Valero Energy Corporation · NYSE:VLO
Valero Energy — Investor Presentation (January 2013)
65 slides from Valero Energy's investor presentation, Jan 9, 2013
Slide 1: Investor Presentation January 2013
Investor Presentation January 2013
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 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 1,900 sites in U.S. and Canada Retail segment Announced
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 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 Gulf Coast 1,545 1,
Slide 5: Update on Potential Retail Separation
(CHART) Update on Potential Retail Separation Investors and analysts have treated Valero mainly as a refiner, ignoring higher potential value of retail segment as shown in chart below Making progress on our plan to separate our retail business and unlock value for shareholders Submitted a request fo
Slide 6: Valero's Retail Segment Network
Valero's Retail Segment Network 6 U.S. U.S. Canada Canada Total Total Owned 828 81% 296 35% 1,124 60% Leased land, and/or improvements 199 19% 474 56% 673 36% Cardlock 0 0% 79 9% 79 4% Total 1,027 100% 849 100% 1,876 100% As of September 30, 2012
Slide 7: Valero's Retail Segment Performance
Valero's Retail Segment Performance 7 Retail achieved record operating income in 2011, and highest quarter on record in 2Q12. Margins started off well in 4Q12 (CHART) Valero Retail Segment EBITDA (CHART) Number of Valero Retail Segment Sites Note: includes all Canadian motorist and cardlock sites re
Slide 8: 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 Low-cost U.S
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 Europe; expect more will occur Combined with poor reliability and low utilization in Latin American refineries and demand growth in Latin America
Slide 10: Product Margins Responding to Atlantic Basin Closures
(CHART) (CHART) Product Margins Responding to Atlantic Basin Closures 10 With recent closures, Atlantic Basin product margins have increased from prior year levels Market focused on gasoline margin improvements earlier in 2012, but more significant impact may be strong diesel support due to tightnes
Slide 11: 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 12: U.S. Refining Capacity Is Globally Competitive
U.S. Refining Capacity Is Globally Competitive 12 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 13: Rapid Growth in U.S. Crude Supply
Rapid Growth in U.S. Crude Supply 13 (CHART) 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
Slide 14: Rapid Growth in Logistics to U.S. Gulf Coast
Rapid Growth in Logistics to U.S. Gulf Coast 14 (CHART) Logistics capacity to move inland crude from the Mid-Continent and Texas to the U.S. Gulf Coast is expanding quickly to debottleneck the inland markets Bakken logistics capacity is primarily unit-trains that can go to any site with unloading ca
Slide 15: U.S. and Canadian Crude Supply Provide Feedstock Cost Advantage
(CHART) Expect U.S. and Canadian Crude Supply to Provide Feedstock Cost Advantage 15 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 Coa
Slide 16: LLS Discount to Brent Improves Gulf Coast Competitiveness
LLS Discount to Brent Improves Gulf Coast Competitiveness 16 (CHART) Source: Argus, 2012 data through 12-31-12 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
Slide 17: Valero's Ability to Run Discounted Light Crude
Valero has increased the amount of domestic light crudes processed as additional volumes have become available Valero has ceased all imports of foreign light crudes for its Gulf Coast and Memphis refineries Valero is evaluating potential projects to further increase its domestic light crude processi
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 19 Distillate (diesel, kero, jet fuel) margins are significantly higher than gasoline Distillate demand growth rate is much higher than gasoline Europe continues to be short diesel, but long marginal refining capacity and processing expensive crude o
Slide 20: Successfully Completed Port Arthur Hydrocracker
57,000 BPD Port Arthur hydrocracker complete and operating above expectations Higher diesel quality with cetane numbers in the low 60s versus expected low 50s Exceeds European specifications by over 10 cetane numbers Provides blending opportunity to upgrade margin on lower-quality distillate product
Slide 21: 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 21 Note: EBITDA = Pretax operating income + depreciation and amortization, excludes interest expense; see details in appendix millions
