Valero Energy Corporation · NYSE:VLO
Valero Energy — Morgan Stanley Refining Corporate Access Day 2010
38 slides from Valero Energy's conference presentation, May 19, 2010
Slide 1: Morgan Stanley Refining Corporate Access Day May 19-20, 2010
Morgan Stanley Refining Corporate Access Day May 19 - 20, 2010
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 Largest independent refiner in North America 15 refineries, 2.8 million barrels per day (BPD) of capacity Refineries geographically diversified among four key regions One of the nation's largest retail fuel marketers with nearly 5,800 branded marketing sites Company-operated s
Slide 4: Valero's Geographically Diverse Operations
Valero's Geographically Diverse Operations 4 1 2 1Delaware City refinery shut down Nov-09 and sale currently pending; 2Aruba refinery idled Jul-09
Slide 5: U.S. Petroleum Demand Plummeted in "Great" Recession
U.S. Petroleum Demand Plummeted in "Great" Recession Since 2007 Demand down 2 mmbpd Gasoline demand ^ 4% Diesel demand ^ 14% Other products ^ 15% 11 years of demand growth destroyed Source: DOE monthly Products Supplied data, trailing 12-month average through February 2010 5
Slide 6: Too Much Spare Refining Capacity in U.S.
"Spare Capacity" MBPD Too Much Spare Refining Capacity in U.S. "Utilized Capacity" Source: DOE weekly data through March 2010 and Consultant and Valero estimates 6
Slide 7: Excess Spare Capacity Around the World
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 At spare capacity above 5 million BPD, Gulf Coast margins ranged $3 to $6/barrel During "Golden Age," spare capacity fell below 3 million BPD wh
Slide 8: New Capacity Continues to Grow
New Capacity Continues to Grow Source: Valero and Consultant estimates Note: Base capacity includes capacity creep of 0.1% per year MMBPD 8
Slide 9: Spare Capacity Reductions
Spare Capacity Reductions Margin improvement tied to global spare refining capacity falling below an estimated 5 million barrels per day via... 9
Slide 10: Capacity Rationalization Taking Place
Capacity Rationalization Taking Place Source: DOE MBPD 10 Source: Industry and Consultant Reports
Slide 11: Economic Growth Rebounding
Global economy is expected to recover at or above average growth beginning in 2010 Expansionary fiscal and monetary response from governments aiding recovery Economic Growth Rebounding '70-'08 World Average = 3.1% (U.S. = 3.0%) Source: Blue Chip Average forecast for U.S. and Consultant average forec
Slide 12: Demand Recovery Underway
Estimate Demand Recover Underway U.S. and OECD demand expected to grow, but below historical average growth rate World demand expected to grow in 2010 and then accelerate in 2011 when total demand exceeds 2007 levels Demand growth in any part of the world expected to benefit refiners globally 12 Sou
Slide 13: Expect U.S. Gasoline and Distillate Growth
Expect U.S. Gasoline and Distillate Growth Total gasoline demand expected to grow, but probably peaked in 2007 Ethanol use will get to 10% of gasoline pool, but higher % still undecided 13 MMBPD Forecast MMBPD Forecast Source: Consultant and Valero estimates Source: Consultant and Valero estimates D
Slide 14: Expect 2010 Margins to Be Volatile and Seasonal
Expect 2010 Margins to Be Volatile and Seasonal 14 Gulf Coast Gasoline and On-road Diesel Margins vs. WTI Plentiful spare capacity and product inventories squeezed margins in 2009 Cautiously optimistic 2010 margins can improve on capacity rationalization and stronger demand As always, potential for
Slide 15: Crude Oil Discounts Improving in 2010
Overall oil demand growth should help discounts OPEC could increase production, some of which would be medium/heavy sour But growth in NGLs and condensate production expected to pressure discounts Other supply of low quality crudes has been better than expected Longer term, expect to benefit from de
Slide 16: Recap of Refining Industry Expectations
Recap of Refining Industry Expectations Recap of Refining Industry Expectations 16
Slide 17: Valero's Position Improves for 2010
Valero's Position Improves for 2010 Valero's Position Improves for 2010 17 Given another year of low margins like 2009, Valero has potential for improvement Result
Slide 18: Delaware City Decision
Delaware City Decision History of poor performance under Valero and prior owners Large loss in 2009: approx. $390 mil. operating loss, excluding special charges Decided to shut down in November 2009 under $950 million case (below) Estimated shutdown costs include relatively low environmental clean-u
Slide 19: Aruba Update
Aruba Update 235,000 BPD "upgrader" consists mainly of large crude and coking units Processes low quality crudes into intermediate products (e.g., VGO), high sulfur diesel, and jet fuel Deepwater port can take up to ULCC tankers 19 Timeline of key events over past year 1Q09: Generated operating inco
Slide 20: Reduced Refinery Operating Expenses
Reduced Refinery Operating Expenses 2009 refinery "cash" opex down $900 million from 2008 due to key cost savings initiatives Industry benchmark ranking improved in the range of a half to a full quartile Non-energy operating expenses Maintenance Personnel efficiency Also, remain very focused on corp
Slide 21: Reduced Capital Spending
Reduced Capital Spending 21 2010 spending estimated at $2 billion, down from $2.5 billion budget Expect "Stay in Business" capital spending to decline after 2010 Completing legacy reliability and large regulatory projects in 2010 (projects with incremental estimated income)
Slide 22: 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 2Q10: All 10 plants op
Slide 23: Potential for Earnings Improvement in 2010
Potential for Earnings Improvement in 2010 Assuming 2009 price environment... 1Includes $7 million Paulsboro severance, $150 million in asset impairment losses, $140 million Aruba accrual for tax dispute, and $43 million LIFO decrement 2Estimated incremental ethanol earnings estimated using volumes
Slide 24: Managing Financial Strength
Managing Financial Strength Investment grade credit rating is a priority Reduced dividend payment to reflect lower margin environment Successfully completed in February a $1.25 billion debt offering Took advantage of very attractive rates in February S&P, Moody's, and Fitch affirmed investment grade
Slide 25: Potential to Generate Free Cash Flow
Potential to Generate Free Cash Flow Assuming 2009 price environment... 25 millions 1$33 million in 2010 maturities + $287 million in 7.5% Premcor notes called 1Q10 including the $7 million call premium + $186 million in 6.75% Premcor notes called 2Q10 including the $4 million call premium 1
Slide 26: Why Invest in Valero Today?
