Valero Energy Corporation · NYSE:VLO
Valero Energy — Investor Presentation (August 2012)
67 slides from Valero Energy's investor presentation, Aug 29, 2012
Slide 1: Investor Presentation August 2012
Investor Presentation August 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 1934
Slide 3: Valero Energy Today
Valero Energy Today World's largest independent refiner 16 refineries 3 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 sites Nearly 1,300 company operated in U.S. and Canada Announced inte
Slide 4: Valero's Geographically Diverse Operations
Valero's Geographically Diverse Operations 4 Shutdown in March 2012 235,000 bpd capacity Nelson Index of 8
Slide 5: Valero in the Atlantic Basin
Valero in the Atlantic Basin 5 5
Slide 6: Recently Announced Retail Separation
Recently Announced Retail Separation Board of directors has authorized management to pursue a separation of our retail business Reviewing several potential separation transactions including a cash- efficient distribution to shareholders Separation will create operational flexibility and unlock value
Slide 7: Valero's U.S. Retail Segment Network
Valero's U.S. Retail Segment Network 7 as of June 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 Valero Retail Segment EBITDA Number of Valero Retail Segment Sites Note: includes all Canadian motorist sites reported in Canadian results
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 capacity U.S. competitively exporting into growing and undersupplied markets Expect abundant and growing U.S. shale oil and Canadian production to provide feedstock cost advantage, which incre
Slide 10: 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 occur over next several years) Closures combined with poor reliability and low utilization in Latin American refineries and dema
Slide 11: Product Margins Responding to Atlantic Basin Closures
Product Margins Responding to Atlantic Basin Closures 11 With recent closures, Atlantic Basin product margins have increased from prior year levels Market focused on gasoline margin improvements, but more significant impact may be strong diesel support due to tightness in diesel balances U.S. produc
Slide 12: 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 demand Large quantities of U.S. diesel and gasoline exports to Latin America and diesel exports to Europe Strong international demand has been "pulling" products and
Slide 13: U.S. Refining Capacity Is Globally Competitive
U.S. Refining Capacity Is Globally Competitive 13 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 gas PADD 1 and Europe have lower utilization due to structural disadvantages o
Slide 14: Rapid Growth in U.S. Crude Supply
Rapid Growth in U.S. Crude Supply 14 Shale oil production growth and Mid-Continent heavy-up projects are rapidly increasing domestic light, sweet crude supplies This has created a bottleneck of crude oil that has exceeded the capacity of inland refineries and needs to move to markets outside of the
Slide 15: Rapid Growth in Logistics to U.S. Gulf Coast
Rapid Growth in Logistics to U.S. Gulf Coast 15 Logistics capacity to move inland crude from the Mid-Continent and Texas to the U.S. Gulf Coast is expected to expand quickly to debottleneck the inland markets Bakken logistics capacity is primarily unit-trains that can go to any site with unloading c
Slide 16: U.S. and Canadian Crude Supply Feedstock Cost Advantage
Expect U.S. and Canadian Crude Supply to Provide Feedstock Cost Advantage 16 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 2010 Expect all Gulf Coast light
Slide 17: 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 available Gulf Coast system including Memphis has the ability to add an additional 125 MBPD of domestic crude throughput by year-end In addition, eval
Slide 18: Lower-Cost Natural Gas Provides Structural Advantage to U.S. Refiners
Lower-Cost Natural Gas Provides Structural Advantage to U.S. Refiners 18 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 19: Distillates Have Higher Margins and Faster Growth
Distillates Have Higher Margins and Faster Growth World Product Demand Growth Source: Consultant, IEA, and Valero estimates 19 Distillate (diesel, kero, jet fuel) margins are significantly higher than gasoline Distillate demand growth rate is much higher than gasoline Europe short diesel, but long m
Slide 20: Valero Increasing Distillate Yields
Valero Increasing Distillate Yields 20 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 2013 Primary drive
Slide 21: 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 $1,510 $520 23% $634 St. Charles New Hydrocracker $1,525 $380 17% $487 Vale
Slide 22: Hydrocracker Projects Show Profits Under Various Price Sets
Valero's Hydrocracker Projects Show Profits Under Various Price Sets 22 Note: EBITDA = Pretax operating income + depreciation and amortization, excludes interest expense; see details in appendix million s
Slide 23: Valero's Contribution from Ethanol