Slide 22: Valero Increasing Distillate Yields
Valero Increasing Distillate Yields 22 (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% in 2010 to 39% in 2013 Prima
Slide 23: Improving Refinery Operations
Better Better Our goal is to be a 1st-quartile refiner Refining industry benchmark studies show our portfolio continues to improve Six refineries currently operating in 1st quartile for mechanical availability, the most important Solomon metric Saw results from improvement initiatives in 2011 and YT
Slide 24: Expect Large Decline in Capital Spending After Key Growth Projects
Expect Large Decline in Capital Spending After Completion of Key Economic Growth Projects 24 "Stay- in- business" spending 2012 capital high due to spending on growth projects, mainly on hydrocrackers Expect a significant decline in capital spending after 2012 2013 Retail (U.S. and Canada) capital e
Slide 25: 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 Tripled quarterly dividend to $0.15 per share in 3Q11 and increased it again in 3Q12 to
Slide 26: Valero's Strategic Priorities
Valero's Strategic Priorities 26 Constant focus on safety, environmental, and regulatory compliance Maintain investment grade credit rating Continue improvement in refining portfolio performance to 1st quartile levels Complete major, value-added capital projects Optimize portfolio - continue "high-g
Slide 27: 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 28: Appendix
AZ Pe VALERO Appendix
Slide 29: 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 29 Expect margins to i
Slide 30: Attractive Acquisition Prices for Meraux and Pembroke
Attractive Acquisition Prices for Meraux and Pembroke 30 (CHART) @ $32 per share
Slide 31: Refinery Project Estimates
Refinery Project Estimated Total Investment (millions) Estimated 2013 Spend (millions) Estimated Completion Date Estimated Key Economic Benefit Key Drivers/Additional Comments McKee 25 MBPD Crude Unit Project $130 $50 2Q14 $9 mm per year of EBITDA for every $1/bbl of Brent - WTI Brent - WTI differen
Slide 32: Refinery Project Estimates: Logistics and Other Projects
Refinery Project Estimated Total Investment (millions) Estimated 2013 Spend (millions) Key Driver/Additional Comments Various locations Logistics Improvements $365 $205 Additional logistics facilities focused on lowering feedstock costs, increasing product marketing flexibility. Projects include doc
Slide 33: Port Arthur Hydrocracker Project Investment Highlights
Port Arthur Hydrocracker Project Investment Highlights Favorable economics driven by margin and volume gains Main unit is 57,000 barrels/day hydrocracker (rolling 12-month average per permit) Creates high-value products from low- value feedstocks plus hydrogen sourced from relatively inexpensive nat
Slide 34: St. Charles Hydrocracker Project Investment Highlights
St. Charles Hydrocracker Project Investment Highlights Favorable economics driven by margin and volume gains Main unit is 60,000 barrels/day hydrocracker Creates high-value products from low- value feedstocks plus hydrogen sourced from relatively inexpensive natural gas Unit has volume expansion up
Slide 35: Montreal Pipeline Project Investment Highlights
Montreal Pipeline Project Investment Highlights Favorable economics driven by reducing transportation costs and growing volumes New pipeline with 100,000 barrels/day of throughput capacity Planned closure of Shell Montreal refinery allows Valero to place additional products into Montreal and Ontario
Slide 36: Diamond Green Diesel Joint Venture Investment Highlights
Diamond Green Diesel Joint Venture Investment Highlights Building a 9,300 BPD renewable diesel plant adjacent to Valero's St. Charles refinery 50/50 JV project with Darling Int'l, a leading gatherer of used cooking oils and animal fat Uses refinery technology to produce high- quality diesel from low
Slide 37: Project Price Set Assumptions
Project Price Set Assumptions 37 Commodity Base Case ($/barrel) 2008 ($/barrel) 2009 ($/barrel) 2010 ($/barrel) 2011 ($/barrel) 2012 ($/barrel) LLS Crude oil1 85.00 102.07 62.75 81.64 111.09 112.20 LLS - USGC HS Gas Oil -3.45 2.03 -2.86 -2.72 -5.75 -7.59 USGC Gas Crack 6.00 2.47 6.91 5.32 5.11 4.66
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 2012 Prices 2012 Prices LLS /bbl $102.07 $62.75 $81.64 $111.09 $112.20 LLS - HSVGO /bbl $2.03 -$2.86 -$2.72 -$5.7
Slide 41: Keystone XL Pipeline
