Valero Energy Corporation · NYSE:VLO
Valero Energy — Investor Presentation (October 2018)
43 slides from Valero Energy's investor presentation, Oct 5, 2018
Slide 1: Investor Presentation October 2018
Investor Presentation October 2018 Exhibit 99.01
Slide 2: Disclaimers
Disclaimers This presentation contains forward-looking statements made by Valero Energy Corporation (“VLO” or “Valero”) and Valero Energy Partners LP (“VLP” or the “Partnership”) within the meaning of federal securities laws. These statements discuss future expectations, contain projections of resul
Slide 3: Who We Are
Who We Are (NYSE: VLO) Refining Premier assets and low cost operations 15 refineries, 3.1 million barrels per day (BPD) of high-complexity capacity Fuels marketed and distributed through bulk and wholesale channels General partner and majority owner of Valero Energy Partners LP Operator and 50% owne
Slide 4: Strong Presence in Advantaged U.S. Gulf Coast and Mid-Continent
Strong Presence in Advantaged U.S. Gulf Coast and Mid-Continent Majority of refineries designated as VPP Star Sites by OSHA, recognizing exemplary occupational safety and health programs. See slide 32 for capacities.
Slide 5: Favorable Macro Environment Expected
FEEDSTOCK SUPPLY Abundant global supply of crude oil and natural gas Growing crude production in North America and easing of OPEC production cuts Expanding North American logistics capacity continues to add efficiency to crude oil movements Favorable Macro Environment Expected PRODUCT DEMAND See sli
Slide 6: Our Strategy for Value Creation
Our Strategy for Value Creation Maintain manufacturing excellence: safe, reliable, environmentally responsible operations Focus on earnings growth: market expansion, margin improvement, operating cost control Disciplined capital allocation: aspire to deliver distinctive financial results and returns
Slide 7: Environmental, Social, and Governance
Environmental, Social, and Governance Valero has long been committed to safe, reliable, and environmentally responsible operations Our Board of Directors and management are engaged in developing a strategy that addresses climate-related risks and opportunities while meeting strong global demand for
Slide 8: Safety and Reliability are Imperative for Profitability
Safety and Reliability are Imperative for Profitability See slide 23 for notes regarding this slide. VLO’s injury and process safety event rates in 2017 were the lowest in its history. 1st Quartile 2nd Quartile 3rd Quartile 4th Quartile
Slide 9: Investments in Reliability Have Contributed to Manufacturing Excellence
Investments in Reliability Have Contributed to Manufacturing Excellence See slide 23 for notes regarding this slide. Improved process safety and environmental performance Increased refinery availability and enabled higher margin capture Driven VLO to be one of the lowest cost producers among our pee
Slide 10: Advantaged Portfolio in U.S. Gulf Coast and Mid-Continent
Advantaged Portfolio in U.S. Gulf Coast and Mid-Continent See slide 23 for notes and slide 32 for capacity and Nelson complexity by refinery. (1) Feedstock ranges represent average quarterly minimums and maximums. Ranges for monthly averages are wider. Valero’s refineries have flexibility to process
Slide 11: Well Positioned for IMO 2020, with Peer-Leading Distillate Yield
Well Positioned for IMO 2020, with Peer-Leading Distillate Yield(1) Expected Impacts to Products Demand and Margins Sulfur content of bunker fuel decreases from 3.5 wt% to 0.5 wt% on Jan 1, 2020 Global residual fuel oil market is approximately 7.5 MMBPD(3), comprised of 3.5 MMBPD bunker fuel and 4 M
Slide 12: Our Portfolio Facilitates Global Optimization of Product Exports
