Valero Energy Corporation · NYSE:VLO
Valero Energy — Investor Presentation (May 2015)
71 slides from Valero Energy's investor presentation, May 13, 2015
Slide 1: Valero
VALERO
Slide 2: Who We Are
World’s Largest Independent Refiner • 15 refineries, 2.9 million barrels per day (BPD) of high-complexity throughput capacity • Greater than 70% of refining capacity located in U.S. Gulf Coast and Mid-Continent • Approximately 10,000 employees Large Logistics Infrastructure with Focus on Growth • Ge
Slide 3: Assets Concentrated in Advantaged Locations
Refinery Capacities (MBPD) Nelson Index Throughput Crude Assets Concentrated in Advantaged Locations Corpus Christi 19.9 Houston 15.4 Meraux 9.7 Port Arthur 12.4 St. Charles 16.0 Texas City 11.1 Three Rivers 13.2 Gulf Coast 1,660 1,284 14.0 Ardmore 12.1 McKee 9.5 Memphis 7.9 Mid-Con 9.3 Pembroke 10.
Slide 4: Key Market Trends
U.S. and Canadian crude oil, natural gas, and natural gas liquids (NGLs) production growth is providing cost advantages to North American refiners - Lower crude prices may temporarily constrain production growth rate Location-advantaged refiners in U.S. Gulf Coast, Mid-Continent, and Canada benefit
Slide 5: Production Growth Provides Resource Advantage to North American Refiners
Production Growth Provides Resource Advantage to North American Refiners Source: DOE (for 2015, data through February) Source: DOE (for 2015, data through February)
Slide 6: Global Petroleum Demand Projected to Grow
Emerging markets in Latin America, Middle East, Africa, and Asia lead demand growth Global Petroleum Demand Projected to Grow Source: Consultant (EIA and IEA) and Valero estimates. Consultant annual estimates generally updated 6 to 12 months after year end.
Slide 7: U.S. Is Growing Product Exports Market Share
Refiners in U.S. Gulf Coast are the largest source of products exported to Latin America and countries in the Atlantic Basin Source: DOE Petroleum Supply Monthly data as of February 2015; Latin America includes South and Central America plus Mexico. U. S. Product Exports By Destination 12 Month Movi
Slide 8: Strategy to Enhance Stockholder Returns
Operations Excellence Capital Returns to Stockholders Disciplined Capital Investments Unlocking Asset Value Strategy to Enhance Stockholder Returns • Demonstrate commitment to safe and reliable operations • Continuously improve our excellent operating performance • Optimize margins with refining sys
Slide 9: Operations Excellence: Safety, Environmental, and Regulatory Compliance
Persistent Focus Drives Results in Safety, Environmental, and Regulatory Compliance Operations Excellence (1)Source: U.S. Bureau of Labor Statistics. All 2014 values are estimates. Statistics are for refining only.
