Valero Energy Corporation · NYSE:VLO
Valero Energy — Investor Presentation (March 2003)
23 slides from Valero Energy's investor presentation, Mar 10, 2003
Slide 1: Management Presentation March 2003
Management Presentation March 2003
Slide 2: 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. It is important to n
Slide 3: UDS Acquisition Key to Current & Future Success
UDS Acquisition Key to Current & Future Success Large size and scope of operations coupled with complex refining system gives us a competitive advantage Economies of scale and access to capital are critical Geographic diversity stabilizes earnings Mid-Continent and Canadian refining systems contribu
Slide 4: UDS Acquisition Great/Timing Proved Challenging
UDS Acquisition Great/Timing Proved Challenging Challenging Conditions in 2002 9/11; poor economy; record warm winter Resulted in poor product margins and weak sour crude discounts More difficult to pay down debt than originally anticipated Still able to reduce debt-to-cap from 53.4% at beginning of
Slide 5: Improving Operations and Reducing Debt
Improving Operations and Reducing Debt Merger integration complete Full conversion to SAP; real time data = better business decisions and better cost control Synergies $235 million recurring in 2002; $80 million non-recurring Expect additional $100 million recurring in 2003 Capital projects complete
Slide 6: Valero L.P. Transactions To Reduce Debt
Valero to reduce its current 73.6% ownership stake in Valero L.P. to less than 49.5% Valero to raise $135 million through sale of common units to Valero L.P. Valero L.P. to sell $200 million of common units to public Results in deconsolidation of Valero L.P. from Valero Energy's balance sheet Valero
Slide 7: Strong Fundamentals
Strike in Venezuela reduced global gasoline and distillate stocks Cold winter drew down distillate stocks in U.S. Continued fuel switching demand throughout 2003 Heavy industry turnaround schedule in 1Q 85% refinery utilization in February Only one major turnaround for Valero in 2003 Throughput volu
Slide 8: Gasoline Fundamentals - Demand & Production
Gasoline Fundamentals - Demand & Production Gasoline demand continues to be strong Continued penetration of SUV's and light trucks Driving rather than flying for shorter trips Demand from Latin America due to Venezuela strike Production down in 1Q with heavy maintenance schedule High prices pulling
Slide 9: Gasoline Fundamentals - Inventories & Gas Cracks
January inventories typically build in advance of turnarounds and RVP change, then decline Inventories further reduced by lower utilization rates due to poor economics early in 1Q Margins have improved with lower inventories and continued strong demand Forward curve for 2003 USGC Gas Crack at $5.29
Slide 10: Gasoline Fundamentals - California
MTBE phase-out underway, expected to result in reduced CARB production of 60,000 barrels per day Lower RVP standard began March 1 10% of California conversion capacity down in February CARB cracks currently around $20 per barrel compared to $7 per barrel in January Gasoline Fundamentals - California
Slide 11: Distillate Fundamentals - Demand & Production
Strong distillate demand - up 14% vs. last year Cold winter contributed to heavy fuel switching - estimated at 400,000 BPD in February Expect continued high levels of fuel switching throughout 2003 Distillate production declined sharply in 1Q Distillate Fundamentals - Demand & Production
Slide 12: Distillate Fundamentals - Inventories & Heat Cracks
Distillate inventories at extremely low levels Good demand, heavy turnaround schedule, exports to Latin America As a result, distillate margins are at near record levels Forward curve for 2003 USGC Heat Crack at $4.40 per barrel versus 5-year average of $1.96 per barrel Sold forward 30% of 2003 prod
Slide 13: Sour Crude Discounts
Sour crude discounts have widened considerably after narrowing briefly due to Venezuela strike Additional OPEC production made available Sour crude discount at $4.45 per barrel for April; Improvement of $2.00 per barrel since February Gulf Coast Mars sour crude discount currently over $6.50 per barr
Slide 14: Worldwide Stocks Also Low
Worldwide Stocks Also Low 1996 24 1997 24.3 1998 23.8 1999 26 2000 23.4 2001 23.9 2002 24.6 2003 22.7 1996 36 1997 38.1 1998 39.4 1999 39.1 2000 35.1 2001 35.9 2002 38 2003 34.7 Crude Products Days Days Inventories levels in the 3 major OECD markets Source: PIRA Energy Group (1) (1) Days forward sup
Slide 15: Long-Term Trends Favor Valero
Reduced U.S. product supply due to environmental regulations More difficult to export to U.S. market Potential 100 MBPD gasoline, 320 MBPD distillate State MTBE bans expanding Tightening domestic supply / demand balance U.S. demand growth projected to exceed capacity growth Latin America demand cont
Slide 16: Summary of Valero L.P. Transactions
Summary of Valero L.P. Transactions Amount Amount Sources (millions) Uses (millions) Redemption of VLI Common Units held Redemption of UDS by VLO $135 Preferred Stock $200 Contribution of Storage Repayment of Bank Debt 285 Assets 200 Contribution of Pipeline Assets 150 Total Sources of Funds $485 To
Slide 17: Refining Margin Data
Est. Volumes 2002 2003 (BPD) Estimate (1) Sensitivity (2) Feedstocks (per bbl): WTI - Sour crude(3) 900,000 $2.53 $3. 66 $0.45 Products (per bbl): Gulf Coast Gasoline - WTI 415,000 $4.14 $5.29 $0.21 Heating Oil - WTI 235,000 $1.48 $4. 40 $0.12 West Coast CARB - ANS 200,000 $10.06 $13.17 $0.10 LS Die
Slide 18: Financial Summary
($ in millions, except per share amounts) 2002 2003 est. EBITDA $879 $1,945 Net Income $91 $740 Earnings Per Share (diluted) $0.83 $6.50 Cash Flow (2) $1,800 $1,650 Capital Investments $960 $1,000 Debt & UDS Preferred Stock $5,164 $4,650 After VLI deconsolidation $4,593 $4,050 Debt-to-Capitalization
Slide 19: Much Stronger Financial Position
Anticipate debt reduction of $1.1 billion in 2003 $485 million related to Valero L.P. transactions Additional $110 million related to deconsolidation of Valero L.P. debt Maintain investment grade rating Valero L.P. transactions to have minimal impact to Valero Energy's recurring income Enhances both
Slide 20: IRPORATION
IRPORATION
Slide 21: System Map
Valero Refineries Branded Marketing Presence San Antonio Headquarters Valero Terminals Valero Pipelines Valero LP Refined Products Terminals Valero LP Crude Oil Storage Facilities Valero LP Pipelines VALERO LP ASSETS VALERO ASSETS System Map
Slide 22: Feedstocks Overview
Term Crude Spot Purchases 0.65 0.35 Sweet Crude Sour Feedstocks Blendstocks Other Feedstocks 0.3 0.6 0.05 0.05 Sour Feedstocks 60% Sweet Crude 30% Spot Purchases 35% Term Purchases 65% Other Feedstocks 5% (Based on 1.9 million BPD throughput capacity) Blendstocks 5% Feedstocks Overview High percenta
Slide 23: Refined Products & Distribution Channels
Gasoline/Blendstocks Distillate Asphalt, Petro. Other 52 30 18 Distillate 30% Asphalt, Petrochemicals, Other 18% Gasoline & Blendstocks 52% Bulk Retail Wholesale 60 10 30 Bulk 60% Wholesale 30% Retail 10% REFINED PRODUCT SLATE GASOLINE & DISTILLATE DISTRIBUTION CHANNELS Refined Products & Distributi