Valero Energy Corporation · NYSE:VLO
Valero Energy — Investor Presentation (January 2012)
60 slides from Valero Energy's investor presentation, Jan 4, 2012
Slide 1: Investor Presentation January 2012
Investor Presentation January 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 193
Slide 3: Valero Energy Overview
Valero Energy Overview World's largest independent refiner16 refineries including recently acquired Pembroke, U.K. and Meraux, Louisiana refineries3 million barrels per day (BPD) of throughput capacity, with average capacity of 190,000 BPDApproximately 6,800 branded marketing sitesNearly 1,300 compa
Slide 4: Meraux Acquisition: Attractive Value for Flexible, High-Quality Assets
Meraux Acquisition: Attractive Value for Flexible, High-Quality Assets On October 1, Valero acquired Murphy Oil Corporation's Meraux refinery in Louisiana and offsite logistics assets for $325 million135 MBPD refinery value estimated at $270 millionOff-site logistics assets value estimated at $55 mi
Slide 5: Pembroke Integration In Progress
Pembroke Integration In Progress On August 1, Valero acquired Chevron's Pembroke refinery, marketing and logistics assets in the United Kingdom and Ireland for $730 millionPlus working capital, inventories, and other net assets with estimated value of $900 million270,000 barrels-per-day refinery wit
Slide 6: Acquisitions Enhance Valero's Margin Optimization Strategy in the Atlantic Basin
Acquisitions Enhance Valero's Margin Optimization Strategy in the Atlantic Basin 6
Slide 7: Valero's Geographically Diverse Operations
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 Christi 325 205 20.6 Houston 160 90 15.1 McKee 170 168 9.5 Memphis 195 180 7.5 Meraux 135 135 10.2 Port Arthur 310 290 12
Slide 8: 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 marketGrowth in emerging markets is taking the lead in global petroleum demandOECD demand growth is expected to remain weak in 2011 and 20122011 demand
Slide 9: Crude Discounts Narrowed in 4Q11
(CHART) Crude Discounts Narrowed in 4Q11 9 $/barrel Source: Argus; 2011 year-to-date through December 30; LLS prices are roll adjusted
Slide 10: Mixed Recovery in Regional Annual Refinery Margins - Challenging Fourth Quarter
Mixed Recovery in Regional Annual Refinery Margins - Challenging Fourth Quarter 10 Source: Argus; 2011 year-to-date through December 30; see Appendix for details on refinery configuration assumptions
Slide 11: Fundamentals Supportive of Diesel Margin Outlook
Fundamentals Supportive of Diesel Margin Outlook Tighter fundamentals for our products are supportive of margins Days of supply for diesel are much lower than last yearExports continue to remain strong and an important part of the demand storyGood diesel demand combined with strong export levels sho
Slide 12: Valero's Strategic Priorities
Valero's Strategic Priorities 12 Constant focus on safety, environmental, and regulatory complianceManage overhead and maintain investment grade credit ratingImprove margin capture, operating costs, and reliabilityComplete major, value-added capital projects at key refineriesOptimize portfolio - con
Slide 13: Improving Refinery Operations
Better Better Our goal is to be a 1st-quartile refinerRefining industry benchmark studies show our portfolio continues to improveOut of 80 refineries in U.S. and 12 refineries in Canada that participate in Solomon...Corpus Christi refinery ranked #1 in the U.S. group in Maintenance Cost, #2 in Cash
Slide 14: Successful Cost Savings Programs
Successful Cost Savings Programs Successful Cost Savings Programs 14 Ongoing cost savings programs have contributed to Valero's competitiveness and improved financial performance2011 goal is $100 million, but expect to reach $200 million for year millions (CHART)
Slide 15: Refinery Yield Improvements Contribute to Higher Margin Capture
Refinery Yield Improvements Contribute to Higher Margin Capture 15 Note: Does not include Aruba, Pembroke, Meraux, Paulsboro or Delaware City refineries Higher-value products and liquid volume yield are important with high crude pricesLiquid products have a much higher value than solid products like
