Valero Energy Corporation · NYSE:VLO
Valero Energy — Investor Presentation (January 2011)
46 slides from Valero Energy's investor presentation, Jan 5, 2011
Slide 1: Investor Presentation January 2011
Investor Presentation January 2011
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 refiner 14 refineries 2.6 million barrels per day (BPD) of throughput capacity Average refinery throughput capacity of 185,000 BPD One of the nation's largest fuel retailers with nearly 5,800 branded marketing sites One of the largest ethanol compan
Slide 4: Geographically Diverse Operations
Geographically Diverse Operations 4 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 Chris. 315 205 20.6 Houston 145 90 15.1 McKee 170 168 9.5 Memphis 195 180 7.5 Port Ar
Slide 5: High Conversion Refining System
High Conversion Refining System High Conversion Refining System 5 Note: CDU = crude distillation unit; conversion capacity is the sum of each company's FCC, hydrocracking, and coking capacity Source: PIRA Energy Group 12/16/10 (CHART) We believe size and conversion ratio matter to competitiveness Pr
Slide 6: Strong Contribution from Retail and Ethanol
Strong Contribution from Retail and Ethanol (CHART) Retail Performance (Trailing 4Q Avg.) (U.S. and Canada) 6 Acquired world-class ethanol plants at an average of 35% of replacement cost Large, efficient plants in great location have competitive advantage on costs Valero initiatives achieving 6% hig
Slide 7: Adding to Financial Strength
(CHART) (CHART) Adding to Financial Strength Ended 3Q10 with $2.4 billion of cash and nearly $4.2 billion of additional liquidity Net debt-to-cap ratio far below credit facility covenant of 60% At 9/30/10, was 27% No other coverage-type ratios or borrowings on bank revolver Investment grade credit r
Slide 8: Continued Global Demand Growth Important to Refining Margins
(CHART) (CHART) Continued Global Demand Growth Important to Refining Margins Refining is a global business - global demand growth matters to refiners everywhere U.S. and global economic forecasts show growth and upward revisions Strong growth in emerging markets is leading the surge in global demand
Slide 9: Refining Industry Margins Bottomed in 2009, Recovery Started in 2010
Refining Industry Margins Bottomed in 2009, Recovery Started in 2010 9 Gulf Coast Gasoline and On-road Diesel Margins vs. WTI Plentiful spare capacity and product inventories squeezed margins in 2009 Margins improving from strong global demand, particularly in emerging markets, and capacity rational
Slide 10: Feedstock Discounts Also Rebounded in 2010
Nearly 2/3 of Valero's feedstocks are lower-quality and discounted versus light-sweet crude oil Expect key drivers of sour crude discounts to continue in 2011: OPEC increasing production, some of which is lower-quality and heavier crude Light product demand outpacing heavy product demand growth Supp
Slide 11: Rationalization of Industry Capacity Occurring
(CHART) (CHART) Rationalization of Industry Capacity Occurring Source: Valero Energy MBPD 11 Source: Valero Energy MBPD We expect additional refining capacity to shut down in the industry, particularly marginal plants with upcoming capital requirements
Slide 12: Valero's Strategic Priorities
Valero's Strategic Priorities 12 Continue to manage costs Maintain investment grade credit rating Optimize portfolio - continue "high-grading" strategy of the last several years Asset Sales: closed on the sale of Paulsboro refinery and Cameron Highway Oil Pipeline during 4Q10 These two transactions
Slide 13: Achieving Significant Cost Reductions
Achieving Significant Cost Reductions In 2010, on pace to cut more than $185 million in pre-tax costs in addition to last year's savings, excluding the benefit from lower energy prices 13 (CHART) (CHART)
Slide 14: Cumulative Impact of Cost Savings Programs
Cumulative Impact of Cost Savings Programs Cumulative Impact of Cost Savings Programs 14 1 12010 savings of $185 million as described in the Valero Energy 3Q10 Earnings press release on 10/26/10 Ongoing cost savings programs have contributed to improve Valero's competitiveness and improved financial
