Investor Presentation March 2016
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 1934. The words
“believe,” “expect,” “should,” “estimates,” “intend,” and other similar expressions identify forward–looking statements. It is important to note that actual results could differ materially from those projected in such forward– looking statements. For more information concerning factors that could cause actual results to differ from those expressed or forecasted, see Valero’s annual reports on Form 10-K and quarterly reports on Form 10-Q, filed with the Securities and Exchange Commission, and available on Valero’s website
at www.valero.com.
2
Who We Are
World’s Largest Independent Refiner
Operator of Liquids-Focused Logistics Assets
• 15 refineries, 3 million barrels per day (BPD) of highcomplexity throughput capacity
• General partner and majority owner of Valero Energy Partners LP (NYSE: VLP), a fee-based master limited partnership (MLP)
• Volumes distributed through branded and unbranded channels
• Significant inventory of logistics assets within Valero
• Brands include Valero, Ultramar, Texaco, Shamrock, Diamond Shamrock and Beacon
• Greater than 70% of refining capacity located in U.S. Gulf Coast and Mid-Continent • Approximately 10,000 employees
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Wholesale Fuels Marketer
• Approximately 7,500 marketing sites in the U.S., Canada, United Kingdom and Ireland
One of North America’s Largest Renewable Fuels Producers • 11 corn ethanol plants, 1.4 billion gallons per year (85,000 BPD) production capacity • Operator and 50% owner of Diamond Green Diesel joint venture – 10,800 BPD renewable diesel production capacity
Strong U.S. Gulf Coast and Mid-Continent Presence
Refineries and ethanol plants are in advantaged locations See slide 20 for capacities
4
Current Macro Environment
SUPPLY 1
DEMAND 3
Abundant global supply of crude oil and natural gas
Forecasted world GDP growth 4
2 North American logistics build out adds efficiency and removes mid-continent bottlenecks
5
Demand response to lower product prices Structural product shortage in Latin America, Europe, Africa and Eastern Canada
See slide 19 in Appendix for notes regarding this slide and slides 25 – 28 for supply and demand details.
Expect ample supply to keep prices low, which should continue driving increased petroleum demand. 5
Safety and Reliability are Imperative for Profitability
Industry
Contractors
0.70
Process Safety Event Rate
Employees
Tier 1 Process Safety
0.41 0.38
1.60 0.97 0.75
Total Recordable Incident Rate (TRIR)
Personnel Safety 0.19
0.08
VLO’s Performance Versus Industry Benchmarks 1st Quartile
2008
2nd Quartile
2010 2012
3rd Quartile
2014 4th Quartile
Mechanical Availability
Personnel Index
Maintenance Index
Non-Energy Cash Opex
See slide 19 in Appendix for notes regarding this slide.
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Operate Safely and Reliably
Commercial and Operational Flexibility
Disciplined Capital Mgmt to Unlock Value
Energy Intensity Index
Advantaged Location in U.S. Gulf Coast Over 55% of our throughput capacity is located in U.S. Gulf Coast – Access to low cost natural gas, North American and foreign crudes, deep skilled labor pool
U.S Gulf Coast CDU Capacity (MBPD) 1,354
1,084
– Pipeline takeaway capacity additions have increased crude competition – Proximity to growing product export markets in Mexico and Latin America
743
– Competitive refined products supplier to Eastern Canada and Northwest Europe – 13.4 weighted average regional Nelson Complexity Index – Flexibility to process wide range of crudes and feedstocks
VLO
MPC
See slide 19 in Appendix for notes regarding this slide. Capacities as of January 1, 2016.
7
Operate Safely and Reliably
Commercial and Operational Flexibility
Disciplined Capital Mgmt to Unlock Value
PSX
0
0
TSO
HFC
High Complexity Refineries and Lowest Cost Operator Feedstock Ranges in U.S. Gulf Coast
2015 Refining Cash Operating Expenses Per Barrel of Throughput
(2010 – 2015)
(Excludes Turnaround and D&A)
$7
37% 34%
Peer Range
34%
VLO
Median $6.30
23% 24%
$5.40 17%
10% 12%
12%
4% $3.70 $3 Refining Peers See slide 19 in Appendix for notes regarding this slide.
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Operate Safely and Reliably
Commercial and Operational Flexibility
Disciplined Capital Mgmt to Unlock Value
Our Portfolio Facilitates Optimization of Product Exports VLO’s U.S. Product Exports (MBPD)
Gasoline
Diesel
472 412
237 164
255
Distillate 105
69 Gasoline
2011
308
2012
2013
2014
2015
Current Potential Capacity Future Capacity
Actual export volumes for 2011 – 2015. See slide 19 in Appendix for notes regarding this slide.
