Valero Energy Corporation · NYSE:VLO
Valero Energy — Bank of America Merrill Lynch Refining Conference 2013
69 slides from Valero Energy's conference presentation, Mar 6, 2013
Slide 1: Bank of America Merrill Lynch Refining Conference March 7, 2013
Bank of America Merrill Lynch Refining Conference March 7, 2013
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 Today
Valero Energy Today World's largest independent refiner 16 refineries 3 million barrels per day (BPD) of throughput capacity, with average capacity of 187,000 BPD Approximately 6,800 branded marketing sites Nearly 1,900 sites in U.S. and Canada Retail segment Intend to spin-off Retail segment to sha
Slide 4: Valero's Geographically Diverse Operations: Refinery Capacities
Refinery Capacities (000 bpd) Capacities (000 bpd) Nelson Index Refinery Total Through-put Crude Oil Nelson Index Corpus Christi 325 205 20.6 Houston 160 90 15.1 Meraux 135 135 10.2 Port Arthur 310 290 12.7 St. Charles 270 190 15.2 Texas City 245 225 11.1 Three Rivers 100 95 12.4 Gulf Coast 1,545 1,
Slide 5: Update on Potential Retail Separation
(CHART) Update on Potential Retail Separation Making progress on our plan to separate our retail business as new company called CST Brands, Inc. and unlock potential value for shareholders CST Brands, Inc. (formerly Corner Store Holdings, Inc.) has filed a draft registration statement with the SEC I
Slide 6: Overview of CST Brands, Inc.
Overview of CST Brands, Inc. Expect to be one of the largest independent retailers of transportation fuels and convenience merchandise in North America Nearly 1,900 sites in two geographic segments: U.S. and Canada Retail-U.S. 1,032 company-operated retail sites, of which 81% are owned Sites located
Slide 7: CST Brands - Highlights
CST Brands - Highlights Large scale with nearly 1,900 sites will make it the second-largest publicly traded independent retailer of fuel and convenience merchandise in North America Sites located in geographically diverse regions: the southwestern United States and eastern Canada 61% of U.S. sites a
Slide 8: VLO Well-Positioned to Benefit from Changing Market Trends
VLO Well-Positioned to Benefit from Changing Market Trends Atlantic Basin refining closures reducing excess capacity U.S. competitively exporting into growing and undersupplied markets Expect abundant and growing U.S. shale oil and Canadian production to provide feedstock cost advantage Low-cost U.S
Slide 9: Atlantic Basin Closures Reduce Excess Capacity
(CHART) 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
Slide 10: Valero in the Atlantic Basin
Valero in the Atlantic Basin 10 10 Aruba Terminal
Slide 11: Gulf Coast Crude Discounts and Product Margins: 4Q12 to 1Q13
Gulf Coast Crude Discounts and Product Margins: 4Q12 to 1Q13 Margins: 4Q12 to 1Q13 Margins: 4Q12 to 1Q13 11 Source: Argus, 1Q13 quarter-to-date pricing is through 3-1-13; Gas crack uses USGC CBOB Valero Gulf Coast Product and Feedstocks vs. ICE Brent In 1Q13, LLS has been pricing at a premium to ICE
Slide 12: Continued Global Demand Growth Important to Refining Margins
(CHART) Continued Global Demand Growth Important to Refining Margins 12 Source: Consultant and Valero estimates World Petroleum Demand Growth Emerging markets are taking the lead in terms of global petroleum demand growth, but refining is a global business and world growth impacts refiners in every
Slide 13: World Refinery Capacity Growth
(CHART) World Refinery Capacity Growth Expect significant new global refining additions in the next several years Mainly new plants in Asia and the Middle East Some investment in Latin America New capacity announcements from Brazil, Mexico, and Colombia will likely be much smaller and much later tha
Slide 14: Rapid Growth in U.S. Crude Supply
Rapid Growth in U.S. Crude Supply 14 (CHART) Shale oil production growth and Mid-Continent heavy-up projects are rapidly increasing domestic light, sweet crude supplies This has created a bottleneck of crude oil that has exceeded the capacity of inland refineries and needs to move to markets outside
Slide 15: Rapid Growth in Logistics to U.S. Gulf Coast
Rapid Growth in Logistics to U.S. Gulf Coast 15 (CHART) Logistics capacity to move inland crude from the Mid-Continent and Texas to the U.S. Gulf Coast is expanding quickly to debottleneck inland markets Seeing significant rail capacity coming online, particularly in Bakken and Canada Most popular f
Slide 16: Estimate of Marginal Light Crude Oil Costs per Barrel in 12 to 24 Months