Our Portfolio Facilitates Global Optimization of Product Exports See slide 23 for notes regarding this slide. Distillate volumes include diesel, jet fuel, and ULSK. Distillate Gasoline
Slide 13: Investing to Grow Export and Wholesale Fuels Volumes in Latin America
Investing to Grow Export and Wholesale Fuels Volumes in Latin America Refined products demand in Mexico and Peru is expected to grow, with imports filling a large percentage of the supply shortage(1) Announced long term agreements to import gasoline, diesel, and jet fuel into Northern and Central Me
Slide 14: Disciplined Capital Management is a Constant in Our Strategy
Disciplined Capital Management is a Constant in Our Strategy Maintain Strong Balance Sheet (1)Targeted debt-to-cap ratio based on total debt reduced by $2 billion of cash. (2)Peer group includes PSX, MPC, HFC, and PBF. (3)Payout ratio is the sum of dividends and stock buybacks divided by net cash pr
Slide 15: Delivering Cash Returns to Stockholders Is One of Our Priorities
Delivering Cash Returns to Stockholders Is One of Our Priorities Targeting continued buybacks and sustainable annual dividend growth. (1) Annualized based on most recent quarterly dividend. (2) Peer group includes PSX, MPC, HFC, and PBF. Dividend yield as of Sep 24, 2018. (1)
Slide 16: Demonstrated Discipline in Capital Allocation
Demonstrated Discipline in Capital Allocation Steady investments in maintaining asset base and enhancing margin capability of portfolio. Non-discretionary (1) 2018 values are estimates. (2) Sustaining reflects costs expected for Turnarounds and Catalysts and Regulatory Compliance.
Slide 17: Steady Pipeline of High Return Projects
Steady Pipeline of High Return Projects Texas City Refinery photo Expect to spend $1 billion annually on growth investments Approximately 50 / 50 allocation between refining and logistics projects Expect approximately $175 MM in incremental EBITDA for 2018 from completed projects Diamond Pipeline, W
Slide 18: Investing to Improve Margins and Light Product Yields
Investing to Improve Margins and Light Product Yields $975 MM cost for 55 MBPD delayed coker and sulfur recovery unit at Port Arthur refinery Long lead equipment already on site Expected to start up in 2022 Creates two independent CDU-VDU-coker trains, improving turnaround efficiency and reducing ma
Slide 19: Valero Energy Partners Strategy & Financial Highlights
Maintain the Partnership’s profile, targeting acquisitions that fit our core strategy of stable, fee based assets with contracted cash flows Grow annual distributions at target rate of 20% for 2018 Maintain investment grade credit ratings Valero Energy Partners (NYSE: VLP) Strategy & Financial Highl
Slide 20: Ethanol Operations
Ethanol Operations 11 plants with 1.45 billion gallons annual production capacity Dry mill production process, where corn is ground into flour and mixed with water before fermentation Plants purchased for 35% of replacement cost Efficient plants with scale, located in corn belt Operational best prac
Slide 21: We Believe Valero is a Compelling Investment
We Believe Valero is a Compelling Investment Premier asset portfolio and operations Disciplined growth strategy Invest to grow long term earnings, reduce earnings volatility Generate distinctive cash flow across margin cycles Managed risks Proven operations excellence, low cash operating costs Stron
Slide 22: Appendix Contents
Appendix Contents Topic Pages Notes 23 Guidance 24 Projects in Execution Phase or Recently Completed 25 – 28 Shift in Refining Valuation 29 Equity Performance and Stockholder Returns 30 – 31 Refining Capacity and Nelson Complexity 32 Natural Gas Cost Sensitivity 33 Crude Oil Pipeline Transportation
Slide 23: Notes
