Valero Energy Corporation · NYSE:VLO
Valero Energy — BAML Refining Conference March 2014
59 slides from Valero Energy's conference presentation, Mar 5, 2014
Slide 1: Investor Presentation, BAML Refining Conference March 2014
Investor PresentationBAML Refining Conference March 2014
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 refineriesApproximately 2.9 million barrels per day (BPD) of throughput capacity, excluding suspended operations of the Aruba refineryCreated publicly traded Valero Energy Partners LP (NYSE: VLP), a traditional, logistics MLP with 100% fee
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 19.9 Houston 165 90 15.1 Meraux 135 135 10.3 Port Arthur 350 330 12.6 St. Charles 280 190 17.5 Texas City 250 225 11.1 Three Rivers 100 95 12.4 Gulf Coast 1,605 1,
Slide 5: Valero's Strategy to Enhance Returns and Increase Long-term Shareholder Value
Valero's Strategy to Enhance Returns and Increase Long-term Shareholder Value Increase Long-term Shareholder Value Increase Long-term Shareholder Value 5
Slide 6: Key Market Trends
Key Market Trends 6 Growth in U.S. and Canadian shale development provides North American resources advantageExpect strong supply growth in crude oil, natural gas, and natural gas liquids (NGLs)Industry is making significant infrastructure investments to move crude oil to refining markets and to pro
Slide 7: U.S. and Canadian Production Growth Provides Resource Advantage to North American Refiners
U.S. and Canadian Production Growth Provides Resource Advantage to North American Refiners Resource Advantage to North American Refiners Resource Advantage to North American Refiners 7 Source: EIA, Consultants, company announcements and Valero estimates; 2013 U.S. Crude imports as of December 2013 C
Slide 8: Valero's Estimate of Marginal Light Crude Oil Prices per Barrel within 24 Months
USECBrent + $2Marginal Price Setter Valero's Estimate of Marginal Light Crude Oil Prices per Barrel within 24 Months 8 to USECRail $14 to $17/bbl to St. JamesRail $12/bbl to CushingRail $9/bbl CushingBrent -$5 to -$8 to HoustonPipe $4/bbl MidlandBrent -$5 to -$8 to HoustonPipe $4/bbl CC to Houston$1
Slide 9: Valero's Strategy to Supply Incremental Volumes of Cost-Advantaged Crude Oil
Valero's Strategy to Supply Incremental Volumes of Cost-Advantaged Crude Oil Expect refineries to benefit as flows increase on cost- efficient pipelinesSt. Charles: approximately 20 MBPD rail unloading capacity ready in 1Q14, plan to rail neat Canadian bitumen in 2Q14 using Valero-owned rail cars; a
Slide 10: Lower-Cost Natural Gas Provides Structural Advantage to U.S. and Canadian Refiners
Lower-Cost Natural Gas Provides Structural Advantage to U.S. and Canadian Refiners 10 Note: Per barrel cost of 800,000 mmBtu/day of natural gas consumption at 93% utilization (2.7 MMBPD) of Valero's throughput capacity $1.8 billion higher pre- tax annual costs $3.5 billion higher pre-tax annual cost
Slide 11: Global Distillates Demand Growth Yields Higher Margins
(CHART) Global Distillates Demand Growth Yields Higher Margins 11 (CHART) Source: Argus Projected diesel growth rate is 1.5x gasoline Distillates (diesel, kero, jet fuel) margins are significantly higher than gasoline due to less spare distillates production capacity versus demandDistillates demand
Slide 12: U.S. Refining Capacity Is Globally Competitive and Continues to Take Market Share
U.S. Refining Capacity Is Globally Competitive and Continues to Take Market Share 12 U.S. flipped from importer to exporter on lower local demand and competitive advantagesRefiners in PADDs 2, 3, and 4 have higher utilization due to structural cost advantages for crude oil and natural gasGulf Coast
Slide 13: Continued Global Demand Growth Important to Refining Margins
(CHART) Continued Global Demand Growth Important to Refining Margins 13 Source: Consultant and Valero estimates World Petroleum Demand Growth MMBPD Emerging markets lead in terms of global petroleum demand growthParticularly strong growth in Latin America, Middle East, Africa, AsiaRefining is a glob
Slide 14: World Refinery Capacity Growth
(CHART) World Refinery Capacity Growth Estimated Net Global Refinery Crude Distillation Additions 14 MMBPD Source: Consultant and Valero estimates; Net Global Refinery Additions = New Capacity + Restarts - Announced Closures Expect significant new global refining additions in the next several yearsM