Valero's Estimate of Marginal Light Crude Oil Costs per Barrel in 12 to 24 Months 16 to USEC Rail $14 to $17/bbl to St. James Rail $12/bbl to Cushing Rail $9/bbl Cushing ICE Brent -$7 to $10 to Houston Pipe $4/bbl Midland ICE Brent -$7 to $10 to Houston Pipe $4/bbl CC to Houston $1/bbl Houston to St
Slide 17: Keystone XL Pipeline
Keystone XL Pipeline Keystone XL Pipeline Presidential Permit Delay TransCanada 1,661 mile pipeline that will bring 700,000 bpd of Canadian oil into U.S. markets Expected to create 20,000 U.S. manufacturing and construction jobs; $5.2 billion tax revenue in Keystone corridor states over 20 years Can
Slide 18: Ability to Run Discounted Light Crude at Gulf Coast and Memphis Refineries
Valero has increased the amount of domestic light crudes processed as additional volumes have become available In 4Q12, Valero did not process foreign light crudes at its Gulf Coast and Memphis refineries Valero is evaluating potential projects to further increase its domestic light crude processing
Slide 19: Lower-Cost Natural Gas Provides Structural Advantage to U.S. Refiners
Lower-Cost Natural Gas Provides Structural Advantage to U.S. Refiners 19 Note: Per barrel cost of 700,000 mmBtus/day of natural gas consumption at 90% utilization (2,529 MBPD) of Valero's capacity $1.5 billion higher pre-tax annual costs $3.1 billion higher pre-tax annual costs Expect U.S. natural g
Slide 20: Distillates Have Higher Margins and Faster Growth
Distillates Have Higher Margins and Faster Growth 20 Distillate (diesel, kero, jet fuel) margins are significantly higher than gasoline Distillate demand growth rate is much higher than gasoline Europe continues to be short diesel, but long marginal refining capacity and processing expensive crude o
Slide 21: Successfully Completed Port Arthur Hydrocracker
57,000 BPD Port Arthur hydrocracker completed and operating at or above expectations With recent price environment and current unit performance, project is meeting or exceeding economic expectations Diesel quality is higher than expected Provides blending opportunity to upgrade margin on lower-quali
Slide 22: Valero Increasing Distillate Yields
Valero Increasing Distillate Yields 22 (CHART) Source: Company Reports and EIA, yield data is for 2010; gasoline and distillate as a percent of total production volumes; distillate includes jet fuel Valero's refining system distillate yields are expected to grow from 33% in 2010 to 39% in 2013 Prima
Slide 23: Improving Refinery Operations
Better Better Our goal is to be a 1st-quartile refiner Refining industry benchmark studies show our portfolio continues to improve Seven refineries currently operating in 1st quartile for mechanical availability, the most important Solomon metric Saw results from improvement initiatives in 2011 and
Slide 24: Expect Large Decline in Capital Spending in 2013
Expect Large Decline in Capital Spending in 2013 24 "Stay- in- business" spending 2012 capital high due to spending on growth projects, mainly on two new hydrocrackers For 2013, largest category of strategic/growth spending is for logistics projects (pipelines, tanks, docks and rail), domestic crude
Slide 25: Managing Financial Strength and Growing Cash Yield
Managing Financial Strength and Growing Cash Yield Expect significant contributions of free cash flow from reduced capital spending and earnings from major capital projects in 2013 Returning cash to shareholders Increased quarterly dividend from $0.05 per share in 2Q11 to $0.20 per share in 1Q13 Bou
Slide 26: Valero's Strategic Priorities
Valero's Strategic Priorities 26 Constant focus on safety, environmental, and regulatory compliance Maintain investment grade credit rating Continue improvement in refining portfolio performance to 1st quartile levels Complete major, value-added capital projects Improve portfolio performance Evaluat
Slide 27: We Believe Valero Is an Excellent Buy Today
We Believe Valero Is an Excellent Buy Today Seeking shareholder value creation via retail separation Well-positioned to benefit from changing market trends Atlantic Basin capacity closures have improved refining fundamentals Benefiting from strong export market/strong competitive position of U.S. re
Slide 28: Appendix
yf VALERO Appendix
Slide 29: 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 29 Expect margins to i
Slide 30: Valero's Retail Segment Performance