Notes Slide 5 Macro environment themes represent industry consultant views. Slide 8 Contractor total recordable incident rate from U.S. Bureau of Labor Statistics. Tier 1 three-year rolling averages of process safety events per 20,000 work hours. Tier 1 defined within API Recommended Practice 754. I
Slide 24: VLO Guidance
VLO Guidance 3Q18(1) Throughput (MBPD) U.S. Gulf Coast1,730 to 1,780 U.S. Mid-Continent 430 to 450 North Atlantic445 to 465 U.S. West Coast270 to 290 Refining operating expenses per barrel throughput$4.00 Ethanol Production (millions of gallons per day)4.0 Operating expenses per gallon of production
Slide 25: Investing to Improve Access to North American Crude and Refinery Operating Cost Structure
Investing to Improve Access to North American Crude and Refinery Operating Cost Structure Diamond Pipeline 440 miles of 20-inch pipe (200 MBPD capacity) connecting Memphis to Cushing, started up in Nov 2017 Improves crude oil supply flexibility, efficiency, and blend quality $460 MM of project cost
Slide 26: Houston and St. Charles Alkylation Units
Investing to Improve Margins Octane demand expected to grow due to Tier 3 sulfur regulations and CAFE standards Abundant, low cost North American NGL supply provides advantage for Gulf Coast capacity additions Both new units upgrade low value isobutane and amylenes into high value alkylate High octa
Slide 27: Diamond Green Diesel Capacity Expansion
Investing to Increase Premium Renewable Fuels Production Expect renewable diesel margins to be supported by increased usage mandates and carbon pricing 6 MBPD of additional production capacity started up in Aug 2018 $210 MM project cost, 50% of which is Valero’s portion Evaluating an additional proj
Slide 28: Investing to Improve Margins, Expand Product Export Capability, and Increase Biofuels Blending
Investing to Improve Margins, Expand Product Export Capability, and Increase Biofuels Blending Central Texas pipelines and terminals to supply high-growth refined products market Approximately 205 miles of pipe(1), 960 MB of total storage capacity, and a truck rack Pasadena refined products terminal
Slide 29: Now vs. Then – A Shift In Refining Valuation
Now vs. Then – A Shift In Refining Valuation New Paradigm INDUSTRY/MACRO EV/EBITDA multiple expansion and dispersion by company Peer group of larger scale, efficient and complex refiners Methodical and continuing growth in all major economies Tight global product market expected to continue Product
Slide 30: Outperformed All Companies in the XLE Index on TSR Since 2014
Outperformed All Companies in the XLE(1) Index on TSR Since 2014 (1) XLE includes refining peers PSX, MPC, HFC and 27 other energy companies such as XOM, CVX, SLB, COP, EOG, OXY, and KMI. (2) TSR from Dec 31, 2014, through Sep 24, 2018. TSR includes stock price appreciation and dividends paid. VLO +
Slide 31: Creating Value for Our Shareholders
Creating Value for Our Shareholders See slides 37 – 39 for non-GAAP disclosures. Sources for refining EBITDA per barrel of throughput are company reports and Barclays research. Peer group includes PSX, MPC, HFC, and PBF. (1) Return on invested capital for 12 months ended Jun 30, 2018, sourced from c
Slide 32: Our Refining Capacity and Nelson Complexity
Our Refining Capacity and Nelson Complexity Refinery Capacities (MBPD)(1) Nelson Complexity Index Throughput Crude Corpus Christi(2) 370 275 15.1 Houston 235 180 8.9 Meraux 135 125 9.8 Port Arthur 395 335 12.9 St. Charles 340 215 17.1 Texas City 260 225 11.6 Three Rivers 100 89 13.2 U.S. Gulf Coast
Slide 33: U.S. Natural Gas Provides Opex and Feedstock Cost Advantages
U.S. Natural Gas Provides Opex and Feedstock Cost Advantages 2018 average natural gas prices through Sep 24 for U.S. and Europe. Estimated per barrel cost of 913,000 mmBtu/day of natural gas consumption at 12-month rolling average refinery throughput of 2.9 MMBPD. $1.6 billion pre-tax annual cost ad