Slide 15: Continuing to Make Our Refineries More Competitive
Continuing to Make Our Refineries More Competitive 15 1st Quartile Industry Rank 2nd Quartile 1st Quartile Industry Rank 2nd Quartile Industry benchmarking survey shows Valero is continuing to improve on its competitive, low-cost operations Corpus Christi refinery ranked as one of the best facilitie
Slide 16: Continuing to Make Our Refineries More Competitive
Continuing to Make Our Refineries More Competitive 16 1st Quartile Industry Rank 2nd Quartile 1st Quartile 2nd Quartile We aim to be a 1st-quartile refiner in industry benchmark surveys 3rd Quartile 3rd Quartile 4th Quartile Industry Rank Source: Solomon Associates and Valero Energy Source: Solomon
Slide 17: Shifting Capital Spending to Economic Growth and Reliability Projects
Shifting Capital Spending to Economic Growth and Reliability Projects 17 "Stay-in- business" spending 1 The 2011 capital budget is under review given the potential benefits of a recently passed tax law allowing 100% deduction on capital projects. We expect to accelerate spending on economic- growth
Slide 18: Economic Growth Projects Geared Toward High Oil/Low Natural Gas Prices
Economic Growth Projects Mainly Geared Toward High Oil/Low Natural Gas Prices Projects developed based on our "bullish crude, bearish natural gas" price outlook These projects represent over 75% of strategic capital spending in 2010 and 90% in 2011 Large projects have long lead times and were starte
Slide 19: Gulf Coast System Well-Positioned for Global Export Opportunities
Valero's Gulf Coast System Well-Positioned for Global Export Opportunities 19 Our large, complex, low-cost refineries on Gulf Coast are competitive Exports typically provide a margin benefit Low-cost natural gas is a competitive cost advantage versus other global refiners Structural supply-demand im
Slide 20: Why Invest in Valero Today?
Why Invest in Valero Today? 20
Slide 21: Appendix
Vv VALERO Appendix
Slide 22: Paulsboro Divestiture Improves Portfolio
Paulsboro Divestiture Improves Portfolio Paulsboro Divestiture Improves Portfolio 22 Transaction Total proceeds of $707 million, consisting of $340 million for the refinery and $367 million for net working capital, inventories, and other adjustments Consideration received at closing consisted of $54
Slide 23: Competitive, Low-Cost Refining Operations
Competitive, Low-Cost Refining Operations 23 Refining Cash Operating Expenses less Natural Gas Usage ($/bbl) Source: Macquarie Capital (CHART)
Slide 24: Memphis FCC Revamp Project
Memphis FCC Revamp Project Investment Highlights Favorable economics driven by better reliability and gains on margin and volume Improves flexibility to run lower- quality feedstocks Improves FCC reliability and increases run length between turnarounds to four years from 1.5 years Increase in run le
Slide 25: St. Charles MSCC to FCC Conversion Project
St. Charles MSCC to FCC Conversion Project Investment Highlights Favorable 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 years Adds 5%+ volume expansion through FCC Improves energy ef
Slide 26: Hydrogen Plant Projects
Hydrogen Plant Projects 26 Summary of Project Status and Economics1 Summary of Project Status and Economics1 Summary of Project Status and Economics1 Estimated completion date 1Q12 1Q12 Estimated total investment (mil.) $180 $180 Cumulative spend thru 3Q10 (mil.) $10 $10 Incremental Operating Income
Slide 27: Port Arthur Hydrocracker Project
Port Arthur Hydrocracker Project Investment Highlights Favorable economics driven by margin and volume gains Main unit is 50,000 barrels/day hydrocracker plus facilities to process over 150,000 barrels/day of high-acid, heavy sour Canadian crude Creates high-value products from low- value feedstocks
Slide 28: Montreal Pipeline Project
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 29: St. Charles Hydrocracker Project
St. Charles Hydrocracker Project Investment Highlights Favorable economics driven by margin and volume gains Main unit is 50,000 barrels/day hydrocracker Creates high-value products from low- value feedstocks plus hydrogen sourced from relatively inexpensive natural gas Unit has volume expansion of
