Valero Energy Corporation · NYSE:VLO
Valero Energy — Investor Presentation (July 2014)
61 slides from Valero Energy's investor presentation, Jul 7, 2014
Slide 1: Investor Presentation July 2014
Investor Presentation July 2014
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 Overview
Valero Overview World's largest independent refiner 16 refineries Approximately 2.9 million barrels per day (BPD) of throughput capacity, excluding suspended operations of the Aruba refinery In 2013 created publicly traded Valero Energy Partners LP (NYSE: VLP), a traditional, logistics MLP with 100%
Slide 4: Refinery Capacities
Refinery Capacities (000 bpd) Capacities (000 bpd) Nelson Index Refinery Total Through-put Crude Oil Nelson Index Corpus Christi 325 205 19.9 Houston 165 90 15.1 Meraux 135 135 10.3 Port Arthur 350 330 12.6 St. Charles 280 190 17.5 Texas City 250 225 11.1 Three Rivers 100 95 12.4 Gulf Coast 1,605 1,
Slide 5: Key Market Trends
Key Market Trends 5 Growth in U.S. and Canadian shale development provides North American resources advantage Expect strong supply growth in crude oil, natural gas, and natural gas liquids (NGLs) Industry is making significant infrastructure investments to move crude oil to refining markets and to p
Slide 6: Valero's Strategy to Enhance Returns and Increase Long-term Shareholder Value
Valero's Strategy to Enhance Returns and Increase Long-term Shareholder Value Increase Long-term Shareholder Value Increase Long-term Shareholder Value 6
Slide 7: U.S. and Canadian Production Growth Provides Resource Advantage
U.S. and Canadian Production Growth Provides Resource Advantage to North American Refiners Resource Advantage to North American Refiners Resource Advantage to North American Refiners 7 Source: EIA, Consultants, company announcements and Valero estimates; 2014 U.S. Crude imports as of March 2014 Crud
Slide 8: Strategy to Supply Incremental Volumes of Cost-Advantaged Crude Oil
Valero's Strategy to Supply Incremental Volumes of Cost-Advantaged Crude Oil Expect refineries to benefit as flows increase on cost-efficient pipelines St. Charles: added approximately 20 MBPD of rail unloading capacity in March 2014 to receive neat Canadian bitumen in 2Q14 using Valero-owned rail c
Slide 9: Quebec City Refinery to Reach 100% North American Crude Diet
Expect Quebec City Refinery to Reach 100% North American Crude Diet by End of 2014 Replacing foreign crudes priced at a premium to Brent with discounted North American crudes via rail (60 MBPD capacity) and foreign-flagged ships from U.S. Gulf Coast Processed six new North American crudes in 2013, u
Slide 10: Investments to Process More Light Crude Oil
Investments to Process More Light Crude Oil Strategy Increase processing of North American cost- advantaged light crude oil Estimate current capability to run light crude at approximately 56% 76% located in Gulf Coast and Mid-Continent Growth Investments McKee crude unit expansion of approximately 2
Slide 11: Lower-Cost Natural Gas Provides Structural Advantage
Lower-Cost Natural Gas Provides Structural Advantage to U.S. and Canadian Refiners 11 Note: Per barrel cost of 800,000 mmBtu/day of natural gas consumption at 93% utilization (2.7 MMBPD) of Valero's throughput capacity $1.8 billion higher pre- tax annual costs $3.5 billion higher pre-tax annual cost
Slide 12: Global Distillates Demand Growth Yields Higher Margins
(CHART) Global Distillates Demand Growth Yields Higher Margins 12 (CHART) Source: Argus; YTD as of June 27 Projected diesel growth rate is 1.5x gasoline Distillates (diesel, kero, jet fuel) margins are significantly higher than gasoline due to less spare distillates production capacity versus demand
Slide 13: U.S. Refining Capacity Is Globally Competitive
(CHART) U.S. Refining Capacity Is Globally Competitive and Continues to Take Market Share 13 U.S. flipped from importer to exporter on lower local product demand and higher refinery utilization, particularly in PADDS 2, 3, and 4, driven by structural cost advantages for crude oil and natural gas Gul
Slide 14: Hydrocracking and Hydroprocessing Investments Increase Distillates Production
Strategy Emphasize distillates production and natural gas consumption Designed to benefit from our outlook of: Relatively high crude and low natural gas prices Strong global distillates demand growth and margins Growth Investments Increased Port Arthur hydrocracker permitted capacity to 60 MBPD, lik
Slide 15: Logistics Growth Investments
