Valero Energy Corporation · NYSE:VLO
Valero Energy — Investor Presentation (August 2011)
57 slides from Valero Energy's investor presentation, Aug 10, 2011
Slide 1: Investor Presentation August 2011
Investor Presentation August 2011
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 refiner15 refineries including Pembroke2.9 million barrels per day (BPD) of throughput capacity, with average capacity of 194,000 BPDCounting the two plants in Corpus Christi as one refinery, would average 207,000 BPDApproximately 6,800 branded mark
Slide 4: Refining Industry Discussion
Refining Industry Discussion Three main themes in refining this yearWTI spread to LLS or BrentRefined product exportsHeavy sour crude discountsRefining business todayLocation is most importantComplexity and size are still importantMust Execute, Execute, Execute! 4
Slide 5: Valero's Geographically Diverse Operations
Valero's Geographically Diverse Operations 5 Refinery Capacities (000 bpd) Capacities (000 bpd) Nelson Index Refinery Total Through-put Crude Oil Nelson Index Aruba 235 235 8.0 Ardmore 90 86 12.0 Benicia 170 145 15.0 Corpus Chris. 325 205 20.6 Houston 160 90 15.1 McKee 170 168 9.5 Memphis 195 180 7.
Slide 6: Pembroke Acquisition: High-Quality Assets at Attractive Price
Pembroke Acquisition: High-Quality Assets at Attractive Price Valero acquired Chevron's Pembroke refinery, marketing and logistics assets in the United Kingdom and Ireland for $730 millionWorking capital and inventories with estimated value of $1.1 billionClosed on August 1st270,000 barrels-per-day
Slide 7: Pembroke Refinery
Pembroke Refinery Pembroke Refinery 7
Slide 8: Excellent Location, Deep-Water Port, and Tankage
Excellent Location, Deep-Water Port, and Tankage Deep-water port and docks can handle VLCCs, providing significant flexibilityCrude is delivered by ship directly without reliance on third-party terminal or pipelinesAdvantaged location to obtain growing light crude volumes from Africa and the Caspian
Slide 9: Pembroke One of Largest, Most Complex Refineries in Western Europe
Pembroke One of Largest, Most Complex Refineries in Western Europe Source: PIRA, All data based on firm capacities based on period ending 2Q 2011 9
Slide 10: U.K. and Ireland Logistics Assets
Manchester Airport(50% Into - Plane) Newcastle UK Ireland Manchester Terminal (33%) Dublin Terminal (50%) Dublin Airport (50%) Galway Terminal (50%) Shannon Airport (Fuel) New Ross (50%) Buncefield Tank Farm Seisdon Nottingham London East Midlands Airport (100%) Kingsbury Terminal (100%) HOSL Termin
Slide 11: Branded Sites Focused in Areas of Supply and Cost Advantage
Branded Sites Focused in Areas of Supply and Cost Advantage Approximately 1,000 branded wholesale sites plus 35 company-owned sitesLargest branded dealer site network in the U.K. and the second largest network in IrelandBrand is Texaco, in use in the U.K. since 191620-year agreement to use the brand
Slide 12: Pembroke Enhances Valero's Margin Optimization Strategy in the Atlantic Basin
Pembroke Enhances Valero's Margin Optimization Strategy in the Atlantic Basin 12 Quebec U.S. Gulf Coast Aruba Pembroke
Slide 13: Continued Global Demand Growth Important to Refining Margins
(CHART) Continued Global Demand Growth Important to Refining Margins Refining is a global business - global demand growth impacts refiners in every marketStrong growth in emerging markets is leading the surge in global petroleum demand2010 - 2012 demand estimated at very high level like 2003 - 2005,
Slide 14: Simple Refining Margins Bottomed in 2009, Recovery Started in 2010
Simple Refining Margins Bottomed in 2009, Recovery Started in 2010 14 Gulf Coast LLS Margins Margins improving from strong global demand, particularly in emerging markets, and capacity rationalization per bbl Source: Argus; 2011 year-to-date through August 2; LLS prices are roll adjusted