Slide 10: Excellent Operating Performance through Continuous Improvements
Source: Solomon Associates and Valero Energy, includes Pembroke and Meraux • Reliability drives safe and profitable operations Seven of our refineries are first quartile in mechanical availability • Initiated new reliability programs and investments beginning mid- 2000s • Significant gains made in o
Slide 11: Investments, Operations Excellence, and Commercial Optimization Drive High Utilization
Sustained high availability and favorable margin environment enable higher capacity utilization rates Investments, Operations Excellence, and Commercial Optimization Drive High Utilization System-wide mechanical availability near 1 quartile since 2011 st
Slide 12: Refinery Feedstock Flexibility Enables Margin Optimization
• Refining and logistics growth investments enhance our capability to adjust feedstocks and optimize margins • Able to shift feed slate as price environment changes • Expect additional light crude flexibility with completion of Houston and Corpus Christi topper units currently under construction Ref
Slide 13: Capital Allocation Framework Emphasizes Discipline and Stockholder Returns
Dividend Growth • Focus on sustainability • Increase competition for cash flow versus reinvestments (growth capex and acquisitions) Sustaining Capex • Estimate $1.5 billion or lower annual “stay-in- business” spend • Key to safe and reliable operations Debt and Cash • Maintain investment grade credi
Slide 14: Increasing Dividends and Stock Buybacks
• Increased dividend by 45% in 1Q15 versus 4Q14 • Regular dividend increases over last three years • Accelerated stock buybacks beginning in 2013 • Approximately $1.2 billion of stock repurchase authorization at end of 1Q15 Increasing Dividends and Stock Buybacks Targeting >50% total payout ratio of
Slide 15: Disciplined Capital Investment
• Logistics growth spending increases after completion of crude toppers in 2016 • Expect nearly all logistics growth investments to be eligible for drop-down to VLP Advancing Growth Investments While Managing Capital Spending Lower (1) Excludes estimated placeholder for methanol project of $150 mill
Slide 16: Valero
Aa VALERO
Slide 17: Crude Topper Investments Very Attractive
• 160 MBPD new topping capacity designed to process up to 50 API domestic sweet crude Should lower feedstock cost by generating 55 MBPD low sulfur resid Expect increase in net throughput capacity of 105 MBPD • Expect startup in 1H16 • Expect 50% IRR on 2014 prices, >25% IRR with Brent and LLS even •
Slide 18: Hydrocracker Expansions and Methanol and Alkylation Evaluations
Hydrocracker Expansions Evaluating Methanol Plant at St. Charles Evaluating Houston Alkylation Unit • 1.6 – 1.7 million tonnes per year production (36 – 38 MBPD) • Leverages existing assets to reduce capital requirement compared to grassroots facility • Continuing to evaluate capital costs and proje
Slide 19: Unlocking Asset Value: Sponsored MLP Valero Energy Partners
Growth-oriented logistics MLP with 100% fee-based revenues Sponsored MLP Valero Energy Partners (NYSE:VLP) • Valero owns entire 2% general partner interest, all incentive distribution rights, and 69.6% LP interest • High-quality assets integrated with Valero’s refining system • Primary vehicle to gr
Slide 20: VLP Delivering Growth
VLP Delivering Growth VLP is on target to acquire $1 billion of assets from VLO in 2015 See Appendix for reconciliation of estimated 2015 EBITDA to net income. • 1 acquisition – Texas Crude Systems Business in July 2014 for $154 million • 2 acquisition – Houston and St. Charles Terminal Services Bus
Slide 21: Significant Inventory of Estimated MLP Eligible EBITDA at Valero
Significant Inventory of Estimated MLP Eligible EBITDA at Valero Fuels distribution would provide incremental EBITDA if selected (1) Assumes total cost of $900 MM and 10x EBITDA multiple on VLO’s share.
