Valero Energy Corporation · NYSE:VLO
Valero Energy — UBS Global Oil and Gas Conference May 2012
64 slides from Valero Energy's conference presentation, May 24, 2012
Slide 1: UBS Global Oil and Gas Conference May 2012
UBS Global Oil and Gas Conference May 2012
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 16 refineries including recently acquired Pembroke, U.K. and Meraux, Louisiana refineries, plus recently suspended operations at Aruba 3 million barrels per day (BPD) of throughput capacity, with average capacity of 190,000 BPD (187,000 excl
Slide 4: Valero's Geographically Diverse Operations
Valero's Geographically Diverse Operations 4 Shutdown in March 2012 235,000 bpd capacity Nelson Index of 8
Slide 5: Valero in the Atlantic Basin
Valero in the Atlantic Basin 5 5
Slide 6: VLO Well-Positioned to Benefit from Changing Market Trends
VLO Well-Positioned to Benefit from Changing Market Trends Competitively exporting into growing markets Atlantic Basin closures reducing excess capacity Increasing Valero's yield of distillates, which have higher margins and growth Expect abundant and growing U.S. shale oil and Canadian production t
Slide 7: Valero's Gulf Coast System Taking Advantage of Global Export Opportunities
Valero's Gulf Coast System Taking Advantage of Global Export Opportunities 7 Our large, complex refineries on Gulf Coast are competitive due to low-cost operations and feedstocks flexibility and comprise a significant portion of U.S. exports Strong international demand has been "pulling" products an
Slide 8: Atlantic Basin Closures Reduce Excess Capacity
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 utilization in Latin American refineries and demand growth in Latin America, creates opportunity for c
Slide 9: Product Margins Responding to Atlantic Basin Closures
Product Margins Responding to Atlantic Basin Closures 9 With recent closures, Atlantic Basin product margins have increased from prior year levels Market focused on gasoline margin improvements, but more significant impact may be strong diesel support due to tightness in diesel balances In addition,
Slide 10: U.S. Refining Capacity Is Globally Competitive
U.S. Refining Capacity Is Globally Competitive 10 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 11: Distillates Have Higher Margins and Faster Growth
Distillates Have Higher Margins and Faster Growth World Product Demand Growth Source: Consultant, IEA, and Valero estimates 11 Distillate (diesel, kero, jet fuel) margins are significantly higher than gasoline Distillate demand growth rate is much higher than gasoline Source: Argus, 2012 YTD through
Slide 12: Valero Increasing Distillate Yields
Valero Increasing Distillate Yields 12 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 Primary drive
Slide 13: Expect U.S. and Canadian Crude Supply to Provide Feedstock Cost Advantage
Expect U.S. and Canadian Crude Supply to Provide Feedstock Cost Advantage 13 Changes in Sweet Crude Balances U.S. GC Light/Medium Sweet Imports in 2011 - 952 MBPD Last 6-months - 763 MBPD Expect significant growth in U.S. shale crude and Canadian production plus heavy-up projects in Mid-Con that fre
Slide 14: LLS Discount to Brent Improves Gulf Coast Competitiveness
LLS Discount to Brent Improves Gulf Coast Competitiveness 14 LLS recently flipped from a historical premium to a discount to Brent Over time, Valero expects The LLS discount to Brent will become a structural cost advantage, increasing margins versus other Atlantic Basin refiners Brent will remain th
Slide 15: Lower-Cost Natural Gas Provides Structural Advantage to U.S. Refiners
Lower-Cost Natural Gas Provides Structural Advantage to U.S. Refiners 15 Note: Per barrel cost of 600,000 mmBtus/day of natural gas consumption at 90% utilization (2,529 MBPD) of Valero's capacity $1.5 billion higher annual costs $2.8 billion higher annual costs Expect U.S. natural gas prices will r
