Valero Energy Corporation · NYSE:VLO
Valero Energy — Credit Suisse Energy Conference 2012
60 slides from Valero Energy's conference presentation, Feb 8, 2012
Slide 1: Credit Suisse Energy Conference February 8-10, 2012
Credit Suisse Energy Conference February 8-10, 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 Overview
Valero Energy Overview World's largest independent refiner16 refineries including recently acquired Pembroke, U.K. and Meraux, Louisiana refineries3 million barrels per day (BPD) of throughput capacity, with average capacity of 190,000 BPDApproximately 6,800 branded marketing sitesNearly 1,300 compa
Slide 4: Valero's Geographically Diverse Operations
Refinery Capacities (000 bpd) Capacities (000 bpd) Nelson Index Refinery Total Through-put Crude Oil Nelson Index Aruba 235 235 8.0 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 G
Slide 5: 2011 Was Great Year for Valero
(CHART) 2011 Was Great Year for Valero Best earnings and cash flow per share year since 2008Better refinery margins combined with portfolio improvements aided refining resultsRecord-high contributions from our ethanol and retail businesses 5
Slide 6: VLO Well-Positioned to Benefit from Return-Enhancing Trends
VLO Well-Positioned to Benefit from Return- Enhancing Trends Competitively exporting into growing marketsAtlantic Basin closures reducing excess capacityIncreasing Valero's yield of distillates, which have higher margins and growthLow-cost U.S. natural gas provides competitive advantageExpect abunda
Slide 7: Competitively Exporting into Growing Markets
Competitively Exporting into Growing Markets Source: DOE Petroleum Supply Monthly with YTD data as of November 2011, 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 closures
Slide 8: Valero's Gulf Coast System Taking Advantage of Global Export Opportunities
Valero's Gulf Coast System Taking Advantage of Global Export Opportunities 8 Our large, complex refineries on Gulf Coast are competitive due to low-cost operations and feedstocks flexibilityIncreasing export capability to take advantage of growing export opportunities(CHART) 1Based on 1,001 MBPD of
Slide 9: 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 EuropeCombined with poor utilization in Latin American refineries and demand growth in Latin America, creates opportunity for competitive refiner
Slide 10: Product Margins Responding to Atlantic Basin Closures
Product Margins Responding to Atlantic Basin Closures 10 With recent closures, Atlantic Basin product margins have increased significantly from 4Q11 levelsIn addition, expect above-average U.S. turnaround (maintenance) activity throughout the industry to affect production capacity in 1H12 (CHART) So
Slide 11: Valero Increasing Distillate Yields
Valero Increasing Distillate Yields 11 (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% to 39% in 2013Primary driver
Slide 12: 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 12 Distillate (diesel, kero, jet fuel) margins are significantly higher than gasolineDistillate demand growth rate is much higher than gasoline (CHA
Slide 13: Low-Cost U.S. Natural Gas Provides Competitive Advantage
Low-Cost U.S. Natural Gas Provides Competitive Advantage 13 U.S. natural gas recently trading at an 85% 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 (CHART) Source:
Slide 14: Valero's Key Economic Projects Capture the Natural Gas to Crude Oil Spread
Refinery Project Estimated Completion Date Estimated Annual EBITDA Base Case1 (millions) Estimated IRR2 using Base Case Estimated Annual EBITDA1 using 2011 Prices (millions) LLS-based McKee & Memphis New Hydrogen Plants Complete/ in start-up $105 39% $176 Port Arthur New Hydrocracker 3Q12 $520 23% $
Slide 15: 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 16: 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 16 Note: EBITDA = Pretax operating income + depreciation and amortization, excludes interest expense; see details in appendix millions
Slide 17: Expect U.S. and Canadian Crude Supply to Provide Feedstock Cost Advantage
Expect U.S. and Canadian Crude Supply to Provide Feedstock Cost Advantage 17 (CHART) Changes in Sweet Crude Balances U.S. GC Light/Medium SweetImports in 2011 - 968 MBPD Expect significant growth in U.S. shale crude and Canadian production plus heavy-up projects in Mid-Con that free-up light/sweet c
Slide 18: Strong Contribution from Ethanol
Strong Contribution from Ethanol 18 Large, efficient plants in great location have competitive advantage on costsAcquired competitive, world-class ethanol plants at an average of 35% of replacement costIn just under 3 years, cumulative EBITDA was $863 million, versus $750 million total purchase pric
Slide 19: Retail Business Continues to Perform Well
