year production (36 – 38 MBPD) • Leverages existing assets to reduce capital requirement compared to grassroots facility • Continuing to evaluate capital costs and proje
Slide 18: Ethanol Investments Have Performed Well
Outstanding Cash Generation Excellent Acquisitions Competitive Advantages • 11 plants acquired between 2Q09 and 1Q14 for $794MM, less than 35% of replacement value • 1.3 billion gallons total annual production • Scale and location in corn belt • Operational best practices transferred from refining •
Slide 19: Our Sponsored MLP: Valero Energy Partners
Growth-oriented logistics MLP with 100% fee-based revenues Unlocking Asset Value Our Sponsored MLP Valero Energy Partners (NYSE: VLP) • Valero owns entire 2% general partner interest, all incentive distribution rights, and 68.6% LP interest • High-quality assets integrated with Valero’s refining sys
Slide 20: Estimated EBITDA from Inventory of Eligible MLP Assets
Estimated EBITDA from Inventory of Eligible MLP Assets Total Approximately $900 Million (1) Includes assets that have other joint venture or minority interests. Pipelines (1) • Over 1,200 miles of active pipelines • Expect start-up of 440-mile Diamond Pipeline from Cushing to Memphis refinery in 1H1
Slide 21: We Believe Valero Is an Excellent Investment
• Majority of capacity located in U.S. Gulf Coast and Mid- Continent with access to cost-advantaged crude, natural gas, NGLs, and corn • Proven operations excellence • Excellent investment and operations in ethanol • Emphasis on capital allocation to stockholders • Disciplined capital investment tha
Slide 22: Topic Pages
Topic Pages Appendix Valero 2014 Highlights and 2015 Goals 24-25 Valero Energy Partners LP and CST Brands Spinoff 26-28 Capital Spending and Key Investment Details 29-38 Other Valero Operations Highlights 39-44 Macro Outlook and Key Margin Drivers 45-51 Global Demand and Refining Capacity 52-56 U.S.
Slide 23: Key 2014 Highlights
Key 2014 Highlights Operations Excellence • Achieved record annual system refinery capacity utilization of approximately 96% in 2014 • Increased average consumption of price-advantaged North American light sweet crudes in 2014 by approximately 200 MBPD compared to 2013 • Reduced Quebec refinery’s cr
Slide 24: Key 2015 Goals
Key 2015 Goals Operations Excellence • Start up Montreal crude terminal with the Enbridge Line 9B reversal and lower Quebec refinery’s crude costs versus Brent compared to 2014 • Grow product export market share and increase branded wholesale fuels volume Capital Returns to Stockholders • Increase t
Slide 25: Approximately $900 Million of Estimated MLP Eligible EBITDA at Valero
Approximately $900 Million of Estimated MLP Eligible EBITDA at Valero Fuels distribution would provide incremental EBITDA if selected
Slide 26: VLP Nearing the High Splits
VLP Nearing the “High Splits” • 4Q14 distribution at $0.266 per unit • VLP expected to reach 50% split in 2015, payable in 2016, based on accelerated drop-down strategy
Slide 27: Unlocked Value via Retail Spinoff in 2013
CST Brands, Inc. (NYSE: CST) has traded at approximately double the earnings valuation of VLO VLO received nearly $1 billion in cash net of tax liability and working capital benefit to CST Liquidated our 20% retained interest in CST common stock, or 15 million shares, in November 2013 CST Brands is
Slide 28: Allocating Significant Growth Capital to Logistics
Allocating Significant Growth Capital to Logistics • Railcars spending declines as receipt of railcars order concludes • Future spending focuses on pipelines
Slide 29: Refining & Renewables Capital Focused on Capturing Benefits of Key Long-Term Trends
Refining & Renewables Capital Focused on Capturing Benefits of Key Long-Term Trends • Advantaged crude processing optimizes feedstock flexibility, mainly for light crudes • Hydrocracking increases production of high-margin distillates • Petchems, methanol, and hydrocracking upgrade natural gas or NG
Slide 30: McKee Diesel Recovery Improvement and CDU Expansion
Investment Highlights • Adding 25 MBPD crude unit capacity and parallel light ends processing train • Expect to improve yields and volume gain by recovering diesel from FCC and HCU feeds • Expect to increase diesel and gasoline production on price- advantaged crude • Expect to reduce energy consumpt
Slide 31: Meraux Hydrocracker Conversion Completed December 2014