Slide 16: Valero's Key Economic Projects
Refinery Project Estimated Completion Date Estimated Annual EBITDA Base Case1 (millions) Estimated IRR2 using Base Case Estimated Annual EBITDA1 using 2011 Prices (millions) LLS-based McKee & Memphis New Hydrogen Plants Operating $105 39% $176 Port Arthur New Hydrocracker 3Q12 $520 23% $634 St. Char
Slide 17: 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 18: Valero's Hydrocracker Projects Show Profits Under Various Price Sets
Valero's Hydrocracker Projects Show Profits Under Various Price Sets 18 Note: EBITDA = Pretax operating income + depreciation and amortization, excludes interest expense; see details in appendix millions
Slide 19: Valero's Contribution from Ethanol
Valero's Contribution from Ethanol 19 Large, efficient plants in great location have competitive advantage on costs Acquired competitive, world-class ethanol plants at an average of 35% of replacement cost In 3 years, cumulative EBITDA was $882 million, versus $760 million total purchase price for p
Slide 20: Valero's Retail Performance
Valero's Retail Performance 20 Retail achieved record results in 2011 Improvement in retail earnings with smaller asset base = better returns Retail business has yielded strong free cash flow 2Q12 U.S. retail margins much better than 1Q12 Valero Retail EBITDA Number of Valero Retail Sites Note: incl
Slide 21: 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 Firs
Slide 22: Expect Large Decline in Capital Spending After Completion of Key Economic Growth Projects
Expect Large Decline in Capital Spending After Completion of Key Economic Growth Projects 22 "Stay- in- business" spending 2012 capital high due to estimated completion of economic growth projects, mainly the hydrocrackers Expect a significant decline in capital spending after 2012 $1,740 $1,735 $1,
Slide 23: 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 Tripled quarterly dividend in 4Q11 to $0.15 per share Bought 4.5 million shares for $106
Slide 24: Valero's Strategic Priorities
Valero's Strategic Priorities 24 Constant focus on safety, environmental, and regulatory compliance Maintain investment grade credit rating Continue improvement in refining performance to 1st quartile levels Continue cost reduction efforts Complete major, value-added capital projects Optimize portfo
Slide 25: Why We Believe Valero Is an Excellent Buy Today
Why We Believe Valero Is an Excellent Buy Today Well-positioned to benefit from changing market trends Benefiting from strong export market Atlantic Basin capacity closures have improved refining fundamentals Expect abundant U.S. shale and Canadian crude oil production to provide a cost advantage to
Slide 26: Appendix
Wy oer = VALERO | Appendix
Slide 27: 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 27 Expect margins to i
Slide 28: Attractive Acquisition Prices for Meraux and Pembroke
Attractive Acquisition Prices for Meraux and Pembroke 28 @ $22 per share
Slide 29: Valero Has Competitive, Low-Cost Refining Operations
Valero Has Competitive, Low-Cost Refining Operations 29 Refining Cash Operating Expenses less Natural Gas Usage ($/bbl) Source: Macquarie Capital
Slide 30: 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 31: 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 32: Hydrogen Plant Projects
Hydrogen Plant Projects 32 Summary of Project Status and Economics1 Summary of Project Status and Economics1 Summary of Project Status and Economics1 Completion/start-up date 4Q11/ 1Q12 4Q11/ 1Q12 Total investment (mil.) $183 $183 Estimated Incremental EBITDA (Operating Income before D&A2) (mil.), B
Slide 33: Port Arthur Hydrocracker Project
Port Arthur Hydrocracker Project Investment Highlights Favorable economics driven by margin and volume gains Main unit is 57,000 barrels/day (rolling 12- month average per permit) hydrocracker plus facilities to process over 150,000 barrels/day of high-acid, heavy sour crudes (e.g. Canadian and Lati
