Valero Energy Corporation · NYSE:VLO
Valero Energy — Lehman Brothers Energy/Power Conference 2008
27 slides from Valero Energy's conference presentation, Sep 3, 2008
Slide 1: Lehman Brothers Energy/Power Conference September 4, 2008
Lehman Brothers Energy/Power Conference September 4, 2008
Slide 2: What Happened to U.S. Fuel Demand?
1 What Happened to U.S. Fuel Demand? Very High Prices Recession Consumer Wealth Concerns The Perfect Storm Lower Demand Industry Volatility
Slide 3: Gasoline Margins Improving But Remain Volatile
2 Gasoline Margins Improving But Remain Volatile U.S. gasoline inventories falling Refiners making less gasoline Delta now even with last year, down from 22 million barrels in early March YTD 2008 U.S. gasoline demand down 1.5% from same period in 2007 5-Yr Avg 2008 2007 High Low 1/6/2006 207884 213
Slide 4: Outstanding Diesel Market Continues
3 Outstanding Diesel Market Continues U.S. and European distillate inventories tight Nearly 20 million barrels below last year YTD U.S. distillate demand down 1.4%, but Europe, South America, and Asia supporting exports 2003 2004 2005 2006 2007 2008 Jan 447.565 427.1782 461.3112 477.3762 445.8 Feb 4
Slide 5: Differentials Remain Attractive for Low-Quality Feedstocks
4 Differentials Remain Attractive for Low-Quality Feedstocks Medium and heavy sour differentials have narrowed, but remain attractive Maya trading around $10 and Mars trading around $5 per barrel below WTI Expect fuel oil demand to weaken and asphalt season to end - yielding wider differentials Expe
Slide 6: Margins Improving for Most Secondary Products
5 Margins Improving for Most Secondary Products 1Q08 2Q08 3Q08 -41.08 -54.55 -15.3 1Q08 2Q08 3Q08 -28.09 -39.57 -23.48 1Q08 2Q08 3Q08 -0.63 -6.89 9.94 1Q08 2Q08 3Q08 32.41 33.61 80.52 Note: All prices are spot market Gulf Coast except for lubes, which is New York Harbor; Sources: Platt's, ICIS-LOR,
Slide 7: Refinery Location, Configuration, and Complexity Are Key to Financial Success
6 Refinery, Location, Configuration, and Complexity Are Key to Financial Success Per Barrel Strong distillate margins and wide discounts for low-quality feedstocks provide favorable economics for high-conversion, coking refineries 2001 2002 2003 2004 2005 2006 2007 2008 YTD LLS - Light Sweet 2.09186
Slide 8: Valero's Conversion Capacity Is a Key Advantage
7 Valero's Conversion Capacity Is a Key Advantage Source: Company reports Coking Hydrocracking Cat Cracking VLO 368 213 875 XOM 384 150 792 COP 329 135 673 BP 227 252 442 RDS 164 258 257 CVX 155 148 297 MRO 66 27 402 TSO 94 94 196 SUN 9 28 322 U.S. Conversion Capacity (mbpd) Source: Company reports
Slide 9: Where Refineries Are Coming Online
8 U.S. and Canada N.W. Europe and Med Latin America Middle East Africa E. Europe and FSU Asia Pacific Crude Capacity Growth 0.35 0.1 0.17 0.18 0.06 0.29 2.39 Conversion Capacity Growth 0.35 0.21 0.19 0.17 0.07 0.33 1.67 Where Refineries Are Coming Online Most refinery capacity growth is coming onlin
Slide 10: Expect Complex Refiners to Outperform Other Refiners
9 Expect Complex Refiners to Outperform Other Refiners Source: Industry reports and Valero forecast; 2008 through 2010 estimates are based on consultant averages and are subject to change; includes capacity creep MMBPD Global Refining Supply and Demand 2001 2002 2003 2004 2005 2006 2007 2008E 2009E
Slide 11: Global Product Growth Led by Diesel
10 2007 2008E 2009E 2010E 2011E 2012E Gasoline Demand 21.8785 22.13075 22.39475 22.67925 22.91475 23.1355 Diesel Demand 24.204 24.73875 25.2495 25.8595 26.39125 26.922 Global Product Growth Lead by Diesel Source: 2008 through 2012 estimates are based on consultant averages and are subject to change
Slide 12: Valero Shifting Production Toward Global Demand
11 2007 U.S. Consumption 2Q08 Valero Production 2007 OECD Europe Consumption Motor Gasoline 0.45 0.45 0.16 Distillate 0.28 0.36 0.48 Residual Fuel 0.04 0.04 0.11 Other Products 0.23 0.15 0.25 Valero Shifting Production Toward Global Demand Source: DOE and IEA, Company Reports MMBPD In 1Q08, began to
Slide 13: Major Growth Strategies Increase Distillate Production
12 Major Growth Strategies Increase Distillate Production Near-term - Shifting production from gasoline to distillate Long-term - Building grassroots hydrocrackers at St. Charles and Port Arthur Increase Access and Capability to Process Low Cost Raw Materials Long-term increasing availability of med
Slide 14: Improving Operations