Slide 15: Growth Investments Comprise Approximately Half of Our Capital Spending
Growth Investments Comprise Approximately Half of Our Capital Spending 15 "Stay-in-business" spending 2013 spending included $63 million for retail (CST Brands) through April2015 spending not yet disclosed Total$3,000 Total$2,755
Slide 16: Growth Investments Primarily in Logistics and Processing Cost-Advantaged Crude Oil
(CHART) Growth Investments Primarily in Logistics and Processing Cost-Advantaged Crude Oil 16 2014 estimated growth investments consist 72% of logistics and processing light crude oil (CHART) 2013 Growth Investments 2014 Growth Investments Total actual $1.255 billion Total estimate $1.525 billion Hy
Slide 17: Logistics Growth Investments
Logistics Growth Investments StrategyIncrease access to cost-advantaged crudesIncrease capability to export products and crudesGrowth Investments5,320 rail cars purchased, delivery in 4Q12 to 2Q15Approximately 55% general purpose, 45% coil-wrapped for heavy crudesApproximately 2,000 received through
Slide 18: Valero Energy Partners LP
Valero Energy Partners LP (NYSE: VLP) 18 Traditional, logistics MLP with 100% fee-based revenues Valero retained significant ownership and control of VLP68.6% of LP ownership comprised of common and subordinated units100% GP ownership and all associated IDRsValero's primary vehicle to grow logistics
Slide 19: Hydrocracking Growth Investments Increase Distillates Production
StrategyEmphasize distillates production and natural gas consumptionDesigned to benefit from our outlook of:Relatively high crude and low natural gas pricesStrong global distillates demand growth and marginsGrowth InvestmentsIncreased Port Arthur hydrocracker permitted capacity to 60 MBPD, like new
Slide 20: Investments to Process More Light Crude Oil
Investments to Process More Light Crude Oil StrategyIncrease processing of North American cost- advantaged crude oilCurrent capability to run ~ 55% light crude75% located in Gulf Coast and Mid-ContinentGrowth InvestmentsMcKee crude unit expansion of ~ 25 MBPD expected in first half of 2015 for $60 m
Slide 21: Improving Our Refining Operations
Improving Our Refining Operations Industry surveys reflect significant improvement over last six yearsImproved reliability also yielding benefits in staffing, operating cost, and energy efficiencyFurther improvements expected as reliability programs continue to matureOur goal is to become a 1st quar
Slide 22: Valero's Ethanol Segment Generating Strong Returns
Valero's Ethanol Segment Generating Strong Returns 10 plants with total production capacity of 1.2 billion gallons/yearAcquired portfolio for $760 million, or average of only 35% of estimated replacement cost2Q09: Acquired 7 plants 1Q10: Added 3 plantsSignificant cash generated since investmentNo ch
Slide 23: Returning More Cash to Stockholders and Maintaining Financial Strength
(CHART) Returning More Cash to Stockholders and Maintaining Financial Strength Returning more cash to stockholdersIncreased quarterly dividend from $0.05 per share in 2Q11 to $0.25 per share in 1Q14Doubled the amount of cash returned to stockholders in 2013 versus 2012Purchased 4.0 million shares in
Slide 24: We Believe Valero Is an Excellent Buy Today
We Believe Valero Is an Excellent Buy Today Expect continued growth in North American oil, gas, and NGLs productionIndustry installing significant infrastructure to move crude oil to refining markets and process more volumes of light oilLower-cost U.S. and Canadian natural gas provides competitive a
Slide 25: Appendix
AZ Pe VALERO Appendix
Slide 26: Increasing Our Products Exports Capability
Increasing Our Products Exports Capability Increasing Our Products Exports Capability 26 MBPD Exports enable Valero to maintain utilization rates or capture incremental marginValero exports products based on economic optimization of:Prices in export versus domestic markets Product quality and costs
Slide 27: Upgrading Natural Gas to Methanol
Upgrading Natural Gas to Methanol StrategyGas-to-liquids upgrading - very attractive syngas pricingU.S. is a growing methanol market and represents about 10% of the global marketOn average, the U.S. imported about 89% of its supply (~ 5 million tonnes/year or 110,000 BPD)Southern Louisiana is the se
