Valero Energy Corporation · NYSE:VLO
Valero Energy — Barclays Energy and Power Conference 2011
58 slides from Valero Energy's conference presentation, Sep 7, 2011
Slide 1: Barclays Energy and Power Conference September 8, 2011
Barclays Energy and Power Conference September 8, 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 15 refineries including Pembroke plus pending acquisition of Meraux Refinery in Louisiana 2.9 million barrels per day (BPD) of throughput capacity, with average capacity of 194,000 BPD Including Meraux: 3 million BPD and an average of 190,00
Slide 4: Meraux Acquisition: Attractive Value for Flexible, High-Quality Assets
Meraux Acquisition: Attractive Value for Flexible, High-Quality Assets Valero agreed to acquire Murphy Oil Corporation's Meraux refinery in Louisiana and offsite logistics assets for $325 million 135 MBPD refinery value estimated at $270 million Off-site logistics assets value estimated at $55 milli
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 million Plus working capital and inventories with estimated value of $1.1 billion 270,000 barrels-per-day refinery with estimated value
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 Quebec U.S. Gulf Coast Aruba Pembroke
Slide 7: Valero's Geographically Diverse Operations
Valero's Geographically Diverse Operations 7 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. 325 205 20.6 Houston 160 90 15.1 McKee 170 168 9.5 Memphis 195 180 7.
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 market Growth in emerging markets is taking the lead in global petroleum demand OECD demand growth is expected to remain weak in 2011 and 2012 2010 - 20
Slide 9: Discounted WTI Is Another Discounted Crude Oil for Valero to Process
(CHART) Discounted WTI Is Another Discounted Crude Oil for Valero to Process 9 $/barrel Source: Argus; 2011 year-to-date through September 2; LLS prices are roll adjusted Heavy sour and WTI discounts have been strong 70% of Valero's capacity can process feedstocks that are discounted versus waterbor
Slide 10: Strong Rebound in Refinery Margins in Most Regions
Strong Rebound in Refinery Margins in Most Regions 10 Source: Argus; 2011 year-to-date through September 2; see Appendix for details on refinery configuration assumptions
Slide 11: Fundamentals Supportive of Margin Outlook
Fundamentals Supportive of Margin Outlook Tighter fundamentals for our products are supportive of margins Days of supply for diesel and gasoline are much better than last year Margins are a key driver of refiners earnings power Exports continue to remain strong and an important part of the demand st
Slide 12: Valero's Strategic Priorities
Valero's Strategic Priorities 12 Constant focus on safety, environmental, and regulatory compliance Manage overhead and maintain investment grade credit rating Improve margin capture, operating costs, and reliability Complete major, value-added capital projects at key refineries Optimize portfolio -
Slide 13: Improving Refinery Operations
Better Better Refining industry benchmark studies show our portfolio continues to improve Our goal is to be a 1st-quartile refiner in industry benchmark surveys Out of 80 refineries in U.S. and 12 refineries in Canada that participate in Solomon... Corpus Christi ranked #1 in the U.S. group in Maint
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 performance 2011 goal is $100 million, achieved $75 million in first half of 2011 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, Paulsboro or Delaware City refineries Higher-value products and liquid volume are very important when crude oil prices are high Liquid products have a much higher value than solid products like coke and
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 crude oils In 2010, we ran 86 different crude oils McKee and Ardmore process WTI or other crudes that price at or below WTI Rapid growth in crude oil from Eagle Ford shale, discounted to alternat
Slide 17: Financial Strength Provides Opportunity for Growth
(CHART) (CHART) Financial Strength Provides Opportunity for Growth Returning cash to shareholders In August, bought 11 million shares for $220 million, or 2% of outstanding shares Reviewing dividend increase at October board meeting Investment grade credit rating Paid off $718 million of debt in 1H1
Slide 18: Capital Program Focused on Completion of Large Economic Growth Projects
Capital Program Focused on Completion of Large Economic Growth Projects 18 "Stay-in- business" spending Preliminary 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
Slide 19: Economic Projects Offer Significant Earnings Growth Potential
Refinery Project Estimated Completion Date Estimated Annual Op. Inc. before D&A using Base Case1 (millions) Estimated IRR2 using Base Case Estimated Annual Op. Inc. before D&A1 using 2011 Fwd Curve Prices4 (millions) Memphis FCC Revamp Complete $75 20% $133 St. Charles FCC Revamp Complete $140 28% $