Slide 22: Estimated Inventory of Eligible MLP Assets
Estimated Inventory of Eligible MLP Assets (1) Includes assets that have other joint venture or minority interests. Pipelines (1) • Over 1,200 miles of active pipelines • Expect start-up of 440-mile Diamond Pipeline from Cushing to Memphis refinery in 1H17 Racks, Terminals, and Storage (1) • Over 10
Slide 23: We Believe VLO Is an Excellent Investment
• Majority of capacity has access to cost-advantaged crude, natural gas, NGLs, and corn • Proven operations excellence • Emphasis on capital allocation to stockholders • Discipline and rigor in capital projects and M&A selection and execution • Unlocking value through growth in MLP-able assets and d
Slide 24: Appendix Topic Pages
Topic Pages Appendix Valero 2014 Highlights and 2015 Goals 26-27 Ethanol Segment Capital Spending and Key Investment Details 29-39 Valero Energy Partners LP 40-41 Refining Operations Highlights 42-46 Macro Outlook and Key Margin Drivers 47-53 Global Demand and Refining Capacity 54-58 U.S. Fundamenta
Slide 25: Key 2014 Highlights
Key 2014 Highlights Operations Excellence • Achieved record annual system refinery capacity utilization of approximately 96% in 2014 • Increased average consumption of price-advantaged North American light sweet crudes in 2014 by approximately 200 MBPD compared to 2013 • Reduced Quebec refinery’s cr
Slide 26: Key Goals Expected in 2015
Key Goals Expected in 2015 Operations Excellence • Start up Montreal crude terminal with the Enbridge Line 9B reversal and lower Quebec refinery’s crude costs versus Brent compared to 2014 • Grow product export market share and increase branded wholesale fuels volume Capital Returns to Stockholders
Slide 27: Ethanol Investments Have Performed Well
Outstanding Cash Generation Excellent Acquisitions Competitive Advantages • 11 plants acquired between 2Q09 and 1Q14 for $794MM, less than 35% of replacement value • 1.3 billion gallons total annual production • Scale and location in corn belt • Operational best practices transferred from refining •
Slide 28: Refining & Renewables Capital Focused on Capturing Benefits of Key Long-Term Trends
Refining & Renewables Capital Focused on Capturing Benefits of Key Long-Term Trends • Advantaged crude processing optimizes feedstock flexibility, mainly for light crudes • Hydrocracking increases production of high-margin distillates • Petchems, methanol, and hydrocracking upgrade natural gas or NG
Slide 29: Allocating Significant Growth Capital to Logistics
Allocating Significant Growth Capital to Logistics • Railcars spending declines as receipt of railcars order concludes • Future spending focuses on pipelines
Slide 30: Gated Investment Management Process
Gated Investment Management Process • Development costs increase as project progresses through the phases • NPV and IRR of future cash flows per price forecasts and operating plans evaluated • “Target” IRR hurdle rate ranges, which can change depending on the project and market conditions: Refining
Slide 31: McKee Diesel Recovery Improvement and CDU Expansion
Investment Highlights • Adding 25 MBPD crude unit capacity and parallel light ends processing train • Expect to improve yields and volume gain by recovering diesel from FCC and HCU feeds • Expect to increase diesel and gasoline production on price- advantaged crude • Expect to reduce energy consumpt
Slide 32: Meraux Hydrocracker Conversion Completed December 2014
Investment Highlights • Converted hydrotreater into high- pressure hydrocracker and repurposed old FCC gas plant for additional LPG recovery • Expect to upgrade 23 MBPD gasoil and low-cost hydrogen (via natural gas) mainly into high quality diesel • Expect to increase refinery distillate yield versu
Slide 33: Houston and Corpus Christi Crude Topping Units
Houston and Corpus Christi Crude Topping Units Expected Online in 1st Half of 2016 Project Estimates Total investment $350 MM Annual EBITDA contribution (1) $260 MM Unlevered IRR on total spend (1) 55% Estimates Incremental Volume (MBPD) Feeds Eagle Ford crude Low sulfur atmos resid (29) Distillate
Slide 34: Diamond Pipeline
Investment Highlights • Valero holds option until January 2016 to acquire 50% interest in pipeline • Increases Memphis refinery’s crude supply flexibility via connection to Cushing and economic crudes • Provides direct control over crude blend quality • Grows Valero’s inventory of assets eligible fo
Slide 35: Estimated Key Price Sensitivities on Project Economics
Change in Estimated EBITDA (1) Relative to 2014 (2) Prices ($millions/year) McKee Diesel Recovery & CDU Expansion Meraux HCU Expansion Corpus Christi Topper Houston Topper Estimated Key Price Sensitivities on Project Economics ICE Brent, +$1/bbl none $0.8 $0.4 none ICE Brent – WTI, +$1/bbl $5.5 none