13 Improving Operations 2006 26 2007 32 1Q08 33.3 2Q08 18.7 3Q08 18.5 Valero Average Number of Unplanned Refinery Outages per Month Number of unplanned outage events on the decline in 2008 2008 YTD average is a 25% decrease from 2007 Major commitment to improve performance (Commitment to Excellence)
Slide 15: Targeting $1 Billion of Operating Income Improvements
14 Targeting $1 Billion of Operating Income Improvements Assessed refining system based on 2006 Solomon Survey results In aggregate, 3rd quartile system performance Identified gaps of approximately $1 billion of annual operating income (1% mechanical availability worth $500 million per year) Detaile
Slide 16: Disciplined Capital Program Optimizes Flexibility and Returns
15 2008E 2009E Regulatory 560 750 Turnarounds 435 700 Sustaining/Other 1525 800 Tier II 50 0 Strategic 1180 1750 Budgeted 330 Preliminary 2009 Estimate Disciplined Capital Program Optimizes Flexibility and Returns 1Estimated budgets are for all 16 refineries and include spending for some projects no
Slide 17: Valero's Strong Financial Position
16 Valero's Strong Financial Position Solid investment grade credit rating $1.6 billion in cash on June 30, 2008 Added to cash with sale of Krotz Springs refinery in third quarter $4 billion in credit facilities with no borrowings 2001 0.534 2002 0.504 2003 0.403 2004 0.307 2005 0.248 2006 0.161 200
Slide 18: Plan to Continue Allocating Cash Using a Balanced Approach
17 Stock Buybacks Have approximately $3.6 billion of authorization Plan to continue program Purchased $773 million YTD Plan to Continue Allocating Cash Using a Balanced Approach Dividends Increased dividend by 25% in 2Q08 Nearly 2% yield Debt Maintain investment- grade rating Diluted Shares Outstand
Slide 19: Committed to Creating Long-Term Shareholder Value
18 Committed to Creating Long-Term Shareholder Value Committed to safe, environmental and regulatory compliant operations Focusing on reliability and cost efficiency Using a balanced approach to allocate cash Plan to maintain investment grade credit rating Expect to continue returning cash to shareh
Slide 20: Appendix
VALERO’ Appendix
Slide 21: Refining Portfolio
20 Refining Portfolio Valero Marketing Presence Three Rivers, Texas 100,000 bpd capacity 12.4 Nelson complexity Corpus Christi, Texas 315,000 bpd capacity 18.4 Nelson complexity Wilmington, California 135,000 bpd capacity 15.9 Nelson complexity Benicia, California 170,000 bpd capacity 15.0 Nelson co
Slide 22: Key Growth Projects Sensitivity Analysis
21 21 Key Growth Projects Sensitivity Analysis Refinery Project Total Cost1 $mm Start-Up Contribution to Op. Inc. before Depr. & Amort. Exp.2 $mm IRR3 Description St. Charles Hydro-cracker $1,250 4Q10 $430 30% New hydrocracker - 50 mbpd St. Charles Crude/ Coker $250 3Q09 $160 40% Crude unit expansio
Slide 23: Valero's Refineries Look Undervalued with a Stock Price at $33 per Share
22 Valero's Refineries Look Undervalued with a Stock Price at $33 per Share USGC New Build (Estimated) 25000 VLO Replacement Cost (Estimated) 15810 Lima Transaction Value 11875 Krotz Springs Transaction Value 6060 VLO Implied Refining Assets 3140 Value per Barrel of Daily Throughput Capacity USGC Ne
Slide 24: Implied Value of Valero's Refining Assets
23 Implied Value of Valero's Refining Assets Billions, except per unit amounts Billions, except per unit amounts Market Value of Equity at $33/share $17.3 Book Value of Debt1 6.5 Less: Cash1 -1.6 = Estimated Enterprise Value 22.2 Less: Book Value of Net Working Capital1 -1.0 Less: Incremental Market
Slide 25: Keystone XL Pipeline System
24 Keystone XL Pipeline System Begins: Hardisty Ends: Port Arthur Length: 1933 miles Product: Heavy Sour Crude Oil Planned Capacity: 1.1 million bpd Keystone XL Phase 2 Q4, 2011 Keystone XL Phase 1 Q4, 2010 Cushing Extension Q4, 2010 Keystone Q4, 2009 Canadian Crude Supply Strategy Agreed to partici
Slide 26: Valero Is the Industry Leader, Yet Looks Undervalued vs. Peers
25 Valero Is the Industry Leader, Yet Looks Undervalued vs. Peers Source: Oil & Gas Journal and Valero estimates EC GC MC WC RM DK 0 1 0 0 0 ALJ 0 0.6 0 0.4 0 WNR 0.3 0 0 0 0.7 HOC 0 1 TSO 0.82 0.18 FTO 0.68 0.32 SUN 0.74 0.26 VLO 0.26 0.55 0.07 0.12 Most Geographically Diverse Refining Capacity Sou
Slide 27: Safe Harbor Statement
26 26 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
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