Slide 20: Successfully Completed Large FCC Revamps
Successfully Completed Large FCC Revamps St. Charles Recent test run verified that the revamp design basis is being achieved by the unit Annualized EBITDA improvements using quarter-to-date margins Yield benefits: $93 million Operating cost benefits: $44 million Reliability benefits: $10 million Mem
Slide 21: Two Hydrocracker Projects Are Progressing on Schedule and on Budget
Two Hydrocracker Projects Are Progressing on Schedule and on Budget 21 Recently increased planned operating rates above nameplate capacity, from 50 MBPD to 60 MBPD No additional capital costs Increased capacity improves economics Operating income before D&A (EBITDA) improves by a combined $93 millio
Slide 22: Why Valero Is an Excellent Buy Today
Why Valero Is an Excellent Buy Today Strong margin environment with potential upside from economic recovery Improved performance as shown in industry benchmark survey results Achieved significant overhead cost savings Increased margin capture via liquid volume yields and lower-cost feedstocks Improv
Slide 23: Appendix
Wy = VALERO Appendix
Slide 24: Meraux Refinery Utilizes Flexible Feedstock and Product Slate
Meraux Refinery Utilizes Flexible Feedstock and Product Slate Significant feedstock flexibility Currently processes between 50% and 80% medium sour depending on crude oil economics Remainder typically light sweet grades Pipeline connectivity to LOOP opens ability to process dozens of foreign crude g
Slide 25: Meraux One of Highest Conversion Capacity in U.S. Gulf Coast
Meraux One of Highest Conversion Capacity in U.S. Gulf Coast 25 Source: O&G Journal, Conversion capacity consists of FCC, HCU, Coking and ROSE unit capacity; refineries with 50,000 bpd crude throughput minimum
Slide 26: Attractive Acquisition Price for Meraux and Pembroke
Attractive Acquisition Price for Meraux and Pembroke 26 (CHART)
Slide 27: 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 27
Slide 28: Valero Has High Conversion Refining System
Valero Has High Conversion Refining System Valero Has High Conversion Refining System 28 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 29: Valero's Retail Business Continues to Perform Well
Valero's Retail Business Continues to Perform Well (CHART) Retail Operating Income Per Store (Trailing 4Q Avg.) (U.S. and Canada) 29 Retail achieved excellent per store results Improvement in retail earnings with smaller asset base = better returns Since 2005, more nearly tripled per store operating
Slide 30: Strong Contribution from Ethanol
Strong Contribution from Ethanol 30 Large, efficient plants in great location have competitive advantage on costs Acquired world-class ethanol plants at an average of 35% of replacement cost In 2 years, cumulative operating income less depr. & amort. expense (EBITDA) was $535 million, or 71% of etha
Slide 31: Made Excellent Ethanol Acquisitions
Made Excellent Ethanol Acquisitions Built position for average of only 35% of estimated replacement cost 2Q09: acquired 7 plants with 780 million gallons per year of world-scale capacity in advantaged locations 1Q10: Added 3 plants with 330 million gallons per year of capacity 31 Favorable margin ou
Slide 32: Valero's Gulf Coast System Well-Positioned for Global Export Opportunities
Valero's Gulf Coast System Well-Positioned for Global Export Opportunities 32 Our large, complex refineries on Gulf Coast are competitive due to low-cost operations and feedstocks Structural supply-demand imbalance in Latin America and diesel-shortage in Europe provide higher-margin export opportuni
Slide 33: Valero Has Competitive, Low-Cost Refining Operations
Valero Has Competitive, Low-Cost Refining Operations 33 Refining Cash Operating Expenses less Natural Gas Usage ($/bbl) Source: Macquarie Capital (CHART)
Slide 34: 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 35: 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 36: Hydrogen Plant Projects
Hydrogen Plant Projects 36 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 2Q11 (mil.) $56 $56 Incremental Operating Income
Slide 37: Port Arthur Hydrocracker Project
Port Arthur Hydrocracker Project Investment Highlights Favorable economics driven by margin and volume gains Main unit is 50,000 barrels/day hydrocracker plus facilities to process over 150,000 barrels/day of high-acid, heavy sour Canadian crude Creates high-value products from low- value feedstocks
Slide 38: St. Charles Hydrocracker Project
St. Charles Hydrocracker Project Investment Highlights Favorable economics driven by margin and volume gains Main unit is 50,000 barrels/day hydrocracker Creates high-value products from low- value feedstocks plus hydrogen sourced from relatively inexpensive natural gas Unit has volume expansion of