Slide 36: Project Price Set Assumptions
Driver ($/bbl) 2014 Average Project Price Set Assumptions ICE Brent 99.49 ICE Brent – WTI 6.35 ICE Brent – LLS 2.75 USGC CBOB – ICE Brent 3.52 G3 CBOB – WTI 12.27 USGC ULSD – ICE Brent 14.25 G3 ULSD – WTI 23.88 Natural gas (Houston Ship Channel, $/mmBtu) 4.34 Naphtha – ICE Brent -0.67 LSVGO – ICE Br
Slide 37: Port Arthur and St. Charles Hydrocrackers Performing Better Than Expected
• 120 MBPD of combined new capacity successfully started end of 2012 and mid-2013 • Designed to produce high-quality distillates from low-quality feedstocks and natural gas • Approximately half of benefits visible in margin capture rate increase of >4% and balance of benefits in 100 MBPD throughput
Slide 38: Port Arthur and St. Charles Hydrocrackers Performance Details
Trailing 4 Quarters $mm, except /bbl amounts 4Q12 3Q14 Increase = EBITDA (estimated) $802 Port Arthur and St. Charles Hydrocrackers Performance Details Benefits Realized in Reported Results Gulf Coast Capture Rate 58.8% 63.2% 4.4% x Gulf Coast Indicator/bbl, trailing 4Q 3Q14 $19 = Extra margin captu
Slide 39: Drop Down of Houston and St. Charles Terminal Services Business to VLP
Drop Down of Houston and St. Charles Terminal Services Business to VLP Operations • Crude oil, intermediates, and refined petroleum product terminaling services in Houston, Texas and Norco, Louisiana 3.6 million barrels of storage capacity on the Houston ship channel 10 million barrels of storage on
Slide 40: Valero's GP Interest in VLP Nearing the High Splits
Target Quarterly Distribution per Unit Marginal Percentage Interest in Distributions Unitholders GP Valero’s GP Interest in VLP Nearing the “High Splits” Minimum quarterly $0.2125 98% 2% First target above $0.2125 up to $0.244375 98% 2% Second target above $0.244375 up to $0.265625 85% 15% Third tar
Slide 41: Valero's Light Crude Processing Capacity in North America
McKee Crude Unit Expansion • 25 MBPD additional capacity expected in 2H15 • Distillate recovery improvements Houston Crude Topper • 90 MBPD capacity expected 1H16 • Displaces 30 MBPD intermediate feedstock purchases Corpus Christi Crude Topper • 70 MBPD capacity expected 1H16 • Displaces 25 MBPD int
Slide 42: Valero Leads Peers in Total Location-Advantaged Crude Capacity
Valero Leads Peers in Total Location-Advantaged Crude Capacity Source: Company 10-K reports. Crude distillation capacity based on geographic location. Access to lower cost North American crude benefits refiners in Mid-Continent, Gulf Coast, and Eastern Canada; product export opportunities for Gulf C
Slide 43: Quebec City Refinery Cost-Advantaged Access to North American Crude
Expect Quebec City Refinery to Have Cost-Advantaged Access to 100% North American Crude in 2015 Shifted to cost-advantaged crudes via rail and foreign flagged ships from USGC, with additional savings expected from deliveries on Enbridge Line 9B beginning in 3Q15
Slide 44: U.S. Natural Gas Provides Opex and Feedstock Cost Advantages
Valero’s refining operations consume approximately 864,000 mmBtu/day of natural gas, split almost equally between operating expense and cost of goods sold Significant annual pre-tax cost savings compared to refiners in Europe or Asia U.S. Natural Gas Provides Opex and Feedstock Cost Advantages Note:
Slide 45: Capacity to Export Additional Product
Capacity to Export Additional Product Opportunities to expand U.S. Gulf Coast export capability for gasoline to 308 MBPD and diesel to 472 MBPD Export markets pull volume from U.S., enabling high refinery utilization and improved margins Supported by global refined products demand growth Logistics i
Slide 46: Long-Term Macro Market Expectations
Global Outlook U.S. Economy and Petroleum Demand North American Resource Advantage International Export Markets Long-Term Macro Market Expectations • Economic activity and total petroleum demand increases • Transportation fuels demand grows • Refining capacity growth slows after 2015; utilization st
Slide 47: U.S. and Canadian Production Growth Provides Crude Cost Advantage
U.S. and Canadian Production Growth Provides Crude Cost Advantage to North American Refiners Source: EIA, Consultants, company announcements and Valero estimates; 2015 U.S. Crude imports as of February 2015
Slide 48: Estimated Crude Oil Transportation Costs
Estimated Crude Oil Transportation Costs
Slide 49: Crude Oil Differentials Versus ICE Brent
Crude Oil Differentials Versus ICE Brent Source: Argus; 2Q15 through May 1. LLS prices are roll adjusted.