Valero's Contribution from Ethanol 23 Large, efficient plants in great location have competitive advantage on costs Acquired competitive, world-class ethanol plants at an average of 35% of replacement cost In 3 years, cumulative EBITDA was $882 million, versus $760 million total purchase price for p
Slide 24: Improving Refinery Operations
Better Better Our goal is to be a 1st-quartile refiner Refining industry benchmark studies show our portfolio continues to improve Seven refineries currently operating in 1st quartile for mechanical availability, the most important Solomon metric Saw results from improvement initiatives in 2011 and
Slide 25: Expect Large Decline in Capital Spending
Expect Large Decline in Capital Spending After Completion of Key Economic Growth Projects 25 "Stay- in- business" spending 2012 capital high due to estimated completion of economic growth projects, mainly the hydrocrackers Expect a significant decline in capital spending after 2012 $1,715 $1,735 $1,
Slide 26: 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 2013 Returning cash to shareholders Increased quarterly dividend in 3Q12 to $0.175 per share Bought 6.4 million shares for $
Slide 27: Valero's Strategic Priorities
Valero's Strategic Priorities 27 Constant focus on safety, environmental, and regulatory compliance Maintain investment grade credit rating Continue improvement in refining portfolio performance to 1st quartile levels Continue cost reduction efforts Complete major, value-added capital projects Optim
Slide 28: We Believe Valero Is an Excellent Buy Today
We Believe Valero Is an Excellent Buy Today Seeking shareholder value creation via retail separation Well-positioned to benefit from changing market trends Atlantic Basin capacity closures have improved refining fundamentals Benefiting from strong export market Expect abundant U.S. shale and Canadia
Slide 29: Appendix
Vv | VALERO Appendix
Slide 30: 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 30 Expect margins to i
Slide 31: Attractive Acquisition Prices for Meraux and Pembroke
Attractive Acquisition Prices for Meraux and Pembroke 31 @ $30 per share
Slide 32: Valero Has Competitive, Low-Cost Refining Operations
Valero Has Competitive, Low-Cost Refining Operations 32 Refining Cash Operating Expenses less Natural Gas Usage ($/bbl) Source: Macquarie Capital
Slide 33: Port Arthur Hydrocracker Project Investment Highlights
Port Arthur Hydrocracker Project Investment Highlights Favorable economics driven by margin and volume gains Main 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 34: St. Charles Hydrocracker Project Investment Highlights
St. Charles Hydrocracker Project Investment Highlights Favorable economics driven by margin and volume gains Main unit is 60,000 barrels/day hydrocracker Creates high-value products from low-value feedstocks plus hydrogen sourced from relatively inexpensive natural gas Unit has volume expansion up t
Slide 35: Montreal Pipeline Project Investment Highlights
Montreal Pipeline Project Investment Highlights Favorable economics driven by reducing transportation costs and growing volumes New pipeline with 100,000 barrels/day of throughput capacity Planned closure of Shell Montreal refinery allows Valero to place additional products into Montreal and Ontario
Slide 36: Diamond Green Diesel Joint Venture Investment Highlights
Diamond Green Diesel Joint Venture Investment Highlights Building a 9,300 BPD renewable diesel plant adjacent to Valero's St. Charles refinery 50/50 JV project with Darling Int'l, a leading gatherer of used cooking oils and animal fat Uses refinery technology to produce high-quality diesel from low-
Slide 37: Project Price Set Assumptions
Project Price Set Assumptions 37 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 38: Project Price Sensitivities
Project Price Sensitivities 38 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 39: 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 40: 60,000 BPD Hydrocracker Model Estimates Under Various Price Sets
60,000 BPD Hydrocracker Model Estimates Under Various Price Sets 40 Key Drivers and Prices 2008 Prices 2008 Prices 2009 Prices 2009 Prices 2010 Prices 2010 Prices 2011 Prices 2011 Prices 2Q12 Prices 2Q12 Prices LLS /bbl $102.07 $62.75 $81.64 $111.09 $108.64 LLS - HSVGO /bbl $2.03 -$2.86 -$2.72 -$5.7
Slide 41: Keystone XL Pipeline Presidential Permit Delay
Keystone XL Pipeline Keystone XL Pipeline Presidential Permit Delay TransCanada 1,661 mile pipeline that will bring 700,000 bpd of Canadian oil into U.S. markets Expected to create 20,000 U.S. manufacturing and construction jobs; $5.2 billion tax revenue in Keystone corridor states over 20 years Can
Slide 42: U.S. Oil and Gas Supplies Increasing Rapidly
U.S. Oil and Gas Supplies Increasing Rapidly Sources of Supply for U.S. Total Petroleum Demand Sources of Supply for U.S. Natural Gas Demand Source: EIA Source: EIA MMBPD BCFD 42
Slide 43: Continued Global Demand Growth Important to Refining Margins
Continued Global Demand Growth Important to Refining Margins 43 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 market
Slide 44: World Demand - Diesel and Gasoline