Retail Business Continues to Perform Well 19 Retail achieved record results in 2011Improvement in retail earnings with smaller asset base = better returnsRetail business has yielded strong free cash flow (CHART) Valero Retail EBITDA (CHART) Number of Valero Retail Sites Note: includes all Canadian m
Slide 20: 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 2011First fu
Slide 21: Capital Program Focused on Completion of Large Economic Growth Projects
Capital Program Focused on Completion of Large Economic Growth Projects 21 "Stay-in-business" spending 2012 capital high due to estimated completion of economic growth projects, mainly the hydrocrackersExpect a significant decline in capital spending after 2012 $1,740 $1,735 $1,645 $1,565 Total$2,00
Slide 22: Managing Financial Strength and Growing Cash Yield
Managing Financial Strength and Growing Cash Yield Expect significant contributions of free cash flowReduction in 2013 capital spending Cash flow expected from operation of major projects to be started-up in 2012Returning cash to shareholdersTripled quarterly dividend in 4Q11 to $0.15 per shareIn 20
Slide 23: Valero's Strategic Priorities
Valero's Strategic Priorities 23 Constant focus on safety, environmental, and regulatory complianceMaintain investment grade credit ratingContinue improvement in refining performance to 1st quartile levelsContinue cost reduction effortsComplete major, value-added capital projects at key refineriesOp
Slide 24: Why We Believe Valero Is an Excellent Buy Today
Why We Believe Valero Is an Excellent Buy Today Well-positioned to benefit from return-enhancing trendsBenefiting from strong export marketAtlantic Basin capacity closures have improved refining fundamentalsProjects focus on taking advantage of low-cost natural gas, high oil prices, and higher disti
Slide 25: Appendix
VALERO Appendix
Slide 26: 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 26 Favorable margin outl
Slide 27: Attractive Acquisition Price for Meraux and Pembroke
Attractive Acquisition Price for Meraux and Pembroke 27 (CHART) @ $24 per share
Slide 28: Valero Has Competitive, Low-Cost Refining Operations
(CHART) Valero Has Competitive, Low-Cost Refining Operations 28 Refining Cash Operating Expenses less Natural Gas Usage ($/bbl) Source: Macquarie Capital
Slide 29: Memphis FCC Revamp Project
Memphis FCC Revamp Project Investment HighlightsFavorable economics driven by better reliability and gains on margin and volumeImproves flexibility to run lower- quality feedstocksImproves FCC reliability and increases run length between turnarounds to four years from 1.5 yearsIncrease in run length
Slide 30: St. Charles MSCC to FCC Conversion Project
St. Charles MSCC to FCC Conversion Project Investment HighlightsFavorable 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 yearsAdds 5%+ volume expansion through FCCImproves energy effic
Slide 31: Hydrogen Plant Projects
Hydrogen Plant Projects 31 Summary of Project Status and Economics1 Summary of Project Status and Economics1 Summary of Project Status and Economics1 Estimated completion/start-up date 4Q11/ 1Q12 4Q11/ 1Q12 Total investment (mil.) $180 $180 Estimated Incremental EBITDA (Operating Income before D&A2)
Slide 32: Port Arthur Hydrocracker Project
Port Arthur Hydrocracker Project Investment HighlightsFavorable economics driven by margin and volume gainsMain unit is 57,000 barrels/day (rolling 12- month average per permit) hydrocracker plus facilities to process over 150,000 barrels/day of high-acid, heavy sour crudes (e.g. Canadian and Latin
Slide 33: St. Charles Hydrocracker Project
St. Charles Hydrocracker Project Investment HighlightsFavorable economics driven by margin and volume gainsMain unit is 60,000 barrels/day hydrocrackerCreates high-value products from low- value feedstocks plus hydrogen sourced from relatively inexpensive natural gasUnit has volume expansion up to 3
Slide 34: Montreal Pipeline Project
Montreal Pipeline Project Investment HighlightsFavorable economics driven by reducing transportation costs and growing volumesNew pipeline with 100,000 barrels/day of throughput capacityPlanned closure of Shell Montreal refinery allows Valero to place additional products into Montreal and Ontario ma
Slide 35: Diamond Green Diesel Joint Venture
Diamond Green Diesel Joint Venture Investment HighlightsBuilding a 9,300 BPD renewable diesel plant adjacent to Valero's St. Charles refinery50/50 JV project with Darling Int'l, a leading gatherer of used cooking oils and animal fatUses refinery technology to produce high- quality diesel from low-qu
Slide 36: Project Price Set Assumptions
Project Price Set Assumptions 36 Commodity Base Case ($/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 37: Project Price Sensitivities
Project Price Sensitivities 37 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 38: 60,000 BPD Hydrocracker Model Estimates Under Various Price Sets