Slide 28: NGLs Upgrading Presents an Opportunity to Create Value
(CHART) NGLs Upgrading Presents an Opportunity to Create Value StrategyConsistent strategy - feedstock advantage and bolt-on/synergistic projectExpect continued growth in supply of NGLs and condensatesExpect length in the domestic NGLs and condensates supply will create structurally lower prices ver
Slide 29: Unlocked Value via Retail Spinoff
Unlocked Value via Retail Spinoff Spun off to stockholders our retail business on May 1, 2013CST Brands, Inc. trading on the NYSE under the ticker symbol "CST" CST has traded at approximately double the earnings valuation of VLO, unlocking shareholder valueValero received nearly $1 billion in net ca
Slide 30: Improving Our Safety and Environmental Performance
Improving Our Safety and Environmental Performance Safety is our highest priority: our goal is zero injuriesFrequency of Tier 1 process safety events has steadily decreasedSince 2007, environmental event frequency declined by over 65% 30 *Source: U.S. Bureau of Labor Statistics; Legacy refineries da
Slide 31: Our Crude and Feedstock Supply
(CHART) Our Crude and Feedstock Supply 31 Valero's crude and intermediate feedstock runs were approximately 2.3 million bpd in 2013, and 120 unique crudes were processedCrude and intermediate feedstock inventories typically range from 50 to 60 million barrels throughout the yearAll crude is hedged a
Slide 32: Valero's Processing of Cost-Advantaged U.S. and Canadian Crude Continues to Grow
Valero's Processing of Cost-Advantaged U.S. and Canadian Crude Continues to Grow 32 (CHART) 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,
Slide 33: Crude Oil Prices Versus ICE Brent
(CHART) Crude Oil Prices Versus ICE Brent 33 $/bbl Source: Argus; 2014 year-to-date through February 26. LLS prices are roll adjusted.
Slide 34: Valero's Regional Refinery Indicator Margins
Valero's Regional Refinery Indicator Margins 34 Source: Argus; 2014 year-to-date through February 26; see Appendix for details on refinery configuration assumptions
Slide 35: Definitions of Valero's Regional Indicator Margins
Definitions of Valero's 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 CBOB prompt - WTI Month 1) x 60% + (G
Slide 36: Logistics Constraints Create Regional Crude Discounts in U.S. and Canada
Logistics Constraints Create Regional Crude Discounts in U.S. and Canada 36 (CHART) Source: Argus, data as of February 21, 2014 C A G H B E F D I Crude Pricing by Location
Slide 37: Canadian Heavy Crudes Have Several Options to the Gulf Coast
37 Source: Company Reports Canadian Heavy Crudes Have Several Options to the Gulf Coast Pipeline - industry has several options in various stages to move crude oil from Canada to the U.S. Gulf CoastSeawayCurrently shipping light and heavy sour from Cushing to Gulf CoastExpansion expected to complete
Slide 38: Valero's View on U.S. Gulf Coast Medium and Heavy Oil Prices Versus Brent
Valero's View on U.S. Gulf Coast Medium and Heavy Oil Prices Versus Brent 38 38
Slide 39: Increasing U.S. Oil and Natural Gas Production Provides Cost Advantage for Refiners
Increasing U.S. Oil and Natural Gas Production Provides Cost Advantage for Refiners Provides Cost Advantage for Refiners Provides Cost Advantage for Refiners 39 Source: DOE (CHART)
Slide 40: U.S. Gulf Coast is Benefitting from Cost-Efficient Crude Oil Pipeline Additions
U.S. Gulf Coast is Benefitting from Cost-Efficient Crude Oil Pipeline Additions Rapid increase in pipeline capacities to move inland North American light and heavy crude oils to the Gulf CoastLight crudes have been pricing below LLS in western parts of Gulf Coast (Houston and Corpus)Recent completio
Slide 41: Growth of Crude Oil Pipelines to U.S. Gulf Coast
Growth of Crude Oil Pipelines to U.S. Gulf Coast 41 Year-End Throughput Capacities, '000 bpd 2011 2012 2013E 2014E 2015E Announced Start-up Cushing Seaway and Loop 150 400 850 850 2Q12, 1Q13, 2Q14 Keystone MarketLink - - - 700 830 1Q14, 2015 Total - 150 400 1,550 1,680 Permian Longhorn 225 275 275 2
Slide 42: Atlantic Basin Closures Reduce Excess Capacity
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, creates
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 refinery. Sources: Industry and Consultant reports and Valero estimates Global Refining Capacity Rationalization 43 43
