Valero Energy Corporation · NYSE:VLO
Valero Energy — Merrill Lynch Large Cap Energy Conference 2008
24 slides from Valero Energy's conference presentation, Dec 3, 2008
Slide 1: Merrill Lynch Large Cap Energy Conference
Merrill Lynch Large Cap Energy Conference December 3, 2008
Slide 2: Global Spare Capacity Growing, Expect Competition to Increase
3 Global Spare Capacity Growing, Expect Competition to Increase 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 High prices and now global economic we
Slide 3: More Refining Capacity Owned by Independents
More Refining Capacity Owned by Independents 5 Independent refiners lack upstream economics, so must reduce throughputs to be profitable Source: DOE, industry reports and Valero estimates
Slide 4: Petroleum Demand Growing In Developing Economies
7 Petroleum Demand Growing In Developing Economies North America Latin America 283 250 202 Europe FSU Middle East Asia Africa Global Demand Growth (million barrels per day) 2007 0.95 1.1% 2008 0.12 0.1% 2009 0.35 0.4% 113 37 36 Source: IEA (11/13/2008) 71 109 103 295 416 299 - -362 - -57 446 510 347
Slide 5: Falling Crude Oil Prices
WTI Cushing (per bbl) 9 Falling Crude Oil Prices Market looking for support - $50/barrel appears to be holding for now Demand continuing to fall 2009 economic growth looks very low Expect growth to resume in 2nd half of 2009 Expect OPEC to cut again in December and/or next year Longer-term - expect
Slide 6: Poor Gasoline Margins
11 Poor Gasoline Margins Weak U.S. demand in 2008 Slowing economy Rising unemployment Previously high pump prices caused "staycations" last summer Lower pump prices causing some demand response, seeing signs of recovery U.S. Gasoline Demand, 4-Week Avg (mmbpd) Source: DOE unadjusted weekly data; 200
Slide 7: Distillate Margins Continue To Be Outstanding
Distillate margins strong all year U.S. and European inventories relatively low Near-term, expect support from winter 2009 forward curve at high levels European specifications tighten on January 1, 2009 World demand driving distillate margins Gulf Coast On-Road Diesel Crack (vs. WTI, per bbl) Source
Slide 8: Feedstock Discounts Very Favorable
15 Feedstock Discounts Very Favorable Expect feedstock differentials for medium and heavy grades to remain favorable Many resids and heavy sours trading much cheaper than Maya While production of heavy sour is declining south of the border, Canadian production has been growing Crude Differentials as
Slide 9: Valero's Strategy for Gasoline and Distillate Trends
Valero's Strategy for Gasoline and Distillate Trends 17 Gasoline Limiting incremental gasoline production at reformers and FCCs Complying with RFS ethanol requirements Distillate Shifting gasoline production to distillate De-tuning FCCs, adjusting cut points and temps, using previously built spare h
Slide 10: Valero's Assets Are Competitive
19 Valero's Assets Are Competitive Source: Oil and Gas Journal and Valero estimates Independent Refiners' Total Capacity: Size vs. Complexity Valero's refineries are larger and more complex Size of bubble shows relative throughput capacity
Slide 11: Valero's Assets Are Competitive
21 Valero's Assets Are Competitive Source: Oil and Gas Journal U.S. Conversion Capacity (mbpd) Valero leads in conversion capacity as a percentage of crude distillation capacity Enables Valero to convert low-quality, discounted feedstocks into high- quality products Source: Company reports Valero's
Slide 12: Outlook
23 Outlook Continuing balanced approach Planning a mix of capital projects, debt retirement, stock buybacks, and dividends Planning to maintain financial strength Running a process for Aruba Reviewing all assets Valero Is Financially Competitive Stock Buybacks Significantly reduced share count Purch
Slide 13: Disciplined Capital Program
25 2009 Estimate Disciplined Capital Program $3,000 $3,500 Millions Strategic Turnarounds Sustaining/ Reliability Regulatory Tier II 2008 Estimate Preliminary 2009 budget estimated at $3.5 billion Deferred St. Charles paraxylene project and Port Arthur coker project, but continuing to invest in our
Slide 14: Key Strategic Growth Projects
27 27 Key Strategic Growth Projects Refinery Project Total Cost1 $mm Start-Up Description St. Charles Hydro-cracker $1,250 4Q10 New hydrocracker - 50 mbpd Upgrades low-value feedstocks mainly into ULSD with 25% volume expansion St. Charles Crude/ Coker $250 3Q09 Crude unit expansion - 45 mbpd estima
Slide 15: Targeting $1 Billion of Operating Income Improvements
29 Targeting $1 Billion of Operating Income Improvements Assessed refining system based on 2006 Solomon Survey results Identified gaps of approximately $1 billion of annual operating income (based on 2006 prices) Other opportunities available throughout company Managing corporate headcount Centraliz
Slide 16: Retail - Outstanding Results
Retail - Outstanding Results Earned quarterly record of $107 million in 3Q08 Completed Albertson's tuck-in acquisition in 3Q08 Now operate 1,013 U.S. sites Canadian network at 871 sites Total retail sites 1,884 Falling crude oil prices helping margin expansion 4Q08 looking very good October best mon
Slide 17: Committed to Creating Long-Term Shareholder Value
33 Committed to Creating Long-Term Shareholder Value Continuing balanced approach with cash Maintaining strong balance sheet Expect acquisition opportunities to become available Despite tough environment, Valero currently profitable At stock price of $17 per share, trading at P/E of less than 4x con
Slide 18: Appendix
VALERO’ Appendix
Slide 19: Refining Portfolio
37 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 20: Valero's Refineries Look Undervalued at $17 per Share
39 Valero's Refineries Look Undervalued with a Stock Price at $17 per Share Value per Barrel of Daily Throughput Capacity Value per Complexity-Adjusted Barrel of Daily Capacity 7% of Replacement Cost 7% of USGC New Build Value 1 Transaction value includes estimated value of earn-out at $170 million
Slide 21: Implied Value of Valero's Refining Assets
41 Implied Value of Valero's Refining Assets Billions, except per unit amounts Billions, except per unit amounts Market Value of Equity at $17/share $8.9 Book Value of Debt1 6.5 Less: Cash1 -2.8 = Estimated Enterprise Value 12.6 Less: Book Value of Net Working Capital1 -0.5 Less: Incremental Market
Slide 22: Keystone XL Pipeline System
43 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 23: Valero Is the Industry Leader, Yet Looks Undervalued vs. Peers
45 Valero Is the Industry Leader, Yet Looks Undervalued vs. Peers Source: Oil & Gas Journal and Valero estimates Most Geographically Diverse Refining Capacity Source: Oil & Gas Journal and Valero estimates Leading Nelson Complexity Index Source: Bloomberg Lowest Volatility of Quarterly Diluted EPS f
Slide 24: Safe Harbor Statement
47 47 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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