Slide 34: St. Charles Hydrocracker Project
St. Charles Hydrocracker Project Investment Highlights Favorable economics driven by margin and volume gains Main unit is 60,000 barrels/day hydrocracker Creates high-value products from low- value feedstocks plus hydrogen sourced from relatively inexpensive natural gas Unit has volume expansion up
Slide 35: Montreal Pipeline Project
Montreal Pipeline Project Investment Highlights Favorable economics driven by reducing transportation costs and growing volumes New pipeline with 100,000 barrels/day of throughput capacity Planned closure of Shell Montreal refinery allows Valero to place additional products into Montreal and Ontario
Slide 36: Diamond Green Diesel Joint Venture
Diamond Green Diesel Joint Venture Investment Highlights Building a 9,300 BPD renewable diesel plant adjacent to Valero's St. Charles refinery 50/50 JV project with Darling Int'l, a leading gatherer of used cooking oils and animal fat Uses refinery technology to produce high- quality diesel from low
Slide 37: Project Price Set Assumptions
Project Price Set Assumptions 37 Commodity Base Case ($/barrel) 2008 ($/barrel) 2009 ($/barrel) 2010 ($/barrel) 2011 ($/barrel) LLS Crude oil1 85.00 102.07 62.75 81.64 111.09 LLS - USGC HS Gas Oil -3.45 2.03 -2.86 -2.72 -5.75 USGC Gas Crack 6.00 2.47 6.91 5.32 5.11 USGC ULSD Crack 11.00 20.5 7.26 8.
Slide 38: Project Price Sensitivities
Project Price Sensitivities 38 EBITDA1 Sensitivities (Delta $ millions/year) Port Arthur HCU St. Charles HCU Memphis & McKee Hydrogen Plants Memphis FCC St. Charles FCC Montreal Products Pipeline Crude oil, + $1/BBL 4 3.6 2.5 0.4 1.4 N/A Crude oil - USGC HS Gas Oil, + $1/BBL 16.7 17.8 N/A N/A N/A N/
Slide 39: 60,000 BPD Hydrocracker Model Estimates Under Various Price Sets
60,000 BPD Hydrocracker Model Estimates Under Various Price Sets 39 Key Drivers and Prices 2008 Prices 2008 Prices 2009 Prices 2009 Prices 2010 Prices 2010 Prices 2011 Prices 2011 Prices Jan. 2012 Prices Jan. 2012 Prices LLS /bbl $102.07 $62.75 $81.64 $111.09 $110.43 LLS - HSVGO /bbl $2.03 -$2.86 -$
Slide 40: Hydrocracking Enhances Refinery Competitiveness
Hydrocracking Enhances Refinery Competitiveness Benefits of hydrocrackers Volume gain provides significant margin advantage More economic home for VGO than FCCs Creates feedstock flexibility 40 Source: EIA Refinery Capacity Report as of January 1, 2011; Valero More-profitable hydrocrackers... Make m
Slide 41: Continued Global Demand Growth Important to Refining Margins
Continued Global Demand Growth Important to Refining Margins 41 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 market
Slide 42: World Refinery Capacity Growth
World Refinery Capacity Growth Significant new global refining additions seen in the next several years Mainly new plants in Asia and the Middle East Some investment in Latin America Global Refinery Additions 42 MMBPD Source: Consultant and Valero estimates Net 1,054 MBPD Net 1,162 MBPD
Slide 43: 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 remains closed at this time with plans for Shel
Slide 44: Global Refining Capacity For Sale or Under Strategic Review
Global Refining Capacity For Sale or Under Strategic Review 44 Location Owner CDU Capacity (MBPD) Gothenburg, Sweden Shell 80 Kapolei, HI Chevron 54 Milford Haven, UK Murphy 108 Whitegate, Ireland Phillips 66 70 Belle Chase, LA Phillips 66 247 Mazeikai, Lithuania PKN 190 Various Japanese Locations J
Slide 45: May 2012 Gulf Coast Prices vs. Brent
May 2012 Gulf Coast Prices vs. Brent 45 Source: Argus Brent 5-3-2, 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 continue to have to wide cracks versus products
Slide 46: Low-Cost U.S. Natural Gas Provides Competitive Advantage