Slide 34: Pipeline Capacity Additions Have Increased Crude Competition in the U.S. Gulf Coast
Pipeline Capacity Additions Have Increased Crude Competition in the U.S. Gulf Coast Pipeline completion and startup dates are subject to change. Bayou Bridge Phase 1 operational, with Phase 2 completion expected in 2018. Permian to Gulf Coast represents over two million BPD of additional pipeline ca
Slide 35: High Demand Continues for U.S. Products in Primary Export Markets
High Demand Continues for U.S. Products in Primary Export Markets North America +2.1% GDP annual average +15 MM population +240 MBPD product demand +270 MBPD CDU capacity High utilization needed to meet domestic and export demand Latin America +2.7% GDP annual average +29 MM population +560 MBPD pro
Slide 36: Approximately $1 Billion of Estimated MLP Eligible EBITDA Inventory at VLO
Approximately $1 Billion of Estimated MLP Eligible EBITDA(1) Inventory at VLO Racks, Terminals, and Storage(2) Over 70 million barrels of active shell capacity for crude oil and products Over 140 truck rack bays Rail Approximately 5,250 purchased railcars, expected to serve long-term needs of ethano
Slide 37: VLO Non-GAAP Disclosures: Adjusted EBITDA and Net Debt-to-Adjusted EBITDA
VLO Non-GAAP Disclosures Adjusted EBITDA and Net Debt-to-Adjusted EBITDA VLO defines EBITDA as net income before income tax expense, interest and debt expense, net of capitalized interest, and depreciation expense. VLO defines net debt-to-adjusted EBITDA as the ratio of total debt, net of cash, divi
Slide 38: VLO Non-GAAP Disclosures: Adjusted EBITDA and Net Debt-to-Adjusted EBITDA
VLO Non-GAAP Disclosures: Adjusted EBITDA and Net Debt-to-Adjusted EBITDA VALERO ENERGY CORPORATION RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA (Unaudited, in Millions, Except Ratio Amount) Six Months Ended Jun 30, 2017 Year Ended Dec 31, 2017 Six Months Ended Jun 30, 2018 Net income $893 $4,156
Slide 39: VLO Non-GAAP Disclosures: Return on Invested Capital
VLO Non-GAAP Disclosures: Return on Invested Capital VALERO ENERGY CORPORATION RECONCILIATION OF NON-GAAP MEASURES TO MOST COMPARABLE AMOUNTS REPORTED UNDER U.S. GAAP (Unaudited, in Millions, Except Percentage and Ratio Amounts) Six Months Ended Jun 30, 2017 Year Ended Dec 31, 2017 Six Months Ended
Slide 40: VLP Non-GAAP Disclosures: EBITDA, Distributable Cash Flow, and Debt-to-Adjusted Pro Forma EBITDA
VLP Non-GAAP Disclosures: EBITDA, Distributable Cash Flow, and Debt-to-Adjusted Pro Forma EBITDA VLP defines EBITDA as net income before income tax expense, interest and debt expense, net of capitalized interest, and depreciation expense. VLP defines distributable cash flow as EBITDA less (i) EBITDA
Slide 41: VLP Non-GAAP Disclosures: Debt-to-Adjusted Pro Forma EBITDA
VLP Non-GAAP Disclosures: Debt-to-Adjusted Pro Forma EBITDA VALERO ENERGY PARTNERS LP RECONCILIATION OF NON-GAAP MEASURES TO MOST COMPARABLE AMOUNTS REPORTED UNDER U.S. GAAP (Unaudited, in Thousands, Except Ratio Amount) Jun 30, 2018 Numerator: Total debt $1,274,380 Six Months Ended Jun 30, 2017 Yea
Slide 42: VLP Non-GAAP Disclosures: EBITDA and Distributable Cash Flow
4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017 4Q2017 1Q2018 2Q2018 Net income ($6,900) ($8,280) ($6,929) ($7,934) ($10,218) ($269) $19,161 $15,625 $36,795 $35,780 $44,545 $48,707 $59,799 $58,137 $58,443 $57,589 $64,264 $66,079 $64,019
Slide 43: Investor Relations Contacts
Investor Relations Contacts For more information, please contact: John Locke Vice President, Investor Relations 210.345.3077 john.locke@valero.com Karen Ngo Senior Manager, Investor Relations 210.345.4574 karen.ngo@valero.com Tom Mahrer Manager, Investor Relations 210.345.1953 tom.mahrer@valero.com