Slide 30: Project Price Set Assumptions
Project Price Set Assumptions 30 Commodity $/barrel Comments WTI 85.00 Consistent with forward curve WTI - USGC HS Gas Oil -3.45 Over 2008 - 2009 average, conservative basis for hydrocracker, FCC projects USGC Gas Crack 6.00 Under 2008 - 2009 average, historically conservative USGC ULSD Crack 11.00
Slide 31: Project Price Sensitivities
Project Price Sensitivities 31 Operating Income before D&A1 Sensitivities (Delta $ millions/year) Port Arthur HCU St. Charles HCU Memphis & McKee Hydrogen Plants Memphis FCC St. Charles FCC Montreal Products Pipeline WTI, + $1/BBL 3.5 3 2.5 0.4 1.2 N/A WTI - USGC HS Gas Oil, + $1/BBL 14.1 14.1 N/A N
Slide 32: Global CDU Capacity and Additions
32 Source: Valero and Consultant Estimates MMBPD (CHART) Global CDU Capacity and Additions
Slide 33: 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 2008 Limited refinery closures, beg
Slide 34: Global Refining Capacity For Sale or Under Strategic Review
Global Refining Capacity For Sale or Under Strategic Review 34 Location Owner CDU Capacity (MBPD) Stanlow, UK Shell 267 Harburg, Germany Shell 93 Gothenburg, Sweden Shell 80 Kapolei, HI Chevron 54 Pembroke, UK Chevron 210 Meraux, LA Murphy 125 Superior, WI Murphy 35 Milford Haven, UK Murphy 108 Lind
Slide 35: Global Spare 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 Estimate 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 36: 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 36 Favorable margin ou
Slide 37: Ethanol Grows as Part of the Fuel Mix
U.S. Ethanol Demand BGal/yr We expect ethanol volumes to meet corn RFS requirements, but expect advanced (cellulosic) ethanol to develop more slowly than prescribed Current corn ethanol capacity is approximately 13.7 BGPY (13.1 BGPY operational) and the 2015 RFS for corn-based ethanol is 15 BGPY Sou
Slide 38: World Demand Favors Diesel
World Demand Favors Diesel World Demand Favors Diesel World Demand MMBPD Diesel demand is expected to recover past prior highs and grow rapidly Diesel demand has grown to become much larger than gasoline globally Growing global diesel demand is an export opportunity for U.S. refineries History Forec
Slide 39: Gasoline Fundamentals
Gasoline Fundamentals 39 39 (CHART) USGC Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) (CHART) Source: Argus; 2010 data through December 24 Source: DOE weekly data; 2010 data through week ending December 17 Source: DOE weekly data; 2010 data through week ending December 17 Source: DOE weekly
Slide 40: Distillate Fundamentals
Distillate Fundamentals 40 40 (CHART) USGC On-road Diesel Crack (per bbl) U.S. Distillate Demand (mmbpd) (CHART) (CHART) Source: Argus; 2010 data through December 24 Source: DOE weekly data; 2010 data through week ending December 17 Source: DOE weekly data; 2010 data through week ending December 17
Slide 41: Diesel Demand vs. Long Beach Imports
Diesel Demand vs. Long Beach Imports Diesel Demand vs. Long Beach Imports 41
Slide 42: U.S. Transport Indicators: Trucking Indicators
U.S. Transport Indicators: Trucking Indicators Source: BTS Source: ATA Source: ATA 42
Slide 43: U.S. Transport Indicators
(CHART) U.S. Transport Indicators 43
Slide 44: Annual Estimated EPS Sensitivity for $1/barrel Change
2009 Volume (MBPD) Annual Estimated EPS Sensitivity for $1/barrel change 1 Gasolines and blendstocks 1,101 48% $0.46 Distillate (diesel, heating oil, jet fuel) 748 33% $0.31 Other 432 19% $0.18 Total Products 2,281 100% $0.96 Sweet 632 28% Medium Sour & Acidic 581 26% $0.24 Heavy & Resid 635 28% $0.
Slide 45: Implied Value of Valero's Refining Assets
Implied Value of Valero's Refining Assets Billions, except per unit amounts Billions, except per unit amounts Market Value of Equity at $22/share $12.5 Add: Book Value of Debt1 8.0 Less: Cash1 -2.4 = Estimated Enterprise Value 18.1 Less: Book Value of Net Working Capital1 -0.8 Less: Incremental Mark
Slide 46: Investor Relations Contacts
Investor Relations Contacts For more information, please contact: Ashley Smith Vice President, Investor Relations 210.345.2744 ashley.smith@valero.com Matthew Jackson Investor Analyst 210.345.2564 matthew.jackson@valero.com 46