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Operate Safely and Reliably
Commercial and Operational Flexibility
Disciplined Capital Mgmt to Unlock Value
Capital Allocation 1
Maintain Strong Balance Sheet • Maintain investment grade credit rating and strong balance sheet
3
Sustaining Capex • Approximately $1.5 billion annually • Key to safe and reliable operations
Discretionary
2
Non-Discretionary
• Target 20% to 30% debt-to-cap ratio(1)
Dividend • Strategy is to maintain a sustainable dividend
Growth Capex
Acquisitions
Cash Returns
• Prioritize highervalue, highergrowth, quicker payback opportunities
• Evaluate versus alternative uses of cash
• Stock buybacks afford flexibility to return cash and manage capital employed • Targeting 75% payout ratio(2) for 2016
• Dividend increases compete for cash flow versus reinvestments
(1)Debt-to-cap (2) Payout
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ratio based on total debt reduced by $2 billion of cash. ratio is the sum of dividends plus stock buybacks divided by net income from continuing operations excluding special items.
Operate Safely and Reliably
Commercial and Operational Flexibility
Disciplined Capital Mgmt to Unlock Value
Capital Investments Focused on Maintaining Asset Base, Enhancing Margins, and Growing Logistics 2016 Capital Budget ($MM)
• Targeting $2.6 billion in 2016 – Includes some 2015 carry forward
• 2016 growth investments allocated approximately 50/50 for logistics and asset optimization
Asset Optimization $480
– Logistics
Logistics $460 Sustaining $1,640
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Operate Safely and Reliably
Commercial and Operational Flexibility
•
Approximately 95% MLP-eligible
•
Expect cash proceeds to VLO via drop downs to VLP
– Asset optimization •
Advantaged feedstocks and upgrading
•
Focused on shorter payback cycle projects
•
Hurdle rate of 25% IRR
Disciplined Capital Mgmt to Unlock Value
Investing in Asset Optimization
Light Crude
Products & Other
• 160 MBPD total new CDU capacity at Corpus Christi (commissioned Dec 2015) and Houston (expected 2Q16) to process up to 50 API sweet crude
• Hydrocracker expansions at Port Arthur (completed Oct 2015) and St. Charles (expected in 1H16) estimated to increase distillate yield by approximately 23 MBPD
• Replaces approximately 55 MBPD of purchased low sulfur resid for FCCs with indigenous production
• New 13 MPBD Houston alkylation unit expected to startup in 1H19 • Projects under development:
• Expect net throughput capacity increase of about 105 MBPD and annual EBITDA contribution of approximately $430 MM using 2015 prices
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Operate Safely and Reliably
Octane enhancement Feedstock flexibility FCC feed desalting Cogeneration Commercial and Operational Flexibility
Disciplined Capital Mgmt to Unlock Value
Investing to Improve Access to North American Crude
Diamond Pipeline • • •
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440 miles of 20-inch pipe (200 MBPD capacity) connecting Memphis to Cushing, expected to startup in 3Q17 Provides supply flexibility and ability to improve crude blend quality Approximately $930 MM total project cost
Exercised option in Dec 2015 to acquire 50% interest; approximately $140 MM spent in 2015 and $170 MM budgeted in 2016
Expect to receive cash proceeds if 50% interest is dropped to VLP and 12% pre-tax IRR for VLP
Operate Safely and Reliably
Commercial and Operational Flexibility
Disciplined Capital Mgmt to Unlock Value
Our Sponsored MLP Valero Energy Partners (NYSE:VLP) Summary
Accomplishments since IPO
• VLO owns entire 2% GP interest, all incentive distribution rights, and a 67.1% of outstanding LP interests • High-quality assets integrated with VLO’s system • Fee-based, liquids-focused revenue generation with no direct commodity price exposure
• 51% increase in quarterly cash distribution over MQD (23% CAGR as of 4Q15 distribution) • $1.3 billion of drop down transactions completed • VLO’s GP interest in VLP reached 50% split for 4Q15 distribution, paid on Feb 3
Distribution per LP Unit
4Q13* 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15
* This is the minimum quarterly distribution (MQD). The actual distribution was smaller as it was prorated for the period of December 16 – 31.