Slide 39: Montreal Pipeline Project
Montreal Pipeline Project Investment Highlights Favorable economics driven by reducing transportation costs and growing volumes New pipeline with 100,000 barrels/day of throughput capacity Planned closure of Shell Montreal refinery allows Valero to place additional products into Montreal and Ontario
Slide 40: Diamond Green Diesel Joint Venture
Diamond Green Diesel Joint Venture Investment Highlights Building a 9,300 BPD renewable diesel plant adjacent to Valero's St. Charles refinery 50/50 JV project with Darling Int'l, a leading gatherer of used cooking oils and animal fat Uses refinery technology to produce high- quality diesel from low
Slide 41: Project Price Set Assumptions
Project Price Set Assumptions 41 Commodity Base Case ($/barrel) 2011 Fwd Curve as of 9/2/11 ($/barrel) WTI 85.00 93.41 WTI - USGC HS Gas Oil -3.45 -20.86 USGC Gas Crack 6.00 25.29 USGC ULSD Crack 11.00 31.95 Natural Gas, $/MMBTU (HHV) 5.00 4.18 Prices shown below are for illustrating a potential est
Slide 42: Project Price Sensitivities
Project Price Sensitivities 42 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 4 3.6 2.5 0.4 1.4 N/A WTI - USGC HS Gas Oil, + $1/BBL 16.7 17.8 N/A N
Slide 43: Global CDU Capacity and Additions
43 Source: Valero and Consultant Estimates MMBPD (CHART) Global CDU Capacity and Additions New Adds 1.8 MMBPD Closures 0.2 MMBPD New Adds 1.3 MMBPD + Restarts 0.7 MMBPD - Closures 0.6 MMBPD
Slide 44: Key Drivers of Large Feedstock Discounts
Key Drivers of Large Feedstock Discounts 44 Light-sweet waterborne crude oils are the marginal feedstock when demand is strong Examples: LLS, Brent, among others Libyan outage plus North Sea maintenance has tightened light-sweet market Lower-quality and logistically constrained crude oils seeing wid
Slide 45: Continued Global Demand Growth Important to Refining Margins
(CHART) (CHART) Continued Global Demand Growth Important to Refining Margins 45 Source: Consultant and Valero estimates Source: Consultant and Valero estimates MMBPD MMBPD Forecast Forecast
Slide 46: Rationalization of Industry Capacity Continues
(CHART) (CHART) Rationalization of Industry Capacity Continues Source: Valero Energy Note: 2011 and 2012 estimates include announced future capacity closures MBPD 46 Source: Valero Energy MBPD As we said previously, refining capacity continues to shut down in the industry, particularly marginal plan
Slide 47: 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 48: Global Refining Capacity For Sale or Under Strategic Review
Global Refining Capacity For Sale or Under Strategic Review 48 Location Owner CDU Capacity (MBPD) Gothenburg, Sweden Shell 80 Kapolei, HI Chevron 54 Meraux, LA Murphy 125 Superior, WI Murphy 35 Milford Haven, UK Murphy 108 Whitegate, Ireland ConocoPhillips 70 Mazeikai, Lithuania PKN 190 Various Japa
Slide 49: 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 Go
Slide 50: World Demand Favors Diesel
World Demand Favors Diesel World Demand Favors Diesel World Demand MMBPD History Forecast Source: Consultant, IEA, and Valero estimates 50 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
Slide 51: Gasoline Fundamentals
Gasoline Fundamentals 51 51 (CHART) USGC LLS Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) (CHART) Source: Argus; 2011 data through September 2 Source: DOE weekly data; 2011 data through week ending August 26 Source: DOE weekly data; 2011 data through week ending August 26 Source: DOE weekly
Slide 52: Distillate Fundamentals
Distillate Fundamentals 52 52 (CHART) USGC LLS On-road Diesel Crack (per bbl) U.S. Distillate Demand (mmbpd) (CHART) (CHART) Source: Argus; 2011 data through September 2 Source: DOE weekly data; 2011 data through week ending August 26 Source: DOE weekly data; 2011 data through week ending August 26
Slide 53: U.S. Transport Indicators: Trucking Indicators
U.S. Transport Indicators: Trucking Indicators 53
Slide 54: U.S. Transport Indicators
(CHART) U.S. Transport Indicators 54 54 Latest data 33 W 2011
Slide 55: Mexico Statistics
(CHART) (CHART) Mexico Statistics Diesel Net Imports (MBPD) Source: PEMEX, latest data Jul-11 Gasoline Net Imports (MBPD) Source: PEMEX, latest data Jul-11 (CHART) Crude Unit Throughput (MBPD) Crude Unit Utilization (CHART) 55 Source: PEMEX, latest data Jul-11 Source: PEMEX, latest data Jul-11
Slide 56: Venezuelan Exports to the U.S.
Venezuelan Exports to the U.S. 56 (CHART) Source: EIA, May 2011
Slide 57: 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 ULS
Slide 58: Investor Relations Contacts
Investor Relations Contacts For more information, please contact: Ashley Smith, CFA, CPA Vice President, Investor Relations 210.345.2744 ashley.smith@valero.com Matthew Jackson Investor Relations Specialist 210.345.2564 matthew.jackson@valero.com 58
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