Slide 15: Discounted WTI Is Another Discounted Crude Oil for Valero to Process
(CHART) Discounted WTI Is Another Discounted Crude Oil for Valero to Process 15 $/barrel Source: Argus; 2011 year-to-date through August 2; LLS prices are roll adjusted Heavy sour and WTI discounts have been strong70% of Valero's capacity can process feedstocks that are discounted versus waterborne
Slide 16: Key Drivers of Large Feedstock Discounts
Key Drivers of Large Feedstock Discounts 16 Light-sweet waterborne crude oils are the marginal feedstock when demand is strongExamples: LLS, Brent, among othersLibyan outage plus North Sea maintenance has tightened light-sweet marketLower-quality and logistically constrained crude oils seeing wide d
Slide 17: Strong Rebound in Refinery Margins in Most Regions
Strong Rebound in Refinery Margins in Most Regions Most Regions Most Regions 17 Source: Argus; 2011 year-to-date through August 3; see Appendix for details on refinery configuration assumptions
Slide 18: Valero's Gulf Coast System Well-Positioned for Global Export Opportunities
Valero's Gulf Coast System Well-Positioned for Global Export Opportunities 18 Our large, complex refineries on Gulf Coast are competitive due to low-cost operations and feedstocksStructural supply-demand imbalance in Latin America and diesel-shortage in Europe provide higher-margin export opportunit
Slide 19: Getting Results from Self-Help Initiatives
Getting Results from Self-Help Initiatives Achieved significant cost savingsAnnual general and administrative costs have fallen about $100 million since 2006Refinery cash operating expenses have fallen from a 2008 high of $4.41 per barrel to a recent four-quarter average of $3.69 per barrel, the low
Slide 20: Refinery Yield Improvements Contribute to Higher Margin Capture
Refinery Yield Improvements Contribute to Higher Margin Capture 20 Note: Does not include Aruba, Paulsboro or Delaware City refineries Higher-value products and liquid volume are very important when crude oil prices are highLiquid products generally have a much higher value than solid products like
Slide 21: Valero Increasing Use of Lower-Cost Crude Oils
Valero Increasing Use of Lower-Cost Crude Oils Constantly evaluating opportunities to process lower-cost crude oilsIn 2010, we ran 86 different crude oilsRapid growth in crude oil from Eagle Ford shale, prices similarly to WTI Recent discount of $18 to 23 per bbl versus light-sweet alternativesTwo o
Slide 22: Financial Strength Provides Opportunity for Growth
(CHART) (CHART) Financial Strength Provides Opportunity for Growth Investment grade credit ratingPaid off $718 million of debt in 1H11Ended 2Q11 with $4.1 billion of cash and $4.1 billion of additional liquidityUsed $1.8 billion of cash for August 1 closing of Pembroke acquisitionNet debt-to-cap rat
Slide 23: Capital Program Focused on Completion of Large Economic Growth Projects
Capital Program Focused on Completion of Large Economic Growth Projects 23 "Stay-in- business" spending Preliminary 2012 capital spending is expected to be similar to 2011 as we complete our large economic growth projects
Slide 24: Economic Projects Offer Significant Earnings Growth Potential
Economic Projects Offer Significant Earnings Growth Potential Potential for significant earnings power and project returnsProjects developed based on our "bullish crude, bearish natural gas" price outlook 24 1D&A = depreciation and amortization expense; 2estimated IRR is unlevered and could improve
Slide 25: Valero's Strategic Priorities
Valero's Strategic Priorities 25 Manage overhead and maintain investment grade credit ratingImprove margin capture, operating costs, and reliability at refineriesComplete major, value-added capital projects at key refineriesOptimize portfolio - continue "high-grading" strategy of the last several ye
Slide 26: Appendix
Wy - VALERO Appendix
Slide 27: Why Invest in Valero Today?