Logistics Growth Investments Strategy Increase access to cost-advantaged crudes Increase capability to export products and crudes Growth Investments 5,320 rail cars purchased, delivery from 4Q12 to 2Q15 Approximately 55% general purpose, 45% coil-wrapped for heavy crudes Approximately 3,050 received
Slide 16: Valero Energy Partners LP
Valero Energy Partners LP (NYSE: VLP) Traditional, logistics MLP with 100% fee-based revenues Valero's primary vehicle to grow logistics assets Valero retained significant ownership and control of VLP 68.6% of LP ownership 100% GP ownership and all IDRs Expect at least 20% average annual distributio
Slide 17: Improving Our Refining Operations
Improving Our Refining Operations Industry surveys reflect significant improvement over last six years Improved reliability also yielding benefits in staffing, operating cost, and energy efficiency Further improvements expected as reliability programs continue to mature Our goal is to become a 1st q
Slide 18: Ethanol Segment Generated Strong Returns
Ethanol Segment Generated Strong Returns 11 plants with total production capacity of 1.3 billion gallons/year Acquired plants for $794 million, or average of less than 35% of estimated replacement cost 2Q09: Acquired 7 plants 1Q10: Acquired 3 plants 1Q14: Acquired 1 plant Has generated significant e
Slide 19: Returning More Cash to Stockholders and Maintaining Financial Strength
(CHART) Returning More Cash to Stockholders and Maintaining Financial Strength Returning more cash to stockholders Returned $825 million in cash to shareholders in dividend and stock buybacks in 2014 Purchased 10.4 million shares in 2014 for $559 million Increased quarterly dividend from $0.05 per s
Slide 20: Growth Investments Compose Approximately Half of Our Capital Spending
Growth Investments Compose Approximately Half of Our Capital Spending Half of Our Capital Spending Half of Our Capital Spending Half of Our Capital Spending Half of Our Capital Spending 20 "Stay in business" spending 2015 spending not yet disclosed
Slide 21: Key Market Trends and Valero's Strategy
Key Market Trends and Valero's Strategy Expect continued growth in North American oil, gas, and NGLs production provides resources advantage Global distillates demand growth yielding higher margins U.S. competitively exporting into growing and undersupplied markets Invest in growth projects that exp
Slide 22: Appendix
AZ Pe VALERO Appendix
Slide 23: Private Letter Ruling on Processed Condensate Product Exports
Private Letter Ruling on Processed Condensate Product Exports In response to two specific applications, the U.S. Department of Commerce - Bureau of Industry and Security (BIS) issued private rulings to allow exports of processed condensate products, but has not issued blanket authorizations "There h
Slide 24: Continued Global Demand Growth Important to Refining Margins
(CHART) Continued Global Demand Growth Important to Refining Margins 24 World Petroleum Demand Growth MMBPD Emerging markets lead in terms of global petroleum demand growth Particularly strong growth in Latin America, Middle East, Africa, Asia Refining is a global business - world growth impacts ref
Slide 25: World Refinery Capacity Growth
(CHART) World Refinery Capacity Growth Estimated Net Global Refinery Crude Distillation Additions 25 MMBPD Source: Consultant and Valero estimates; Net Global Refinery Additions = New Capacity + Restarts - Announced Closures Expect significant new global refining additions in the next several years
Slide 26: VLP's First Acquisition from VLO
VLP's First Acquisition from VLO 26 VLP footprint and geographic diversity expanded with assets in the Mid-Continent, U.S. Gulf Coast and South Texas McKee Crude System (Sunray, TX): over 200 miles of crude oil pipeline with 72,000 bpd capacity, 20 crude oil truck unloading sites, and approximately
Slide 27: Improving Our Safety and Environmental Performance
Improving Our Safety and Environmental Performance Safety is our highest priority: our goal is zero injuries Frequency of Tier 1 process safety events has steadily decreased Environmental event frequency has declined by over 65% since 2007 27 *Source: U.S. Bureau of Labor Statistics. 2013 emissions
Slide 28: Increasing Our Products Exports Capability
Increasing Our Products Exports Capability Increasing Our Products Exports Capability 28 MBPD Exports enable Valero to maintain utilization rates or capture incremental margin Valero exports products based on economic optimization of: Prices in export versus domestic markets Product quality and cost