Slide 16: Valero Increasing Use of Lower-Cost Crude Oils
Valero Increasing Use of Lower-Cost Crude Oils Constantly evaluating opportunities to process lower-cost, higher-yield crude oilsIn 2010, we ran 86 different crude oilsMcKee and Ardmore process WTI or other crudes that price at or below WTIRapid growth in Eagle Ford shale crude oil production lowere
Slide 17: Strong Contribution from Ethanol
Strong Contribution from Ethanol 17 Large, efficient plants in great location have competitive advantage on costsAcquired world-class ethanol plants at an average of 35% of replacement costIn just 2 1/2 years, cumulative EBITDA was $671 million, or 89% of ethanol plants purchase pricesVery strong ma
Slide 18: Retail Business Continues to Perform Well
Retail Business Continues to Perform Well 18 Retail achieved excellent resultsImprovement in retail earnings with smaller asset base = better returns (CHART) Valero Retail Operating Income(U.S. and Canada)
Slide 19: Financial Strength Provides Opportunity for Growth
(CHART) (CHART) Financial Strength Provides Opportunity for Growth Returning cash to shareholdersBought 13.5 million shares for $268 million, or 2% of outstanding shares in 3Q11Board approved tripling of dividend to $0.15/sh quarterly rate at October meetingContinued to purchase shares in 4Q11Invest
Slide 20: Capital Program Focused on Completion of Large Economic Growth Projects
Capital Program Focused on Completion of Large Economic Growth Projects 20 "Stay-in-business" spending 2012 capital spending is expected to be similar to 2011 as we complete our large economic growth projects Expect a significant decline in capital spending after 2012 $1,650 $1,735 $1,770 $1,455 Und
Slide 21: Economic Projects Offer Significant Earnings Growth Potential
Refinery Project Estimated Completion Date Estimated Annual EBITDA Base Case1 (millions) Estimated IRR2 using Base Case Estimated Annual EBITDA1 using 2011 Prices (millions) WTI-based LLS-based Estimated Annual EBITDA1 using 2011 Prices (millions) WTI-based LLS-based Memphis FCC Revamp Complete $75
Slide 22: Key Economic Projects Capture the Natural Gas to Crude Oil Spread
Valero's Key Economic Projects Capture the Natural Gas to Crude Oil Spread Crude oil has traded at 3x to 4x the energy-adjusted price of U.S. natural gasRefiners are looking for ways to eliminate the need to produce hydrogen from crude oilHistorically refiners have produced hydrogen from oil via the
Slide 23: Two Hydrocracker Projects Progressing on Schedule and on Budget
Our Two Hydrocracker Projects Are Progressing on Schedule and on Budget 23 Recently increased planned operating rates from 50,000 BPD to 60,000 BPD for St. Charles and 57,000 BPD (rolling 12-month average per permit) for Port ArthurNo additional capital costsIncreased capacity improves economicsExpe
Slide 24: Improving Competitiveness by Increasing Distillate Yield
Improving Valero's Competitiveness by Increasing Distillate Yield Valero's refinery distillate yields are expected grow by about than 7% by 2013Distillate production volumes will increase by over 300 MBPD versus 2010 including the impact of acquisitions and hydrocracker projectsIncreasing distillate
Slide 25: Why Valero Is an Excellent Buy Today
Why Valero Is an Excellent Buy Today Good fundamentals, particularly for diesel, with potential upside from economic recoveryImproved refinery performance as shown in industry surveysAchieved significant overhead cost savings Increased liquid volume yields and use of lower-cost feedstocksImproving c
Slide 26: Appendix
VALERO Appendix
Slide 27: Meraux Refinery Utilizes Flexible Feedstock and Product Slate
Meraux Refinery Utilizes Flexible Feedstock and Product Slate Significant feedstock flexibilityConsuming feedstocks mix from 80% medium sour to 80% light sweet grades depending on crude oil economicsPipeline connectivity to LOOP opens ability to process dozens of foreign crude grades in addition to
Slide 28: Meraux One of Highest Conversion Capacity in U.S. Gulf Coast