Why Invest in Valero Today? 27
Slide 28: Valero's Retail Business Continues to Perform Well
Valero's Retail Business Continues to Perform Well (CHART) Retail Operating Income Per Store (Trailing 4Q Avg.)(U.S. and Canada) 28 Retail achieved excellent per store resultsImprovement in retail earnings with smaller asset base = better returnsSince 2005, more nearly tripled per store operating in
Slide 29: Strong Contribution from Ethanol
Strong Contribution from Ethanol 29 Large, efficient plants in great location have competitive advantage on costsAcquired world-class ethanol plants at an average of 35% of replacement costIn 2 years, cumulative operating income less depr. & amort. expense (EBITDA) was $535 million, or 71% of ethano
Slide 30: Impact of Cost Savings Programs
Impact of Cost Savings Programs Impact of Cost Savings Programs 30 Ongoing cost savings programs have contributed to Valero's competitiveness and improved financial performance millions (CHART)
Slide 31: Valero Has Competitive, Low-Cost Refining Operations
Valero Has Competitive, Low-Cost Refining Operations 31 Refining Cash Operating Expenses less Natural Gas Usage ($/bbl) Source: Macquarie Capital (CHART)
Slide 32: Valero Has High Conversion Refining System
Valero Has High Conversion Refining System Valero Has High Conversion Refining System 32 Note: CDU = crude distillation unit; conversion capacity is the sum of each company's FCC, hydrocracking, and coking capacity Source: PIRA Energy Group 08/05/11 (CHART) We believe size and conversion ratio matte
Slide 33: 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 34: 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 35: Hydrogen Plant Projects
Hydrogen Plant Projects 35 Summary of Project Status and Economics1 Summary of Project Status and Economics1 Summary of Project Status and Economics1 Estimated completion date 1Q12 1Q12 Estimated total investment (mil.) $180 $180 Cumulative spend thru 1Q11 (mil.) $40 $40 Incremental Operating Income
Slide 36: Port Arthur Hydrocracker Project
Port Arthur Hydrocracker Project Investment HighlightsFavorable economics driven by margin and volume gainsMain unit is 50,000 barrels/day hydrocracker plus facilities to process over 150,000 barrels/day of high-acid, heavy sour Canadian crudeCreates high-value products from low- value feedstocks pl
Slide 37: Montreal Pipeline Project
Montreal Pipeline Project Investment HighlightsFavorable economics driven by reducing transportation costs and growing volumesNew pipeline with 100,000 barrels/day of throughput capacityPlanned closure of Shell Montreal refinery allows Valero to place additional products into Montreal and Ontario ma
Slide 38: St. Charles Hydrocracker Project
St. Charles Hydrocracker Project Investment HighlightsFavorable economics driven by margin and volume gainsMain unit is 50,000 barrels/day hydrocrackerCreates high-value products from low- value feedstocks plus hydrogen sourced from relatively inexpensive natural gasUnit has volume expansion of 25%-
Slide 39: Project Price Set Assumptions
Project Price Set Assumptions 39 Commodity Base Case($/barrel) 2011 Fwd Curve as of 8/3/11 ($/barrel) WTI 85.00 95.87 WTI - USGC HS Gas Oil -3.45 -19.73 USGC Gas Crack 6.00 24.62 USGC ULSD Crack 11.00 26.61 Natural Gas, $/MMBTU (HHV) 5.00 4.26 Prices shown below are for illustrating a potential esti
Slide 40: Project Price Sensitivities
Project Price Sensitivities 40 Operating Income before D&A1 Sensitivities (Delta $ millions/year) Port Arthur HCU St. Charles HCU Memphis & McKee Hydrogen Plants Memphis FCC St. Charles FCC Montreal Products Pipeline WTI, + $1/BBL 3.5 3 2.5 0.4 1.2 N/A WTI - USGC HS Gas Oil, + $1/BBL 14.1 14.1 N/A N