Slide 29: Upgrading Natural Gas to Methanol
Upgrading Natural Gas to Methanol Strategy Gas-to-liquids upgrading - very attractive syngas pricing U.S. is a growing methanol market and represents about 10% of the global market On average, the U.S. imported about 89% of its supply (~ 5 million tonnes/year or 110,000 BPD) Southern Louisiana is th
Slide 30: NGLs Upgrading Presents an Opportunity to Create Value
(CHART) NGLs Upgrading Presents an Opportunity to Create Value Strategy Consistent strategy - feedstock advantage and bolt-on/synergistic project Expect continued growth in supply of NGLs and condensates Expect length in the domestic NGLs and condensates supply will create structurally lower prices
Slide 31: Unlocked Value via Retail Spinoff
Unlocked Value via Retail Spinoff CST Brands, Inc. trading on the NYSE under the ticker symbol "CST" CST has traded at approximately double the earnings valuation of VLO Unlocked stockholder value equivalent to approximately $3.60 per share of VLO, or $1.9 billion in total Valero received nearly $1
Slide 32: Our Crude and Feedstock Supply
(CHART) Our Crude and Feedstock Supply 32 Valero's crude and intermediate feedstock runs were approximately 2.3 million bpd in 2013, and 120 unique crudes were processed Crude and intermediate feedstock inventories typically range from 50 to 60 million barrels throughout the year All crude is hedged
Slide 33: Processing of Cost-Advantaged U.S. and Canadian Crude Continues to Grow
Valero's Processing of Cost-Advantaged U.S. and Canadian Crude Continues to Grow 33 (CHART) Note: Non-U.S. and Canadian crude runs exclude Valero's Pembroke Refinery. Cost-advantaged crudes exclude imports and historically discounted medium sour crudes, such as Mars/ASCI domestic; heavy sour crudes,
Slide 34: Crude Oil Differentials Versus Brent
(CHART) Crude Oil Differentials Versus Brent 34 Source: Argus; 2014 year-to-date through June 27. LLS prices are roll adjusted.
Slide 35: Valero's Regional Refinery Indicator Margins
Valero's Regional Refinery Indicator Margins 35 Source: Argus; 2014 year-to-date through June 27; see Appendix for details on refinery configuration assumptions
Slide 36: Definitions of Valero's Regional Indicator Margins
Definitions of Valero's 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 CBOB prompt - WTI Month 1) x 60% + (
Slide 37: Logistics Constraints Create Regional Crude Discounts
Logistics Constraints Create Regional Crude Discounts in U.S. and Canada 37 (CHART) Source: Platts and Argus prices as of June 27, 2014 D B H I C F G E J Crude Pricing by Location A
Slide 38: Valero's View on U.S. Gulf Coast Medium and Heavy Oil Prices Versus Brent
Valero's View on U.S. Gulf Coast Medium and Heavy Oil Prices Versus Brent 38 38
Slide 39: Increasing U.S. Oil and Natural Gas Production Provides Cost Advantage
Increasing U.S. Oil and Natural Gas Production Provides Cost Advantage for Refiners Provides Cost Advantage for Refiners Provides Cost Advantage for Refiners 39 Source: DOE (for 2014, data through March) (CHART) Source: DOE (for 2014, data through March)
Slide 40: U.S. Gulf Coast Benefitting from Crude Oil Pipeline Additions
U.S. Gulf Coast is Benefitting from Cost-Efficient Crude Oil Pipeline Additions Rapid increase in pipeline capacities to move inland North American crude oils to the Gulf Coast Light crudes have been pricing below LLS in western parts of Gulf Coast (Houston and Corpus) Recent completion of pipelines
Slide 41: Canadian Heavy Crudes Have Several Options to the Gulf Coast
41 Source: Company Reports Canadian Heavy Crudes Have Several Options to the Gulf Coast Pipeline - industry has several options in various stages to move crude oil from Canada to the U.S. Gulf Coast Seaway Currently shipping light and heavy sour from Cushing to Gulf Coast Twin Line expected to compl
Slide 42: Growth of Crude Oil Pipelines to U.S. Gulf Coast
Growth of Crude Oil Pipelines to U.S. Gulf Coast 42 Year-End Throughput Capacities, '000 bpd 2011 2012 2013 2014E 2015E Announced Start-up Cushing Seaway and Loop 150 400 850 850 2Q12, 1Q13, 2Q14 Keystone MarketLink - - - 700 830 1Q14, 2015 Total - 150 400 1,550 1,680 Permian Longhorn 225 275 275 22
Slide 43: Atlantic Basin Closures Reduce Excess Capacity
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, create
Slide 44: 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 Global Refining Capacity Rationalization 44 44