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. 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 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 1The Petit Couronne refinery has reduced capacity by 60 MBPD with Shell to s
Slide 44: Global Refining Capacity For Sale or Under Strategic Review
Global Refining Capacity For Sale or Under Strategic Review 44 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 45: Valero in the Atlantic Basin
Valero in the Atlantic Basin 45 45
Slide 46: Continued Global Demand Growth Important to Refining Margins
(CHART) Continued Global Demand Growth Important to Refining Margins 46 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 47: World Refinery Capacity Growth
(CHART) 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, Mexico, and Columbia will likely be much smaller and much later than
Slide 48: Low-Cost U.S. Natural Gas Provides Competitive Advantage
Low-Cost U.S. Natural Gas Provides Competitive Advantage 48 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 49: Gasoline Fundamentals
(CHART) Gasoline Fundamentals 49 (CHART) USGC LLS Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) (CHART) Source: Argus; 2012 data through December 31 Source: DOE weekly data; 2012 data through week ending December 28 Source: DOE weekly data; 2012 data through week ending December 28 U.S. Gaso
Slide 50: Distillate Fundamentals
Distillate Fundamentals 50 50 (CHART) USGC LLS On-road Diesel Crack (per bbl) U.S. Distillate Demand (mmbpd) (CHART) (CHART) Source: Argus; 2012 data through December 31 Source: DOE weekly data; 2012 data through week ending December 28 Source: DOE weekly data; 2012 data through week ending December
Slide 51: U.S. Transport Indicators: Trucking Indicators
U.S. Transport Indicators: Trucking Indicators 51 ATA data through Oct-12, TSI data through Oct-12
Slide 52: U.S. Transport Indicators
U.S. Transport Indicators 52 Latest data Week 47, 2012 Latest data Week 47, 2012 (CHART) (CHART) (CHART)
Slide 53: Mexico Statistics
(CHART) (CHART) Mexico Statistics Diesel Gross Imports (MBPD) Source: PEMEX, latest data November 2012 Gasoline Gross Imports (MBPD) Source: PEMEX, latest data November 2012 (CHART) Crude Unit Throughput (MBPD) Crude Unit Utilization (CHART) 53 Source: Mexico Secretary of Energy, latest data Novembe
Slide 54: Venezuelan Exports to the U.S.
Venezuelan Exports to the U.S. 54 (CHART) Source: EIA, October 2012
Slide 55: Competitively Exporting into Growing Markets
(CHART) Competitively Exporting into Growing Markets Source: DOE Petroleum Supply Monthly with data as of October 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 closu
Slide 56: 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 data as of October 2012 MBPD Diesel net exports continue to rise significantly, with U.S. refiners sending a net of 906 MBPD to other co
Slide 57: U.S. Gasoline Exports by Destination
(CHART) U.S. Gasoline Exports by Destination Gasoline exports remain at elevated levels due to the strong 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 Mont
Slide 58: 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 October2012. 4 Week Average estimate from Weekl
Slide 59: 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 October 2012. 4 Week Average estimate from Weekly Petroleum Statistics Repo
Slide 60: U.S. Diesel Imports by Source
U.S. Diesel Imports by Source Diesel imports continue to fall in 2012 due to less volume from Latin America Source: DOE Petroleum Supply Monthly with data as of October 2012. 4 Week Average estimate from Weekly Petroleum Statistics Report 60 (CHART) MBPD 12 Month Moving Average
Slide 61: Ethanol and Retail Reconciliation of Operating Income to EBITDA
Ethanol and Retail Reconciliation of Operating Income to EBITDA Income to EBITDA Income to EBITDA 61 Retail (millions) 2005 2006 2007 2008 2009 2010 2011 3Q12 LTM U.S. Operating Income $81 $113 $154 $260 $170 $200 $213 $210 + U.S. depreciation and amortization expense $60 $60 $59 $70 $70 $73 $77 $77
Slide 62: Most Crude Oil Discounts Improving
(CHART) Most Crude Oil Discounts Improving 62 $/barrel Source: Argus; 2012 year-to-date through December 31; LLS prices are roll adjusted
Slide 63: Regional Refinery Indicator Margins
Regional Refinery Indicator Margins 63 Source: Argus; 2012 year-to-date through December 31; see Appendix for details on refinery configuration assumptions
Slide 64: 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 65: 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 65