60,000 BPD Hydrocracker Model Estimates Under Various Price Sets 38 Key Drivers and Prices 2008 Prices 2008 Prices 2009 Prices 2009 Prices 2010 Prices 2010 Prices 2011 Prices 2011 Prices Jan. 2012 Prices Jan. 2012 Prices LLS /bbl $102.07 $62.75 $81.64 $111.09 $110.43 LLS - HSVGO /bbl -$2.03 $2.86 $2
Slide 39: Hydrocracking Enhances Refinery Competitiveness
Hydrocracking Enhances Refinery Competitiveness Benefits of hydrocrackersVolume gain provides significant margin advantageMore economic home for VGO than FCCsCreates feedstock flexibility 39 (CHART) Source: EIA Refinery Capacity Report as of January 1, 2011; Valero More-profitable hydrocrackers...Ma
Slide 40: 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 America Global Refinery Additions 40 MMBPD Source: Consultant and Valero estimates Net 1,054 MBPD Net 1,162 MBPD
Slide 41: Continued Global Demand Growth Important to Refining Margins
(CHART) Continued Global Demand Growth Important to Refining Margins 41 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 42: 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 estimates Global Refining Capacity Rationalization 42 Location Owner CDU Capacity Close
Slide 43: Global Refining Capacity For Sale or Under Strategic Review
Global Refining Capacity For Sale or Under Strategic Review 43 Location Owner CDU Capacity (MBPD) Gothenburg, Sweden Shell 80 Kapolei, HI Chevron 54 Milford Haven, UK Murphy 108 Whitegate, Ireland ConocoPhillips 70 Belle Chase, LA ConocoPhillips 247 Mazeikai, Lithuania PKN 190 Various Japanese Locat
Slide 44: Gasoline Fundamentals
(CHART) Gasoline Fundamentals 44 (CHART) USGC LLS Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) (CHART) Source: Argus; 2012 data through February 3 Source: DOE weekly data; 2012 data through week ending January 24 Source: DOE weekly data; 2012 data through week ending January 24 U.S. Gasolin
Slide 45: Distillate Fundamentals
Distillate Fundamentals 45 45 (CHART) USGC LLS On-road Diesel Crack (per bbl) U.S. Distillate Demand (mmbpd) (CHART) (CHART) Source: Argus; 2012 data through February 3 Source: DOE weekly data; 2012 data through week ending January 24 Source: DOE weekly data; 2012 data through week ending January 24
Slide 46: U.S. Transport Indicators: Trucking Indicators
U.S. Transport Indicators: Trucking Indicators 46
Slide 47: U.S. Transport Indicators
(CHART) U.S. Transport Indicators 47 Latest data Week 4, 2012
Slide 48: Mexico Statistics
(CHART) (CHART) Mexico Statistics Diesel Gross Imports (MBPD) Source: PEMEX, latest data Dec-11 Gasoline Gross Imports (MBPD) Source: PEMEX, latest data Dec-11 (CHART) Crude Unit Throughput (MBPD) Crude Unit Utilization (CHART) 48 Source: Mexico Secretary of Energy, latest data Dec-11 Source: Mexico
Slide 49: Venezuelan Exports to the U.S.
Venezuelan Exports to the U.S. 49 (CHART) Source: EIA, November 2011
Slide 50: 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 YTD data as of November 2011 MBPD Diesel net exports continue to rise significantly, with U.S. refiners sending a net of 650 MBPD to oth
Slide 51: U.S. Gasoline Exports by Destination
U.S. Gasoline Exports by Destination Most of the gasoline export growth this year has been to Latin America, including Mexico Latin American requirements are growing due to increased demand and poor performance of refineries in Venezuela and MexicoShutdown of St. Croix and possibly Curacao will add
Slide 52: 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 YTD data as of November 2011. 4 Week Average from Weekly Pe
Slide 53: 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 YTD data as of November 2011. 4 Week Average from Weekly Petroleum Statistics Report L
Slide 54: U.S. Diesel Imports by Source
U.S. Diesel Imports by Source Diesel imports have fallen slightly in 2011 Source: DOE Petroleum Supply Monthly with YTD data as of November 2011. 4 Week Average from Weekly Petroleum Statistics Report (CHART) MBPD Expect the St. Croix shutdown will reduce 2012 imports 54
Slide 55: U.S. Crude and Natural Gas Production - Tight Oil Supply Growth
55 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 a
Slide 56: Ethanol and Retail Reconciliation of Operating Income to EBITDA
Ethanol and Retail Reconciliation of Operating Income to EBITDA Income to EBITDA Income to EBITDA 56 Retail (millions) 2005 2006 2007 2008 2009 2010 2011 U.S. Operating Income $81 $113 $154 $260 $170 $200 $213 + U.S. depreciation and amortization expense $60 $60 $59 $70 $70 $73 $77 = U.S. EBITDA $14
Slide 57: Crude Discounts Narrowed since 3Q11
(CHART) Crude Discounts Narrowed since 3Q11 57 $/barrel Source: Argus; 2012 year-to-date through February 3; LLS prices are roll adjusted
Slide 58: Regional Refinery Indicator Margins
Regional Refinery Indicator Margins 58 Source: Argus; 2012 year-to-date through February 3; see Appendix for details on refinery configuration assumptions
Slide 59: 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 ULSD
Slide 60: 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 60