Slide 45: Global Refining Capacity For Sale or Under Strategic Review
Global Refining Capacity For Sale or Under Strategic Review Sources: Industry and Consultant reports and Valero estimates 45 45
Slide 46: Low-Cost U.S. Natural Gas Provides Competitive Advantage
Low-Cost U.S. Natural Gas Provides Competitive Advantage Competitive Advantage Competitive Advantage U.S. natural gas has traded at a significant discount to Brent crude oil price (on energy equivalent basis) Prices are expected to remain low and disconnected from global oil and gas markets for fore
Slide 47: Crude Fundamentals
Crude Fundamentals 47 (CHART) (CHART) (CHART) Source: DOE weekly data through June 20, 2014
Slide 48: Gasoline Fundamentals
(CHART) (CHART) (CHART) Gasoline Fundamentals Gasoline Fundamentals USGC Brent Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) Source: Argus; 2014 data through June 27 Source: DOE weekly data; 2014 data through week ending June 20 Source: DOE weekly data; 2014 data through week ending June 20
Slide 49: Distillate Fundamentals
(CHART) (CHART) (CHART) Distillate Fundamentals 49 USGC Brent ULSD Crack (per bbl) U.S. Distillate Demand (mmbpd) Source: Argus; 2014 data through June 27 Source: DOE weekly data; 2014 data through week ending June 20 Source: DOE weekly data; 2014 data through week ending June 20 Source: DOE monthly
Slide 50: U.S. Transport Indicators
(CHART) U.S. Transport Indicators 50 (CHART) Source: U.S. DOE PSM / U.S. DOT FHA Most recent data includes Apr 2014 (CHART)
Slide 51: U.S. Transport Indicators: Trucking
U.S. Transport Indicators: Trucking 51 (CHART) (CHART) (CHART) (CHART)
Slide 52: Mexico Statistics
(CHART) (CHART) (CHART) Mexico Statistics 52 Diesel Gross Imports (MBPD) Source: PEMEX, latest data April 2014 Gasoline Gross Imports (MBPD) (CHART) Crude Unit Throughput (MBPD) Crude Unit Utilization
Slide 53: Venezuelan Exports to the U.S.
Venezuelan Exports to the U.S. 53 Source: EIA, April 2014 (CHART)
Slide 54: U.S. Gasoline Exports by Destination
(CHART) U.S. Gasoline Exports by Destination Note: Gasoline represents all finished gasoline plus all blendstocks (including ethanol, MTBE, and other oxygenates) Source: DOE Petroleum Supply Monthly data as of April 2014. 4 Week Average estimate from Weekly Petroleum Statistics Report and VLO estima
Slide 55: U.S. Gasoline Imports by Source
U.S. Gasoline Imports by Source Gasoline imports have declined steadily since 2007 Shutdown of the Atlantic Basin refineries will keep pressure on this trend 55 (CHART) Note: Gasoline represents all finished gasoline plus all blendstocks (including ethanol, MTBE, and other oxygenates) Source: DOE Pe
Slide 56: U.S. Diesel Exports by Destination
U.S. Diesel Exports by Destination Source: DOE Petroleum Supply Monthly with data as of April 2014. 4 Week Average estimate from Weekly Petroleum Statistics Report 56 (CHART) 12 Month Moving Average, MBPD Diesel exports to Latin America have exceeded exports to Europe in recent years
Slide 57: U.S. Demand for Refined Products and Net Trade
(CHART) 57 U.S. Demand for Refined Products and Net Trade MMBPD U.S. Petroleum Demand Excluding Ethanol and Non-Refinery NGL's (Refined Product Demand) Net Imports Net Exports Implied Total Production of U.S. Refined Products Note: Implied production = Petroleum demand excluding ethanol and non-refi
Slide 58: U.S. Shifted to Net Exporter
(CHART) U.S. Shifted to Net Exporter Net Imports Net Exports MBPD As a result of the continued shift towards exports, U.S. net exports of petroleum products have increased from 335 MBPD in 2010 to 2,221 MBPD in 2014 Diesel net exports remain strong, with U.S. refiners sending a net of 742 MBPD to ot
Slide 59: U.S. Competitively Exporting into Growing Markets
(CHART) U.S. Competitively Exporting into Growing Markets Source: DOE Petroleum Supply Monthly data as of April 2014; Latin America includes South and Central America plus Mexico. (CHART) U. S. Product Exports By Destination U. S. Product Exports By Source MMBPD 12 Month Moving Average 59 U.S. has b
Slide 60: Reconciliation of Operating Income to EBITDA
Reconciliation of Operating Income to EBITDA Reconciliation of Operating Income to EBITDA Reconciliation of Operating Income to EBITDA 60
Slide 61: Investor Relations Contacts
Investor Relations Contacts For more information, please contact: John Locke Executive Director, Investor Relations 210-345-3077 john.locke@valero.com Karen Ngo Manager, Investor Relations 210-345-4574 karen.ngo@valero.com 61