Valero's Retail Segment Performance 30 Retail achieved record EBITDA in 2011 and second highest year in 2012 Going forward, CST Brands, Inc. will incur incremental costs not reflected in the numbers above, such as corporate G&A, cost adjustments, etc. (see draft registration statement for CST Brands
Slide 31: Geographically Diverse Operations (Retail Sites)
159 83 63 37 2 625 29 30 4 Geographically Diverse Operations 31 U.S. U.S. Canada Canada Total Total Owned 833 81% 284 33% 1,117 60% Leased land, and/or improvements 199 19% 484 57% 683 36% Cardlock 0 0% 80 10% 80 4% Total 1,032 100% 848 100% 1,880 100% As of December 31, 2012 Corner Store Headquarte
Slide 32: Attractive Acquisition Prices for Meraux and Pembroke
Attractive Acquisition Prices for Meraux and Pembroke 32 (CHART) @ $48.50 per share
Slide 33: Refinery Project Estimated Investment and Benefits
Refinery Project Estimated Total Investment (millions) Estimated 2013 Spend (millions) Estimated Completion Date Estimated Key Economic Benefit Key Drivers/Additional Comments McKee 25 MBPD Crude Unit Project $130 $50 2Q14 $9 mm per year of EBITDA for every $1/bbl of Brent - WTI Brent - WTI differen
Slide 34: Refinery Project Categories and Investment
Refinery Project Category Estimated Total Investment (millions) Estimated 2013 Spend (millions) Key Driver/Additional Comments Various locations Logistics Improvements $590 $160 Additional logistics facilities focused on lowering feedstock costs, increasing product marketing flexibility. Projects in
Slide 35: Port Arthur Hydrocracker Project Investment Highlights
Port Arthur Hydrocracker Project Investment Highlights Favorable economics driven by margin and volume gains Main unit is 57,000 barrels/day hydrocracker (rolling 12-month average per permit) Creates high-value products from low- value feedstocks plus hydrogen sourced from relatively inexpensive nat
Slide 36: St. Charles Hydrocracker Project Investment Highlights
St. Charles Hydrocracker Project Investment Highlights Favorable economics driven by margin and volume gains Main unit is 60,000 barrels/day hydrocracker Creates high-value products from low- value feedstocks plus hydrogen sourced from relatively inexpensive natural gas Unit has volume expansion up
Slide 37: Montreal Pipeline Project Investment Highlights
Montreal Pipeline Project Investment Highlights Favorable economics driven by reducing transportation costs and growing volumes New pipeline with 110,000 barrels/day of throughput capacity Planned closure of Shell Montreal refinery allows Valero to place additional products into Montreal and Ontario
Slide 38: Diamond Green Diesel Joint Venture Investment Highlights
Diamond Green Diesel Joint Venture Investment Highlights Building a 9,300 BPD renewable diesel plant adjacent to Valero's St. Charles refinery 50/50 JV project with Darling Int'l, a leading gatherer of used cooking oils and animal fat Uses refinery technology to produce high- quality diesel from low
Slide 39: Project Price Set Assumptions
Project Price Set Assumptions 39 Commodity Base Case ($/barrel) 2008 ($/barrel) 2009 ($/barrel) 2010 ($/barrel) 2011 ($/barrel) 2012 ($/barrel) LLS Crude oil1 85.00 102.07 62.75 81.64 111.09 112.20 LLS - USGC HS Gas Oil -3.45 2.03 -2.86 -2.72 -5.75 -7.59 USGC Gas Crack 6.00 2.47 6.91 5.32 5.11 4.66
Slide 40: Project Price Sensitivities
Project Price Sensitivities 40 EBITDA1 Sensitivities (Delta $ millions/year) Port Arthur HCU St. Charles HCU Crude oil, + $1/BBL 4 3.6 Crude oil - USGC HS Gas Oil, + $1/BBL 16.7 17.8 USGC Gas Crack, + $1/BBL 12.9 13.3 USGC ULSD Crack, + $1/BBL 18.4 20.8 Natural Gas, - $1/MMBTU 18.3 19.7 Total Invest
Slide 41: Key Drivers for a 60,000 BPD Hydrocracker
12,000 BPD (20%) volume expansion Hydrocracker Unit Operating Costs Hydrocracker Unit Operating Costs Heat, power, labor, etc. $1.50 per barrel (per barrel amount based on hydrocracker unit volumes) (per barrel amount based on hydrocracker unit volumes) Synergies with Plant Synergies with Plant With
Slide 42: Hydrocracker Projects Show Profits Under Various Price Sets
Valero's Hydrocracker Projects Show Profits Under Various Price Sets Under Various Price Sets Under Various Price Sets 42 Note: EBITDA = Pretax operating income + depreciation and amortization, excludes interest expense; see details in appendix; millions
Slide 43: 60,000 BPD Hydrocracker Model Estimates Under Various Price Sets
60,000 BPD Hydrocracker Model Estimates Under Various Price Sets 43 Key Drivers and Prices 2008 Prices 2008 Prices 2009 Prices 2009 Prices 2010 Prices 2010 Prices 2011 Prices 2011 Prices 2012 Prices 2012 Prices LLS /bbl $102.07 $62.75 $81.64 $111.09 $112.20 LLS - HSVGO /bbl $2.03 -$2.86 -$2.72 -$5.7