World Demand MMBPD Global diesel demand, which is already much larger than gasoline globally, expected to grow nearly 3 times as fast as gasoline over the next decade U.S. and European demand remains weak Developing world is leading demand growth Histor y Foreca st Sources: International Energy Agen
Slide 45: World Refinery Capacity Growth
World Refinery Capacity Growth Significant new global refining additions seen in the next several years Mainly new plants in Asia and the Middle East Some investment in Latin America New capacity announcements from Brazil and Mexico will likely be much smaller and much later than originally announce
Slide 46: 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 1The Petit Couronne refinery has reduced capacity by 60 MBPD with Shell to s
Slide 47: Global Refining Capacity For Sale or Under Strategic Review
Global Refining Capacity For Sale or Under Strategic Review 47 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 48: LLS Discount to Brent Improves Gulf Coast Competitiveness
LLS Discount to Brent Improves Gulf Coast Competitiveness 48 Source: Argus 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 cracks versus products LLS recently
Slide 49: Low-Cost U.S. Natural Gas Provides Competitive Advantage
Low-Cost U.S. Natural Gas Provides Competitive Advantage 49 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 future VLO refinery oper
Slide 50: Gasoline Fundamentals
Gasoline Fundamentals 50 USGC LLS Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) Source: Argus; 2012 data through August 24 Source: DOE weekly data; 2012 data through week ending August 17 Source: DOE weekly data; 2012 data through week ending August 17 U.S. Gasoline Days of Supply U.S. Net I
Slide 51: Distillate Fundamentals
Distillate Fundamentals 51 USGC LLS On-road Diesel Crack (per bbl) U.S. Distillate Demand (mmbpd) Source: Argus; 2012 data through August 24 Source: DOE weekly data; 2012 data through week ending August 17 Source: DOE weekly data; 2012 data through week ending August 17 Source: DOE monthly data; 201
Slide 52: U.S. Transport Indicators: Trucking Indicators
U.S. Transport Indicators: Trucking Indicators 52 ATA data through Apr-12, TSI data through Apr-12
Slide 53: U.S. Transport Indicators
U.S. Transport Indicators 53 Latest data Week 33, 2012
Slide 54: Mexico Statistics
Mexico Statistics Diesel Gross Imports (MBPD) Source: PEMEX, latest data June-12 Gasoline Gross Imports (MBPD) Source: PEMEX, latest data June-12 Crude Unit Throughput (MBPD) Crude Unit Utilization 54 Source: Mexico Secretary of Energy, latest data June-12 Source: Mexico Secretary of Energy, latest
Slide 55: Venezuelan Exports to the U.S.
Venezuelan Exports to the U.S. 55 Source: EIA, May 2012
Slide 56: Competitively Exporting into Growing Markets
Competitively Exporting into Growing Markets Source: DOE Petroleum Supply Monthly with data as of May 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 closures, Western
Slide 57: U.S. Shifted to Net Exporter
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 May 2012 MBPD Diesel net exports continue to rise significantly, with U.S. refiners sending a net of 840 MBPD to other countries in 2
Slide 58: U.S. Gasoline Exports by Destination
U.S. Gasoline Exports by Destination Gasoline exports remain at strong levels due to the solid 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 Monthly with da
Slide 59: 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 May 2012. 4 Week Average estimate from Weekly P
Slide 60: 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 May 2012. 4 Week Average estimate from Weekly Petroleum Statistics Report La
Slide 61: U.S. Diesel Imports by Source
U.S. Diesel Imports by Source Diesel imports have fallen slightly in 2012 due to less volume from Latin America Source: DOE Petroleum Supply Monthly with data as of May 2012. 4 Week Average estimate from Weekly Petroleum Statistics Report 61 MBPD 12 Month Moving Average
Slide 62: 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 thereafter Utica (Ohio) is potentially a large play, but is not as
Slide 63: Ethanol and Retail Reconciliation of Operating Income to EBITDA
Ethanol and Retail Reconciliation of Operating Income to EBITDA Ethanol (millions) 2Q09 - 4Q09 2010 2011 1Q12 2Q12 Operating Income $165 $209 $396 $9 $5 + Depreciation and amortization expense $18 $36 $39 $10 $9 = EBITDA $183 $245 $435 $19 $14 63 Retail (millions) 2005 2006 2007 2008 2009 2010 2011
Slide 64: Most Crude Oil Discounts Improving
Most Crude Oil Discounts Improving 64 $/barrel Source: Argus; 2012 year-to-date through August 24; LLS prices are roll adjusted
Slide 65: Regional Refinery Indicator Margins
Regional Refinery Indicator Margins 65 Source: Argus; 2012 year-to-date through August 24; see Appendix for details on refinery configuration assumptions
Slide 66: 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% + (Grou
Slide 67: Investor Relations Contacts
Investor Relations Contacts For more information, please contact: Ashley Smith, CFA, CPA Vice President, Investor Relations 210.345.2744 ashley.smith@valero.com Matthew Jackson Investor Relations Specialist 210.345.2564 matthew.jackson@valero.com 67