Meraux One of Highest Conversion Capacity in U.S. Gulf Coast 28 Source: O&G Journal, Conversion capacity consists of FCC, HCU, Coking and ROSE unit capacity; refineries with 50,000 bpd crude throughput minimum
Slide 29: Attractive Acquisition Price for Meraux and Pembroke
Attractive Acquisition Price for Meraux and Pembroke 29 (CHART) @ $22.50 per share
Slide 30: Pembroke One of Largest, Most Complex Refineries in Western Europe
Pembroke One of Largest, Most Complex Refineries in Western Europe Source: PIRA, All data based on firm capacities based on period ending 2Q 2011 30
Slide 31: Valero Has High Conversion Refining System
Valero Has High Conversion Refining System Valero Has High Conversion Refining System 31 Note: CDU = crude distillation unit; conversion capacity is the sum of each company's FCC, hydrocracking, and coking capacity Source: PIRA Energy Group 08/05/11 (CHART) We believe size and conversion ratio matte
Slide 32: Made Excellent Ethanol Acquisitions
Made Excellent Ethanol Acquisitions Built position for average of only 35% of estimated replacement cost2Q09: acquired 7 plants with 780 million gallons per year of world-scale capacity in advantaged locations1Q10: Added 3 plants with 330 million gallons per year of capacity 32 Favorable margin outl
Slide 33: Gulf Coast System Well-Positioned for Global Export Opportunities
Valero's Gulf Coast System Well-Positioned for Global Export Opportunities 33 Our large, complex refineries on Gulf Coast are competitive due to low-cost operations and feedstocksStructural supply-demand imbalance in Latin America and diesel-shortage in Europe provide higher-margin export opportunit
Slide 34: Valero Has Competitive, Low-Cost Refining Operations
(CHART) Valero Has Competitive, Low-Cost Refining Operations 34 Refining Cash Operating Expenses less Natural Gas Usage ($/bbl) Source: Macquarie Capital
Slide 35: 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 36: 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 37: Hydrogen Plant Projects
Hydrogen Plant Projects 37 Summary of Project Status and Economics1 Summary of Project Status and Economics1 Summary of Project Status and Economics1 Estimated completion date 4Q11 4Q11 Estimated total investment (mil.) $180 $180 Cumulative spend thru 3Q11 (mil.) $112 $112 Estimated Incremental EBIT
Slide 38: Port Arthur Hydrocracker Project
Port Arthur Hydrocracker Project Investment HighlightsFavorable economics driven by margin and volume gainsMain unit is 57,000 barrels/day (rolling 12- month average per permit) hydrocracker plus facilities to process over 150,000 barrels/day of high-acid, heavy sour crudes (e.g. Canadian and Latin
Slide 39: St. Charles Hydrocracker Project
St. Charles Hydrocracker Project Investment HighlightsFavorable economics driven by margin and volume gainsMain unit is 60,000 barrels/day hydrocrackerCreates high-value products from low- value feedstocks plus hydrogen sourced from relatively inexpensive natural gasUnit has volume expansion up to 3
Slide 40: Montreal Pipeline Project
Montreal Pipeline Project Investment HighlightsFavorable economics driven by reducing transportation costs and growing volumesNew pipeline with 100,000 barrels/day of throughput capacityPlanned closure of Shell Montreal refinery allows Valero to place additional products into Montreal and Ontario ma
Slide 41: Diamond Green Diesel Joint Venture
Diamond Green Diesel Joint Venture Investment HighlightsBuilding a 9,300 BPD renewable diesel plant adjacent to Valero's St. Charles refinery50/50 JV project with Darling Int'l, a leading gatherer of used cooking oils and animal fatUses refinery technology to produce high- quality diesel from low-qu
Slide 42: Project Price Set Assumptions
Project Price Set Assumptions 42 Commodity Base Case($/barrel) 2011 Actuals ($/barrel)WTI LLS1 2011 Actuals ($/barrel)WTI LLS1 Crude oil 85.00 95.05 111.48 Crude oil - USGC HS Gas Oil -3.45 -22.13 -5.70 USGC Gas Crack 6.00 21.97 5.55 USGC ULSD Crack 11.00 29.65 13.23 Natural Gas, $/MMBTU (HHV) 5.00
Slide 43: Project Price Sensitivities