Slide 44: Global Refining Capacity For Sale or Under Strategic Review
Global Refining Capacity For Sale or Under Strategic Review Sources: Industry and Consultant reports and Valero estimates 44 44
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 has traded at a significant discount to Brent crude oil price (on energy equivalent basis)Prices are expected to remain low and disconnected from global oil and gas markets for foreseeable futureVLO refinery operations are
Slide 46: Gasoline Fundamentals
Gasoline Fundamentals Gasoline Fundamentals (CHART) (CHART) USGC Brent Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) (CHART) Source: Argus; 2014 data through February 28 Source: DOE weekly data; 2014 data through week ending February 21 Source: DOE weekly data; 2014 data through week ending
Slide 47: Distillate Fundamentals
Distillate Fundamentals 47 (CHART) USGC Brent ULSD Crack (per bbl) U.S. Distillate Demand (mmbpd) (CHART) (CHART) Source: Argus; 2014 data through February 28 Source: DOE weekly data; 2014 data through week ending February 21 Source: DOE weekly data; 2014 data through week ending February 21 Source:
Slide 48: U.S. Transport Indicators
(CHART) U.S. Transport Indicators 48 (CHART) (CHART) Source: U.S. DOE PSM / U.S. DOT FHA Most recent data includes Nov 2013
Slide 49: U.S. Transport Indicators: Trucking
U.S. Transport Indicators: Trucking 49 (CHART) (CHART) (CHART) (CHART)
Slide 50: Mexico Statistics
(CHART) (CHART) (CHART) Mexico Statistics 50 Diesel Gross Imports (MBPD) Source: PEMEX, latest data January 2014 Gasoline Gross Imports (MBPD) (CHART) Crude Unit Throughput (MBPD) Crude Unit Utilization
Slide 51: Venezuelan Exports to the U.S.
Venezuelan Exports to the U.S. 51 Source: EIA, December 2013 (CHART)
Slide 52: U.S. Gasoline Exports by Destination
(CHART) U.S. Gasoline Exports by Destination Note: Gasoline represents all finished gasoline plus all blendstocks (including ethanol, MTBE, and other oxygenates)Source: DOE Petroleum Supply Monthly data as of December 2013. 4 Week Average estimate from Weekly Petroleum Statistics Report and VLO esti
Slide 53: U.S. Gasoline Imports by Source
U.S. Gasoline Imports by Source Gasoline imports have declined steadily since 2007Shutdown of the Atlantic Basin refineries will keep pressure on this trend 53 (CHART) Note: Gasoline represents all finished gasoline plus all blendstocks (including ethanol, MTBE, and other oxygenates)Source: DOE Petr
Slide 54: U.S. Diesel Exports by Destination
U.S. Diesel Exports by Destination Source: DOE Petroleum Supply Monthly with data as of December 2013. 4 Week Average estimate from Weekly Petroleum Statistics Report 54 (CHART) 12 Month Moving Average, MBPD Diesel exports to Latin America have exceeded exports to Europe in recent years
Slide 55: U.S. Shifted to Net Exporter
55 U.S. Shifted to Net Exporter (CHART) U.S. Demand for Refined Products and Net Trade MMBPD U.S. Petroleum Demand Excluding Ethanol and Non-Refinery NGL's (Refined Product Demand) Net Imports NetExports Implied Total Production of U.S. Refined Products Note: Implied production = Petroleum demand ex
Slide 56: U.S. Shifted to Net Exporter
(CHART) U.S. Shifted to Net Exporter Net Imports Net Exports MBPD As a result of the continued shift towards exports, U.S. net exports of petroleum products have increased from 335 MBPD in 2010 to 2,046 MBPD in 2013Diesel net exports remain strong, with U.S. refiners sending a net of 966 MBPD to oth
Slide 57: U.S. Competitively Exporting into Growing Markets
(CHART) U.S. Competitively Exporting into Growing Markets Source: DOE Petroleum Supply Monthly data as of December 2013; Latin America includes South and Central America plus Mexico. (CHART) U. S. Product Exports By Destination U. S. Product Exports By Source MMBPD 12 Month Moving Average 57 U.S. ha
Slide 58: Ethanol Reconciliation of Operating Income to EBITDA
Ethanol Reconciliation of Operating Income to EBITDA EBITDA EBITDA 58
Slide 59: Investor Relations Contacts
Investor Relations Contacts For more information, please contact:Ashley Smith, CFA, CPAVice President, Investor Relations210.345.2744ashley.smith@valero.comKaren NgoManager, Investor Relations210.345.4574karen.ngo@valero.com John LockeExecutive Director, Investor Relations210-345-3077john.locke@vale