Slide 50: Valero's Regional Refining Indicator Margins
Valero’s Regional Refining Indicator Margins Source: Argus; 2Q15 through May 1.
Slide 51: Regional Margin Indicator Definitions
• 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% • Midcontinent Indicator: [(Group 3 CBOB prompt - WTI Month 1) x 60% + (Group 3 ULSD 10ppm prompt - WTI Month 1) x
Slide 52: Low Cost U.S. Natural Gas Provides Competitive Advantage
• U.S. natural gas is significantly discounted to Brent on an energy equivalent basis • Prices expected to remain low and disconnected from global oil and gas markets for foreseeable future Low Cost U.S. Natural Gas Provides Competitive Advantage Sources: Argus and Bloomberg. Japan LNG through Feb 2
Slide 53: U.S. Refining Capacity Is Globally Competitive
• U.S. flipped from importer to exporter on lower local product demand and higher refinery utilization, particularly in PADDS 2, 3, and 4, driven by structural cost advantages for crude oil and natural gas • Gulf Coast refineries have gained export market share in the Atlantic Basin U.S. Refining Ca
Slide 54: World Refinery Capacity Growth
• New capacity additions expected in Asia and the Middle East • Announced new capacity in Latin America likely to be smaller and start later than planned • Capacity rationalization expected to continue in Europe World Refinery Capacity Growth Source: Consultantand Valero estimates; Net Global Refine
Slide 55: Capacity Rationalization in Atlantic Basin
• Marginal refiners continue to rationalize capacity • Closures in the last few years have been focused in Japan, Australia, and Europe Capacity Rationalization in Atlantic Basin Sources: Industry and Consultant reports and Valero estimates
Slide 56: Refinery Closures List
Location Owner CDU Capacity Closed (MBPD) Year Closed Location Owner CDU Capacity Closed (MBPD) Year Closed Perth Amboy, NJ Chevron Rome, Italy Total/Erg Bakersfield, CA Big West Fawley, U.K.* ExxonMobil Ingolstadt, Germany* Bayernoil Paramo, Czech Republic Unipetrol Yabucoa, Puerto Rico Shell Yabuc
Slide 57: Global Refining Capacity For Sale or Under Strategic Review
Location Owner CDU Capacity (MBPD) Global Refining Capacity For Sale or Under Strategic Review Lytton, Australia Caltex Nishihara, Japan Petrobras/Sumitomo Inchon, Korea SK Energy Whitegate, Ireland Phillips 66 Barbers Point, HI Chevron Pasadena, TX Petrobras Bahia Blanca, Argentina Petrobras Gothen
Slide 58: U.S. Crude Fundamentals
U.S. Crude Fundamentals Source: DOE weekly data through May 1, 2015
Slide 59: U.S. Gasoline Fundamentals
U.S. Gasoline Fundamentals USGC Brent Gasoline Crack (per bbl) U.S. Gasoline Demand (mmbpd) Source: Argus; 2015 weekly data through May 1 Source: DOE monthly data through Feb 2015; 2015 weekly data through May 1 Source: DOE monthly data through Feb 2015; 2015 weekly data through May 1 U.S. Net Impor
Slide 60: U.S. Distillate Fundamentals
U.S. Distillate Fundamentals USGC Brent ULSD Crack (per bbl) U.S. Distillate Demand (mmbpd) Source: Argus; 2015 weekly data through May 1 Source: DOE monthly data through Feb 2015; 2015 weekly data through May 1 Source: DOE monthly data through Feb 2015; 2015 weekly data through May 1 Source: DOE mo