Why Invest in Valero Today? Largest, most geographically diverse independent refiner Leveraged to expansion in refining margins and crude oil discounts More than just refining as retail and ethanol segments have been meaningful profit contributors Taking action to upgrade and improve portfolio Conti
Slide 27: Appendix
Wy - VALERO Appendix
Slide 28: Global Refining Capacity Rationalization
Global Refining Capacity Rationalization 2008 Limited refinery closures, began seeing key project delays and cancellations 2009 Did not see substantial closure announcements until second half 2010 More closure announcements Chatter coming from large integrated companies about rationalizing capacity
Slide 29: We Took a Stand Against Harmful Cap-and-Trade Legislation
We Took a Stand Against Harmful Cap-and-Trade Legislation 29 Waxman-Markey legislation was harmful to the U.S. economy, jobs, and our industry "Cap-and-trade" will increase the costs of petroleum products Bill was very unfair to our industry Valero took an active leadership role Organized grassroots
Slide 30: Gasoline Fundamentals
Gasoline Fundamentals 30 USGC Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) Source: Argus; 2010 data through May 14 Source: DOE weekly data; 2010 data through week ending May 7 Source: DOE weekly data; 2010 data through week ending May 7 Source: DOE weekly data; 2010 data through week ending
Slide 31: Distillate Fundamentals
Distillate Fundamentals 31 USGC On-road Diesel Crack (per bbl) U.S. Distillate Demand (mmbpd) Source: Argus; 2010 data through May 14 Source: DOE weekly data; 2010 data through week ending May 7 Source: DOE weekly data; 2010 data through week ending May 7 Source: DOE monthly data; 2009 data through
Slide 32: Ethanol Grows as Part of the Fuel Mix
U.S. Ethanol Demand BGal/yr We expect ethanol volumes to meet corn RFS requirements, but expect advanced (cellulosic) ethanol to develop more slowly than prescribed Requires margins large enough to resume production with currently shutdown corn- based plants The "blend wall" is an issue for sometime
Slide 33: Near Term Supply/Demand Balance Looks Favorable for Ethanol
Near Term Supply/Demand Balance Looks Favorable for Ethanol Corn ethanol capacity grew as a result of the MTBE ban in 2004 and the RFS mandate in 2005 Capacity increased from 3 billion gallons per year (BGal/yr) to 12 BGal/yr from 2003 to 2009 About1.0 BGal/yr of production capacity is currently idl
Slide 34: World Demand Favors Diesel
World Demand Favors Diesel World Demand MMBPD Diesel demand has declined more than gasoline with the economic downturn, but is expected to recover past prior highs in 2011 Diesel demand has grown to become much larger than gasoline globally Growing global diesel demand is an export opportunity for U
Slide 35: Valuation
Valuation 35 For all charts: all values per Bloomberg as of May 18, 2010; Peer group average includes TSO, SUN, FTO, HOC, CVI, PPHN, WNR, DK, and ALJ
Slide 36: Valero's Historical Price to Book Value
Valero's Historical Price to Book Value 36 Source: Bloomberg as of May 18, 2010
Slide 37: Annual Estimated EPS Sensitivity for $1/barrel Change
2009 Volume (MBPD) Annual Estimated EPS Sensitivity for $1/barrel change 1 Gasolines and blendstocks 1,101 48% $0.46 Distillate (diesel, heating oil, jet fuel) 748 33% $0.32 Other 432 19% $0.18 Total Products 2,281 100% $0.96 Sweet 632 28% Medium Sour & Acidic 581 26% $0.25 Heavy & Resid 635 28% $0.
Slide 38: Key Projects in Valero's Strategic Capital
Key Projects in Valero's Strategic Capital 38 Refinery Project Estimated Total Cost1 ($millions) Estimated Remaining Cost ($millions) Estimated Start-Up Date Description Memphis FCC $245 <$20 On-line Increase volume expansion and longer run-life between turnarounds High concarbon feed processing cap
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