Slide 44: U.S. Shifted to Net Exporter
The transition of the U.S. refining system to being a net exporter to the world market has mitigated the impact of declining domestic demand Large quantities of U.S. diesel and gasoline exports to Latin America and diesel exports to Europe Strong international demand has been "pulling" products and
Slide 45: U.S. Refining Capacity Is Globally Competitive
U.S. Refining Capacity Is Globally Competitive 45 U.S. refiners in PADDs 2, 3, and 4 have higher utilization due to structural advantages of increasing access to discounted crude feedstocks and low-cost energy via natural gas PADD 1 and Europe have lower utilization due to structural disadvantages o
Slide 46: U.S. and Canadian Crude Supply to Provide Feedstock Cost Advantage
(CHART) Expect U.S. and Canadian Crude Supply to Provide Feedstock Cost Advantage 46 Light/Medium Sweet Crude Imports to U.S. Gulf Coast Movements of inland crude to the U.S. Gulf Coast have caused Gulf Coast light/medium sweet crude imports to decline by about 1 MMBPD since 2010 Expect all Gulf Coa
Slide 47: U.S. Crude and Natural Gas Production - Tight Oil Supply Growth
U.S. Crude and Natural Gas Production - Tight Oil Supply Growth The furthest along in development are in North Dakota (Bakken) and South Texas (Eagle Ford) Each could see 500+ MBPD of growth in the next few years and potentially more thereafter Utica (Ohio) is potentially a large play, but is not as
Slide 48: Growth of Crude Logistics to U.S. Gulf Coast
Growth of Crude Logistics to U.S. Gulf Coast 48 Throughput Capacities, '000 bpd 2010 2011 2012 2013E 2014E 2015E Cushing Seaway 150 400 850 850 Keystone 550 830 830 Rail - 60 230 271 271 411 Total - 60 380 1,221 1,951 2,091 Permian Longhorn 225 225 225 BridgeTex 300 300 SXL Permian Express 150 350 3
Slide 49: 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 1The Petit Couronne refinery has shut completely when processing deal with S
Slide 50: Global Refining Capacity For Sale or Under Strategic Review
Global Refining Capacity For Sale or Under Strategic Review 50 Location Owner CDU Capacity (MBPD) Gothenburg, Sweden Shell 80 Kapolei, HI Chevron 54 Milford Haven, UK Murphy 108 Whitegate, Ireland Phillips 66 70 Mazeikai, Lithuania PKN 190 Various Japanese Locations JX Energy 400 Incheon, South Kore
Slide 51: Gulf Coast Light Crude Discount to Brent Improves Competitiveness
Gulf Coast Light Crude Discount to Brent Improves Gulf Coast Competitiveness 51 (CHART) Source: Argus, 2013 data through 3-1-13 Brent 5-3-2 products crack, product prices set by Brent Brent is the marginal Atlantic Basin crude LLS Medium sour (e.g. Mars) Heavy sour (e.g. Maya) Medium and heavy conti
Slide 52: Low-Cost U.S. Natural Gas Provides Competitive Advantage
Low-Cost U.S. Natural Gas Provides Competitive Advantage 52 U.S. natural gas trading at a significant discount to Brent crude oil price (on energy equivalent basis) Expect U.S. natural gas prices will remain low and disconnected from global oil and gas prices for foreseeable future VLO refinery oper
Slide 53: Gasoline Fundamentals
(CHART) Gasoline Fundamentals 53 (CHART) USGC LLS Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) (CHART) Source: Argus; 2013 data through March 1 Source: DOE weekly data; 2012 data through week ending February 22 Source: DOE weekly data; 2012 data through week ending February 22 U.S. Gasoline
Slide 54: Distillate Fundamentals
Distillate Fundamentals 54 54 (CHART) USGC LLS On-road Diesel Crack (per bbl) U.S. Distillate Demand (mmbpd) (CHART) (CHART) Source: Argus; 2013 data through March 1 Source: DOE weekly data; 2012 data through week ending February 22 Source: DOE weekly data; 2012 data through week ending February 22
Slide 55: U.S. Transport Indicators
U.S. Transport Indicators 55 (CHART) (CHART) (CHART) (CHART) Latest data Week 8, 2013
Slide 56: U.S. Transport Indicators: Trucking Indicators
U.S. Transport Indicators: Trucking Indicators 56 (CHART) (CHART) ATA data through Nov-12, TSI data through Dec-12 (CHART) (CHART)
Slide 57: Mexico Statistics
(CHART) (CHART) Mexico Statistics Diesel Gross Imports (MBPD) Source: PEMEX, latest data January 2013 Gasoline Gross Imports (MBPD) Source: PEMEX, latest data January 2013 (CHART) Crude Unit Throughput (MBPD) Crude Unit Utilization (CHART) 57 Source: Mexico Secretary of Energy, latest data January 2
Slide 58: Venezuelan Exports to the U.S.
