Valero Energy Corporation · NYSE:VLO
Valero Energy — Investor Presentation (March 2007)
19 slides from Valero Energy's investor presentation, Mar 26, 2007
Slide 1: Management Presentation March 27-29, 2007
Management Presentation March 27-29, 2007 Bill Klesse Chairman and CEO
Slide 2: 2007 Off to a Great Start
2007 Off to a Great Start Outstanding gasoline and diesel margins YTD Gulf Coast gas cracks 30% higher than same period in 2006 and 65% above five-year average for same period YTD Gulf Coast on-road diesel cracks 25% higher than same period in 2006 and 150% above five-year average for same period Im
Slide 3: Gasoline Fundamentals Bullish Factors Continue
Gasoline Fundamentals Bullish Factors Continue Demand at highest levels ever YTD growth at 1.7% 2006 Lower pump prices, resilient economy Strong worldwide naphtha/ blendstock demand pulling components from gasoline pool Asia, Venezuela, Mexico, Iran, West Africa Days of supply below last year and 5-
Slide 4: Gasoline Fundamentals Bullish Factors Continue
Gasoline Fundamentals Bullish Factors Continue Total gasoline imports below 2006 and near five-year average More imports required to meet summer demand Imports attracted by higher margins Quality blend components in high demand Alkylate premiums to conventional gasoline strong for this time of year
Slide 5: Distillate Fundamentals Strong Outlook for Diesel
Distillate Fundamentals Strong Outlook for Diesel Off-road diesel sulfur spec drops from 2,000 ppm to 500 ppm on 6/1/07 Shifts off-road demand to low- sulfur diesel pool 75% of VLO distillates price like on-road diesel and jet fuel 5-Yr Avg 2007 2006 High Low 1/6/2006 28.33 24 26.46 30.91 24.84 1/13
Slide 6: Feedstock Differentials Still Wide
Feedstock Differentials Still Wide Worldwide crude supply mix expected to be stable going forward Heavy sours hold steady Near-term significant new production is light sweet crude But demand for light sweet crude growing rapidly to meet worldwide clean fuels requirements 2005 2010 Light Sweet 0.34 0
Slide 7: Valero's Advantages
Valero's Advantages Largest refining company in North America 3.3 million barrels per day of throughput capacity Mitigates impact of outages Geographically diverse refining system Presence in four key regions enables us to capture and optimize around regional margin trends Aruba Throughput capacitie
Slide 8: Valero Remains Undervalued
Valero Remains Undervalued Despite advantages, VLO trades at relatively low earnings valuation vs. refining peers VLO at 7.3x 2006 EPS versus 10.4x average for peers VLO at 8.5x 2007E First Call EPS versus 11.7x average for peers VLO also inexpensive when evaluated by enterprise value to complexity-
Slide 9: Strategic Focus Shifting to Improving Returns
Strategic Focus Shifting to Improving Returns Acquisition strategy was the right call over the past decade Built throughput capacity more than 1,300% primarily via acquisitions over the last 10 years Now is the time to shift focus to increasing returns on capital Goal is to achieve sustainable, indu
Slide 10: Key Initiatives to Improve Returns
Key Initiatives to Improve Returns Capital discipline Evaluating all projects Removing or reducing scope on some projects Deferred Quebec crude unit expansion until 2008 Cut Texas City crude/coker expansion Focusing on value-added projects at flagship refineries Selective portfolio rebalancing Explo
Slide 11: Key Initiatives to Improve Returns
Key Initiatives to Improve Returns Gross margin capture Continue to look for sour-up and product upgrading opportunities Example: St. Charles mild hydrocracker in 2007 Energy efficiency 1st quartile performance ^ $360mm operating income improvement Examples: new FCCU power recovery turbine at St.Cha
Slide 12: Balanced Approach to Investing Cash Flows in 2007
Balanced Approach to Investing Cash Flows in 2007 Dividends Increased dividend by 50% to $0.12 per share per quarter Third increase in last 15 months Debt repayments Paying off $465 million of maturing and high-coupon debt Thruput Capacity 1/1/2003 0.2 12/31/2004 0.22 12/31/2005 0.189 12/31/2006 0.4
Slide 13: Capital Expenditures Details
Capital Expenditures Details 2006 2007E Regulatory 585 425 Turnarounds 570 420 Sustaining/Other 685 1155 Tier II 990 375 Strategic 920 1125 Strategic Tier II Sustaining/ Other Turnarounds Regulatory $3,750 $3,500 millions Regulatory and Tier II capital spending drops by $775 million from 2006 actual
Slide 14: 2007 Key Projects
2007 Key Projects Expect incremental $300 million in EBITDA in 2007 from projects completed in 2006 and 2007 Quebec crude expansion project deferred until 2008 (50 mbpd, $150mm) Refinery Project Start Up Total Cost1 ($mm) Annual EBITDA ($mm) IRR1 St. Charles Mild Hydrocracker 2Q $424 $125 31% Port A
Slide 15: Future of Refining Looks Bright
Future of Refining Looks Bright Refineries more complex and units more interdependent than ever Results in longer turnarounds and maintenance periods Downtime at one unit impacts refinery-wide throughput Hydrotreating units need more frequent maintenance than crude and conversion units Material cost
Slide 16: Summary
Summary Compelling fundamentals driving strong margins Global demand continues to grow 1.3 to 2.0 million barrels per day Global capacity additions struggling to keep up Valero can achieve meaningful EPS growth from internal improvements and stock buybacks Lower risk, more controllable EPS growth Va
Slide 17: Appendix
Appendix 17
Slide 18: Map of Valero Refineries
Map of Valero Refineries Valero Marketing Presence Quebec, Canada 215,000 bpd capacity Three Rivers, Texas 100,000 bpd capacity Corpus Christi, Texas 340,000 bpd capacity Wilmington, California 135,000 bpd capacity Benicia, California 170,000 bpd capacity McKee, Texas 170,000 bpd capacity Krotz Spri
Slide 19: 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 1934