Slide 41: Global CDU Capacity and Additions
41 Source: Valero and Consultant Estimates MMBPD (CHART) Global CDU Capacity and Additions Gross Adds 1.7 MMBPDClosures 0.7 MMBPD Gross Adds 1.8 MMBPDClosures 0.1 MMBPD Gross Adds 1.6 MMBPDClosures 0.5 MMBPD
Slide 42: Continued Global Demand Growth Important to Refining Margins
(CHART) (CHART) Continued Global Demand Growth Important to Refining Margins 42 Source: Consultant and Valero estimates Source: Consultant and Valero estimates MMBPD MMBPD Forecast Forecast
Slide 43: Rationalization of Industry Capacity Continues
(CHART) (CHART) Rationalization of Industry Capacity Continues Source: Valero EnergyNote: 2011 and 2012 estimates include announced future capacity closures MBPD 43 Source: Valero Energy MBPD As we said previously, refining capacity continues to shut down in the industry, particularly marginal plant
Slide 44: Global Refining Capacity Rationalization
*Partial closure of refinery captured in capacityNote: 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 2008Limited refinery closures, began
Slide 45: Global Refining Capacity For Sale or Under Strategic Review
Global Refining Capacity For Sale or Under Strategic Review 45 Location Owner CDU Capacity (MBPD) Gothenburg, Sweden Shell 80 Kapolei, HI Chevron 54 Meraux, LA Murphy 125 Superior, WI Murphy 35 Milford Haven, UK Murphy 108 Whitegate, Ireland ConocoPhillips 70 Mazeikai, Lithuania PKN 190 Various Japa
Slide 46: Global Spare Refining Capacity
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 Estimated global spare refining capacity fell from 7 million BPD of at end of 2009 to 5.7 million BPD at end of 2010(CHART) MMBPD Margin/bbl Gol
Slide 47: 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 47 Favorable margin outl
Slide 48: 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 prescribedCurrent corn ethanol capacity is approximately 13.8 BGPY and the 2015 RFS for corn-based ethanol is 15 BGPY Source: Consultant and Valer
Slide 49: World Demand Favors Diesel
World Demand Favors Diesel World Demand Favors Diesel World Demand MMBPD Diesel demand is expected to recover past prior highs and grow rapidlyDiesel demand has grown to become much larger than gasoline globallyGrowing global diesel demand is an export opportunity for U.S. refineries History Forecas
Slide 50: Gasoline Fundamentals
Gasoline Fundamentals 50 50 (CHART) USGC LLS Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) (CHART) Source: Argus; 2011 data through July 29 Source: DOE weekly data; 2011 data through week ending July 29 Source: DOE weekly data; 2011 data through week ending July 29 Source: DOE weekly data; 2
Slide 51: Distillate Fundamentals
Distillate Fundamentals 51 51 (CHART) USGC LLS On-road Diesel Crack (per bbl) U.S. Distillate Demand (mmbpd) (CHART) (CHART) Source: Argus; 2011 data through July 29 Source: DOE weekly data; 2011 data through week ending July 29 Source: DOE weekly data; 2011 data through week ending July 29 Source:
Slide 52: U.S. Transport Indicators: Trucking Indicators
U.S. Transport Indicators: Trucking Indicators 52
Slide 53: U.S. Transport Indicators
(CHART) U.S. Transport Indicators 53 53 Latest data 23 W 2011
Slide 54: Mexico Statistics
(CHART) (CHART) Mexico Statistics Diesel Net Imports (MBPD) Source: PEMEX, latest data Apr-11 Gasoline Net Imports (MBPD) Source: PEMEX, latest data Apr-11 (CHART) Crude Unit Throughput (MBPD) Crude Unit Utilization (CHART) 54 Source: PEMEX, latest data Apr-11 Source: PEMEX, latest data Apr-11
Slide 55: Venezuelan Exports to the U.S.
Venezuelan Exports to the U.S. 55 (CHART) Source: EIA, May 2011
Slide 56: 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 57: 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 57