Project Price Sensitivities 43 EBITDA1 Sensitivities (Delta $ millions/year) Port Arthur HCU St. Charles HCU Memphis & McKee Hydrogen Plants Memphis FCC St. Charles FCC Montreal Products Pipeline Crude oil, + $1/BBL 4 3.6 2.5 0.4 1.4 N/A Crude oil - USGC HS Gas Oil, + $1/BBL 16.7 17.8 N/A N/A N/A N/
Slide 44: Successfully Completed Large FCC Revamps
Successfully Completed Large FCC Revamps St. CharlesRecent test run verified that the revamp design basis is being achieved by the unitEstimated annualized EBITDA benefit of $150 million using 3Q11 pricesImproved liquid volume yieldLower energy costsLower catalyst costsReliability benefits 44 Before
Slide 45: Global CDU Capacity and Additions
45 Source: Valero and Consultant Estimates MMBPD (CHART) Global CDU Capacity and Additions New Adds 1.8 MMBPDClosures 0.3 MMBPD New Adds 1.3 MMBPD+ Restarts 0.7 MMBPD- Closures 1 MMBPD
Slide 46: Key Drivers of Feedstock Discounts
Key Drivers of Feedstock Discounts 46 Light-sweet waterborne crude oils are the marginal feedstock when demand is strongExamples: LLS, Brent, among othersReturn of Libyan production has helped to reduce light-sweet premiumLower-quality and logistically constrained crude oils saw wide discounts in 20
Slide 47: Continued Global Demand Growth Important to Refining Margins
(CHART) (CHART) Continued Global Demand Growth Important to Refining Margins 47 Source: Consultant and Valero estimates Source: Consultant and Valero estimates MMBPD MMBPD Forecast Forecast
Slide 48: World Demand Favors Diesel
World Demand Favors Diesel World Demand Favors Diesel World Demand MMBPD History Forecast Source: Consultant, IEA, and Valero estimates 48 Diesel demand is expected to recover past prior highs and grow rapidlyDiesel demand has grown to become much larger than gasoline globallyGrowing global diesel d
Slide 49: Rationalization of Industry Capacity Continues
(CHART) (CHART) Rationalization of Industry Capacity Continues Source: Valero EnergyNote: 2012 estimates include announced future capacity closures MBPD 49 Source: Valero Energy MBPD As we said previously, refining capacity continues to shut down in the industry, particularly marginal plants with up
Slide 50: 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 refinerySources: Industry and Consultant reports and Valero estimates Global Refining Capacity Rationalization 2008Limited refinery closures, began
Slide 51: Global Refining Capacity For Sale or Under Strategic Review
Global Refining Capacity For Sale or Under Strategic Review 51 Location Owner CDU Capacity (MBPD) Gothenburg, Sweden Shell 80 Kapolei, HI Chevron 54 Milford Haven, UK Murphy 108 Whitegate, Ireland ConocoPhillips 70 Mazeikai, Lithuania PKN 190 Various Japanese Locations JX Energy 400 Incheon, South K
Slide 52: 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 53: Gasoline Fundamentals
Gasoline Fundamentals 53 53 (CHART) USGC LLS Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) (CHART) Source: Argus; 2011 data through December 23 Source: DOE weekly data; 2011 data through week ending December 23 Source: DOE weekly data; 2011 data through week ending December 23 Source: DOE we
Slide 54: Distillate Fundamentals
Distillate Fundamentals 54 54 (CHART) USGC LLS On-road Diesel Crack (per bbl) U.S. Distillate Demand (mmbpd) (CHART) (CHART) Source: Argus; 2011 data through December 23 Source: DOE weekly data; 2011 data through week ending December 23 Source: DOE weekly data; 2011 data through week ending December
Slide 55: U.S. Transport Indicators: Trucking Indicators
U.S. Transport Indicators: Trucking Indicators 55
Slide 56: U.S. Transport Indicators
(CHART) U.S. Transport Indicators 56 Latest data 41 W 2011
Slide 57: Mexico Statistics
(CHART) (CHART) Mexico Statistics Diesel Net Imports (MBPD) Source: PEMEX, latest data Nov-11 Gasoline Net Imports (MBPD) Source: PEMEX, latest data Nov-11 (CHART) Crude Unit Throughput (MBPD) Crude Unit Utilization (CHART) 57 Source: Mexico Secretary of Energy, latest data Nov-11 Source: Mexico Sec
Slide 58: Venezuelan Exports to the U.S.
Venezuelan Exports to the U.S. 58 (CHART) Source: EIA, October 2011
Slide 59: 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 60: 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 60