Investment Highlights • Converted hydrotreater into high- pressure hydrocracker and repurposed old FCC gas plant for additional LPG recovery • Expect to upgrade 23 MBPD gasoil and low-cost hydrogen (via natural gas) mainly into high quality diesel • Expect to increase refinery distillate yield versu
Slide 32: Houston and Corpus Christi Crude Topping Units Expected Online in 1H 2016
Estimates Incremental Volume (MBPD) Feeds Eagle Ford crude Low sulfur atmos resid (24) Products LPG 2.5 Propylene 0.9 BTX 0.4 Naphtha Gasoline Jet Diesel Resid (3) Houston and Corpus Christi Crude Topping Units Expected Online in 1 st Half of 2016 Project Estimates Total investment $350 MM Annual EB
Slide 33: Diamond Pipeline
Investment Highlights • Increases Memphis refinery’s crude supply flexibility via connection to Cushing and economic crudes • Provides direct control over crude blend quality • Grows Valero’s inventory of assets eligible for VLP dropdown in capital- efficient manner • Valero holds option until Janua
Slide 34: Estimated Key Price Sensitivities on Project Economics
Change in Estimated EBITDA (1) Relative to 2014 (2) Prices ($millions/year) McKee Diesel Recovery & CDU Expansion Meraux HCU Expansion Corpus Christi Topper Houston Topper Estimated Key Price Sensitivities on Project Economics ICE Brent, +$1/bbl none $0.8 $0.4 none ICE Brent – WTI, +$1/bbl $5.5 none
Slide 35: Project Price Set Assumptions
Driver ($/bbl) 2014 Average Project Price Set Assumptions ICE Brent 99.49 ICE Brent – WTI 6.35 ICE Brent – LLS 2.75 USGC CBOB – ICE Brent 3.52 G3 CBOB – WTI 12.27 USGC ULSD – ICE Brent 14.25 G3 ULSD – WTI 23.88 Natural gas (Houston Ship Channel, $/mmBtu) 4.34 Naphtha – ICE Brent -0.67 LSVGO – ICE Br
Slide 36: Port Arthur and St. Charles Hydrocrackers Performance Details
Trailing 4 Quarters $mm, except /bbl amounts 4Q12 3Q14 Increase = EBITDA (estimated) $802 Port Arthur and St. Charles Hydrocrackers Performance Details Benefits Realized in Reported Results Gulf Coast Capture Rate 58.8% 63.2% 4.4% x Gulf Coast Indicator/bbl, trailing 4Q 3Q14 $19 = Extra margin captu
Slide 37: Gated Investment Management Process
Gated Investment Management Process • Development costs increase as project progresses through the phases • NPV and IRR of future cash flows per price forecasts and operating plans evaluated • “Target” IRR hurdle rate ranges, which can change depending on the project and market conditions: Refining
Slide 38: Valero's Light Crude Processing Capacity in North America
McKee Crude Unit Expansion • 25 MBPD additional capacity expected in 2H15 • Distillate recovery improvements Houston Crude Topper • 90 MBPD capacity expected 1H16 • Displaces 30 MBPD intermediate feedstock purchases Corpus Christi Crude Topper • 70 MBPD capacity expected 1H16 • Displaces 25 MBPD int
Slide 39: Valero Continues to Process Cost-Advantaged U.S. and Canadian Crude
Valero Continues to Process Cost-Advantaged U.S. and Canadian Crude Note: Non-U.S. and Canadian crude runs exclude Valero’s Pembroke Refinery. Cost-advantaged crudes exclude imports and historically discounted medium sour crudes, such as Mars/ASCI domestic; heavy sour crudes, such as Maya; and high-
Slide 40: Valero Leads Peers in Total Location-Advantaged Crude Capacity
Valero Leads Peers in Total Location- Advantaged Crude Capacity Source: Company 10-k reports. Crude distillation capacity based on geographic location. Access to lower cost North American crude benefits refiners in Mid-Continent, Gulf Coast, and Canada; product export opportunities for Gulf Coast an
Slide 41: Quebec City Refinery Cost-Advantaged Access to North American Crude
Expect Quebec City Refinery to Have Cost-Advantaged Access to 100% North American Crude Slate in 2015 Shifted to cost-advantaged crudes via rail and foreign flagged ships from USGC, with additional savings expected from deliveries on Enbridge Line 9B beginning in 2Q15
Slide 42: U.S. Natural Gas Provides Opex and Feedstock Cost Advantages
Valero’s refining operations consume approximately 864,000 mmBtu/day of natural gas, split almost equally between operating expense and cost of goods sold Significant annual pre-tax cost savings compared to refiners in Europe or Asia U.S. Natural Gas Provides Opex and Feedstock Cost Advantages Note:
Slide 43: Valero's Capacity for Additional Product Exports
Valero’s Capacity for Additional Product Exports Opportunities to expand U.S. Gulf Coast export capability for gasoline to 308 MBPD and diesel to 472 MBPD Export markets pull volume from U.S., enabling high refinery utilization and improved margins Supported by global refined products demand growth