Slide 61: U.S. VMT Growth, Airline and Rail Traffic Indicators
Aa VALERO U.S. VMT Growth vs. Gasoline Demand Growth Airline Traffic Indicators mmm US. Gasoline Demand Growth SUS viircrowen [International Domestic source: US. DOEPSM / US.DOTFHA 30 85% 5.0% = Load Factor 5 3.0% A st 2 % 10% = 3 rox : 2 ! 30% 2 “5.0% Sasseesstasstasssasseaase Ssises ieee ises sees
Slide 62: U.S. Transport Indicators: Trucking
U.S. Transport Indicators: Trucking
Slide 63: Increase in U.S. Gasoline Exports
Note: Gasoline represents all finished gasoline plus all blendstocks (including ethanol, MTBE, and other oxygenates) Source: DOE Petroleum Supply Monthly data through February 2015. 4 Week Average estimate from Weekly Petroleum Statistics Report and Valero estimates. Increase in U.S. Gasoline Export
Slide 64: Decrease in U.S. Gasoline Imports
Decrease in U.S. Gasoline Imports Note: Gasoline represents all finished gasoline plus all blendstocks (including ethanol, MTBE, and other oxygenates) Source: DOE Petroleum Supply Monthly data through February 2015. 4 Week Average estimate from Weekly Petroleum Statistics Report and Valero estimates
Slide 65: Increase in U.S. Diesel Exports
Source: DOE Petroleum Supply Monthly with data through February 2015. 4 Week Average estimate from Weekly Petroleum Statistics Report Increase in U.S. Diesel Exports 12 Month Moving Average, MBPD
Slide 66: U.S. Is Net Refined Products Exporter
Net Imports Net Exports Implied Production of U.S. Refined Products for Domestic Use Valero’s share of U.S. exports has averaged 20% to 25% over the past few years U.S. Is Net Refined Products Exporter U.S. Demand for Refined Products and Net Trade MMBPD U.S. Petroleum Demand Excluding Ethanol and N
Slide 67: U.S. Shifted to Net Exporter
• Net refined products exports increased from 335 MBPD in 2010 to 2,504 MBPD in 2015 • Diesel net exports averaged 919 MBPD in 2014; 651 MBPD in 2015 (Jan-Feb) • Gasoline net exports averaged 66 MBPD in 2014; 199 MBPD in 2015 (Jan – Feb) • Gasoline and blendstocks have shifted to net exports U.S. Sh
Slide 68: Mexico Statistics
Mexico Statistics Diesel Gross Imports (MBPD) Source: PEMEX, latest data February 2015 Gasoline Gross Imports (MBPD) Crude Unit Throughput (MBPD) Crude Unit Utilization
Slide 69: Decrease in Venezuelan Exports to the U.S.
Decrease in Venezuelan Exports to the U.S. Source: EIA, February 2015
Slide 70: Non-GAAP Reconciliations
Ethanol (millions) 2Q09 – 4Q09 2010 2011 2012 2013 2014 1Q15 Cumulative Forecasted (thousands) Full Year Beginning March 1, 2015 Valero Partners Houston and Louisiana Three Months Ended Three Months Ended December 31, 2014 December 31, 2015 (millions) As Reported Annualized (x4) Forecasted Annualize
Slide 71: Investor Relations Contacts
Investor Relations Contacts For more information, please contact: John Locke Executive Director, Investor Relations 210-345-3077 john.locke@valero.com Karen Ngo Manager, Investor Relations 210-345-4574 karen.ngo@valero.com