Venezuelan Exports to the U.S. 58 (CHART) Source: EIA, December 2012
Slide 59: Competitively Exporting into Growing Markets
(CHART) Competitively Exporting into Growing Markets Source: DOE Petroleum Supply Monthly with data as of December 2012, Latin America includes South and Central America plus Mexico U.S. has become a net exporter of refined products due to growth in developing countries, Atlantic Basin capacity clos
Slide 60: U.S. Shifted to Net Exporter
(CHART) U.S. Shifted to Net Exporter Net Imports Net Exports Note: Gasoline includes ethanol, MTBE, and other oxygenates; Source: DOE Petroleum Supply Monthly with data as of December 2012 MBPD Diesel net exports continue to rise significantly, with U.S. refiners sending a net of 883 MBPD to other c
Slide 61: U.S. Gasoline Exports by Destination
(CHART) U.S. Gasoline Exports by Destination Gasoline exports remain at elevated levels due to the strong demand from Latin America, including Mexico Note: Gasoline represents all finished gasoline plus all blendstocks (including ethanol, MTBE, and other oxygenates) Source: DOE Petroleum Supply Mont
Slide 62: U.S. Gasoline Imports by Source
U.S. Gasoline Imports by Source Gasoline imports have declined steadily since 2007 Note: Gasoline represents all finished gasoline plus all blendstocks (including ethanol, MTBE, and other oxygenates) Source: DOE Petroleum Supply Monthly with data as of December 2012. 4 Week Average estimate from Wee
Slide 63: U.S. Diesel Exports by Destination
U.S. Diesel Exports by Destination Diesel exports to Latin America continue to exceed exports to Europe, but over two- thirds of diesel export growth in 2011 was to Europe Source: DOE Petroleum Supply Monthly with data as of December 2012. 4 Week Average estimate from Weekly Petroleum Statistics Rep
Slide 64: U.S. Diesel Imports by Source
U.S. Diesel Imports by Source Diesel imports fell sharply in 2012 due to less volume from Latin America Source: DOE Petroleum Supply Monthly with data as of December 2012. 4 Week Average estimate from Weekly Petroleum Statistics Report 64 (CHART) MBPD 12 Month Moving Average
Slide 65: Ethanol and Retail Reconciliation of Operating Income to EBITDA
Ethanol and Retail Reconciliation of Operating Income to EBITDA 65 Retail (millions) 2005 2006 2007 2008 2009 2010 2011 2012 U.S. Operating Income $81 $113 $154 $260 $170 $200 $213 $240 + U.S. depreciation and amortization expense $60 $60 $59 $70 $70 $73 $77 $77 Non-cash Asset Impairment - - - - - -
Slide 66: Most Crude Oil Discounts Improving
(CHART) Most Crude Oil Discounts Improving 66 $/barrel Source: Argus; 2013 year-to-date through March 1; LLS prices are roll adjusted
Slide 67: Regional Refinery Indicator Margins
Regional Refinery Indicator Margins 67 Source: Argus; 2013 year-to-date through March 1; see Appendix for details on refinery configuration assumptions
Slide 68: Assumed Regional Indicator Margins
Assumed 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 Conv 87 Gasoline prompt - WTI Month 1) x 60% + (Grou
Slide 69: 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 69
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