Slide 44: Long-Term Macro Market Expectations
Global Outlook U.S. Economy and Petroleum Demand North American Resource Advantage International Export Markets Long-Term Macro Market Expectations • Economic activity and total petroleum demand increases • Transportation fuels demand grows • Refining capacity growth slows after 2015; utilization st
Slide 45: U.S. and Canadian Production Growth Provides Crude Cost Advantage
Production growth reduces imports Largest growth from U.S. shale crude and heavy Canadian crude U.S. and Canadian Production Growth Provides Crude Cost Advantage to North American Refiners Source: EIA, Consultants, company announcements and Valero estimates; 2014 U.S. Crude imports as of Nov 2014
Slide 46: Estimated Crude Oil Transportation Costs
to USEC Rail $12 to $15/bbl to St. James Rail $12/bbl to Cushing Rail $9/bbl Cushing to Houston Pipe $2 to $4/bbl Midland to Houston Pipe $4/bbl CC to Houston $1 to $2/bbl Houston to St. James $1 to $2 /bbl to West Coast Rail $13 to $15/bbl USGC to USEC U.S. Ship $5 to $7/bbl Alberta to Bakken $1 to
Slide 47: Crude Oil Differentials Versus ICE Brent
Crude Oil Differentials Versus ICE Brent Source: Argus; 1Q15 through Feb 6. LLS prices are roll adjusted.
Slide 48: Valero's Regional Refinery Indicator Margins
Valero’s Regional Refinery Indicator Margins Source: Argus; 1Q15 through Feb 6
Slide 49: Regional Margin Indicator Definitions
• 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% • Midcontinent Indicator: [(Group 3 CBOB prompt - WTI Month 1) x 60% + (Group 3 ULSD 10ppm prompt - WTI Month 1) x
Slide 50: Low Cost U.S. Natural Gas Provides Competitive Advantage
• U.S. natural gas is significantly discounted to Brent on an energy equivalent basis • Prices expected to remain low and disconnected from global oil and gas markets for foreseeable future Low Cost U.S. Natural Gas Provides Competitive Advantage Sources: Argusand Bloomberg. Japan LNG through Nov 30
Slide 51: Global Petroleum Demand Projected to Grow
Emerging markets in Latin America, Middle East, Africa, and Asia lead demand growth Global Petroleum Demand Projected to Grow Source: Consultant (EIA and IEA) and Valero estimates. Consultant annual estimates generally updated 6 to 12 months after year end.
Slide 52: U.S. Refining Capacity Is Globally Competitive
Net imports Net exports • U.S. flipped from importer to exporter on lower local product demand and higher refinery utilization, particularly in PADDS 2, 3, and 4, driven by structural cost advantages for crude oil and natural gas • Gulf Coast refineries have gained export market share in the Atlanti
Slide 53: World Refinery Capacity Growth
• New capacity additions expected in Asia and Middle East • Announced new capacity in Brazil, Mexico, and Colombia likely to be smaller and start later than planned • Expansions in Ecuador, Peru, Algeria, and Egypt unlikely due to cost and geopolitical pressures • Capacity rationalization expected t
Slide 54: Capacity Rationalization in Atlantic Basin
• Marginal refiners in U.S. East Coast, Caribbean and Western Europe are shutting capacity • Demand growth, poor reliability, and low utilization in Latin American refineries provide opportunities for competitive refineries to export products and meet supply needs Capacity Rationalization in Atlanti
Slide 55: Refinery Closures List
Location Owner CDU Capacity Closed (MBPD) Year Closed Location Owner CDU Capacity Closed (MBPD) Year Closed *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 Consul
Slide 56: Global Refining Capacity For Sale or Under Strategic Review
Location Owner CDU Capacity (MBPD) Lytton, Australia Caltex Nishihara, Japan Petrobras/Sumitomo Inchon, Korea SK Energy Whitegate, Ireland Phillips 66 Barbers Point, HI Chevron Pasadena, TX Petrobras Bahia Blanca, Argentina Petrobras Gothenburg, Sweden Shell Port Dickson, Malaysia Shell Livorno ENI
Slide 57: U.S. Crude Fundamentals
U.S. Crude Fundamentals Source: DOE weekly data through February 6, 2015
Slide 58: U.S. Gasoline Fundamentals
U.S. Gasoline Fundamentals USGC Brent Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) Source: Argus; 2015 weekly data through Feb 6 Source: 2014 DOE monthly data through Nov 2014; 2015 weekly data through Feb 6 Source: 2014 DOE monthly data through Nov 2014; 2015 weekly data through Feb 6 U.S.