Low-Cost U.S. Natural Gas Provides Competitive Advantage 46 U.S. natural gas recently trading at an 87% 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 op
Slide 47: Gasoline Fundamentals
Gasoline Fundamentals 47 USGC LLS Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) Source: Argus; 2012 data through May 18 Source: DOE weekly data; 2012 data through week ending May 11 Source: DOE weekly data; 2012 data through week ending May 11 U.S. Gasoline Days of Supply U.S. Net Imports of
Slide 48: Distillate Fundamentals
Distillate Fundamentals 48 USGC LLS On-road Diesel Crack (per bbl) U.S. Distillate Demand (mmbpd) Source: Argus; 2012 data through May 18 Source: DOE weekly data; 2012 data through week ending May 11 Source: DOE weekly data; 2012 data through week ending May 11 Source: DOE monthly data; 2011 data th
Slide 49: U.S. Transport Indicators: Trucking Indicators
U.S. Transport Indicators: Trucking Indicators 49
Slide 50: U.S. Transport Indicators
U.S. Transport Indicators 50 Latest data Week 16, 2012
Slide 51: Mexico Statistics
Mexico Statistics Diesel Gross Imports (MBPD) Source: PEMEX, latest data Mar-12 Gasoline Gross Imports (MBPD) Source: PEMEX, latest data Mar-12 Crude Unit Throughput (MBPD) Crude Unit Utilization 51 Source: Mexico Secretary of Energy, latest data Mar-12 Source: Mexico Secretary of Energy, latest dat
Slide 52: Venezuelan Exports to the U.S.
Venezuelan Exports to the U.S. 52 Source: EIA, February 2012
Slide 53: Competitively Exporting into Growing Markets
Competitively Exporting into Growing Markets Source: DOE Petroleum Supply Monthly with data as of February 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 closures, We
Slide 54: U.S. Shifted to Net Exporter
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 February 2012 MBPD Diesel net exports continue to rise significantly, with U.S. refiners sending a net of 690 MBPD to other countries
Slide 55: U.S. Gasoline Exports by Destination
U.S. Gasoline Exports by Destination Most of the gasoline export growth this year has been to Latin America, including Mexico Latin American requirements are growing due to increased demand and poor performance of refineries in Venezuela and Mexico Note: Gasoline represents all finished gasoline plu
Slide 56: 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 February 2012. 4 Week Average estimate from Wee
Slide 57: 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 February 2012. 4 Week Average estimate from Weekly Petroleum Statistics Rep
Slide 58: U.S. Diesel Imports by Source
U.S. Diesel Imports by Source Diesel imports have fallen slightly in 2012 due to less volume from Latin America Source: DOE Petroleum Supply Monthly with data as of February 2012. 4 Week Average estimate from Weekly Petroleum Statistics Report Expect the St. Croix shutdown will reduce 2012 imports 5
Slide 59: U.S. Crude and Natural Gas Production - Tight Oil Supply Growth
59 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
Slide 60: Ethanol and Retail Reconciliation of Operating Income to EBITDA
Ethanol and Retail Reconciliation of Operating Income to EBITDA Ethanol (millions) 2Q09 - 4Q09 2010 2011 1Q12 Operating Income $165 $209 $396 $9 + Depreciation and amortization expense $18 $36 $39 $10 = EBITDA $183 $245 $435 $19 60 Retail (millions) 2005 2006 2007 2008 2009 2010 2011 1Q12 U.S. Opera
Slide 61: Crude Discounts Narrowed since 3Q11
Crude Discounts Narrowed since 3Q11 61 $/barrel Source: Argus; 2012 year-to-date through May 18; LLS prices are roll adjusted
Slide 62: Regional Refinery Indicator Margins
Regional Refinery Indicator Margins 62 Source: Argus; 2012 year-to-date through May 18; see Appendix for details on refinery configuration assumptions
Slide 63: 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 64: 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 64
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