Slide 59: U.S. Distillate Fundamentals
U.S. Distillate Fundamentals USGC Brent ULSD Crack (per bbl) U.S. Distillate Demand (mmbpd) Source: Argus; 2015 weekly data through Feb 6 Source: 2014 DOE monthly data through Nov 2014; 2015 weekly data through Feb 6 Source: 2014 DOE monthly data through Nov 2014; 2015 weekly data through Feb 6 Sour
Slide 60: U.S. Transport Indicators
U.S. Transport Indicators Source: U.S. DOE PSM / U.S. DOT FHA Most recent data includes Nov 2014
Slide 61: U.S. Transport Indicators: Trucking
U.S. Transport Indicators: Trucking
Slide 62: Increase in U.S. Gasoline Exports
Note: Gasoline represents all finished gasoline plus all blendstocks (including ethanol, MTBE, and other oxygenates) Source: DOE Petroleum Supply Monthly data as of November 2014. 4 Week Average estimate from Weekly Petroleum Statistics Report and Valero estimates. Increase in U.S. Gasoline Exports
Slide 63: Decrease in U.S. Gasoline Imports
Decrease in U.S. Gasoline Imports Note: Gasoline represents all finished gasoline plus all blendstocks (including ethanol, MTBE, and other oxygenates) Source: DOE Petroleum Supply Monthly data as of November 2014. Week Average estimate fromWeekly Petroleum Statistics Report and Valero estimates.
Slide 64: Increase in U.S. Diesel Exports
Source: DOE Petroleum Supply Monthly with data as of November 2014. 4 Week Average estimate from Weekly Petroleum Statistics Report Increase in U.S. Diesel Exports 12 Month Moving Average, MBPD
Slide 65: U.S. Is Net Refined Products Exporter
Net Imports Net Exports Implied Production of U.S. Refined Products for Domestic Use Valero’s share of U.S. exports has averaged 20% to 25% over the past few years U.S. Is Net Refined Products Exporter U.S. Demand for Refined Products and Net Trade MMBPD U.S. Petroleum Demand Excluding Ethanol and N
Slide 66: U.S. Shifted to Net Exporter
• Net refined products exports increased from 335 MBPD in 2010 to 2,450 MBPD in 2014 • Diesel net exports averaged 917 MBPD in 2014 (Jan-Nov) • Gasoline net exports averaged 50 MBPD in 2014 (Jan – Nov) • Gasoline and blendstocks have shifted to net exports MBPD U.S. Shifted to Net Exporter Note: Gas
Slide 67: U.S. Growing Market Share by Exports
• Refined products demand is growing in developing countries and Atlantic Basin (capacity closures) • U.S. Gulf Coast (PADD III) is the largest source of exported products Source: DOE Petroleum Supply Monthly dataas of Nov2014; Latin America includes Southand Central America plus Mexico. U. S. Produ
Slide 68: Mexico Statistics
Mexico Statistics Diesel Gross Imports (MBPD) Source: PEMEX, latest data Dec 2014 Gasoline Gross Imports (MBPD) Crude Unit Throughput (MBPD) Crude Unit Utilization
Slide 69: Decrease in Venezuelan Exports to the U.S.
Decrease in Venezuelan Exports to the U.S. Source: EIA, November 2014
Slide 70: Ethanol Reconciliation of Operating Income to EBITDA
Ethanol (millions) 2Q09 – 4Q09 2010 2011 2012 2013 2014 Cumulative Reconciliation of Operating Income to EBITDA Operating income $165 $209 $396 $(47) $491 $786 $2,000 + Depreciation and amortization expense $18 $36 $39 $42 $45 $49 $229 = EBITDA $183 $245 $435 $(5) $536 $835 $2,229
Slide 71: Investor Relations Contacts
Investor Relations Contacts For more information, please contact: John Locke Executive Director, Investor Relations 210-345-3077 john.locke@valero.com Karen Ngo Manager, Investor Relations 210-345-4574 karen.ngo@valero.com
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