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Operate Safely and Reliably
Commercial and Operational Flexibility
$52.9
$2.6
$0.2125
$0.3200
Distributable Cash Flow (millions)
Disciplined Capital Mgmt to Unlock Value
More Than $1 Billion of Estimated MLP Eligible EBITDA Inventory
Pipelines(1) • Over 1,200 miles of active pipelines • 440-mile Diamond Pipeline from Cushing to Memphis expected to be commissioned in 3Q17
(1)Includes
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Racks, Terminals, and Storage(1)
Marine(1)
Rail
• Over 80 million barrels of active shell capacity for crude and products
• Three crude unloading facilities with estimated total capacity of 150 MBPD
• 139 truck rack bays
• 5,320 purchased railcars, expected to serve long-term needs in ethanol and asphalt
• 51 docks • Two Panamax class vessels
assets that have other joint venture or minority interests.
Operate Safely and Reliably
Commercial and Operational Flexibility
Disciplined Capital Mgmt to Unlock Value
Wholesale Fuels Marketing • Approximately 800 MBPD fuels distribution volume
Renewables Business
Ethanol plant in Linden, Indiana
Renewables Operations
Renewables Outlook
• 11 ethanol plants with 1.4 billion gallons total annual production capacity
• Low crude and gasoline prices expected to challenge ethanol margins
– Low capital investment with scale and location in corn belt – Operational best practices transferred from refining
• Expect ethanol demand to be strong globally, driven by increasing usage mandates, low absolute finished gasoline prices, and increased vehicle miles traveled
• Diamond Green Diesel plant – 50-50 JV with approximately 11 MBPD of renewable diesel production capacity
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Operate Safely and Reliably
Commercial and Operational Flexibility
• Expect renewable diesel margins to be supported by increased usage mandates and carbon pricing
Disciplined Capital Mgmt to Unlock Value
We Believe Valero is an Excellent Investment 2015 Total Stockholder Return
2016E Return on Capital Employed(1)
55%
Peer Range
47%
47%
VLO
2016E Price to Earnings Ratio 11x
Average
24%
9.9x 22%
21%
18% 7.0x
16% 6.4x
5.2x 11%
-8% -15%
9%
4x
We Believe VLO is Undervalued • Disciplined management team
• Delivering industry-leading returns
• Strong financial position
– Disciplined investing to drive earnings growth
• Favorable macro environment
– Unlocking value through growth in MLP-eligible assets and drop-downs to VLP
• Proven operations excellence – Reliability drives profitability
– Demonstrated commitment to capital allocation to stockholders
Chart data sources: Bloomberg and Credit Suisse as of Feb 12, 2016. See slide 19 in Appendix for notes regarding this slide. (1) Return on capital employed adjusted to add back cumulative depreciation.
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Appendix Contents Topic Notes
19
Refining Operating Statistics
20 – 21
Natural Gas Cost Sensitivity
22
Crude Oil Transportation
23 – 24
Fundamentals
25 – 28
Valero Energy Partners LP
29 – 31
Investor Relations Contacts
18
Pages
32
Notes Slide 5 Macro environment themes represent industry consultant views.
Slide 6 Contractor total recordable incident rate from U.S. Bureau of Labor Statistics. Tier 1 process safety event defined within API Recommended Practice 754. Industry benchmarking and VLO performance statistics from Solomon Associates and Valero.
Slide 7 Crude distillation capacities from company reports by geographic location.
Slide 8 Valero’s U.S. Gulf Coast feedstock ranges are based upon quarterly processing rates between 2010 and 2015. Refining cash operating expenses per barrel of throughput, excluding D&A, from company reports for MPC, TSO, and HFC. PSX operating expense data from Scotia Howard Weil.
Slide 9 Valero’s potential future gasoline and distillate export capacities are based upon potential expansion opportunities at the St. Charles and Port Arthur refineries.
Slide 17 Peer groups in total stockholder return (TSR) and 2016E price to earnings ratios (P/E) consist of PSX, MPC, TSO, HFC, PBF, WNR, and DK. Peer group in 2016E return on capital employed (ROCE) includes PSX, MPC, TSO, and PBF. Credit Suisse’s ROCE is calculated as earnings before interest and taxes, divided by the sum of stockholders’ equity and debt adjusted to add back cumulative depreciation.
19
Our Refining Capacity and Nelson Complexity Capacities (MBPD)(1) Throughput
Crude
Nelson Complexity Index
Corpus Christi(2) Houston Meraux Port Arthur St. Charles Texas City Three Rivers U.S. Gulf Coast Ardmore McKee Memphis U.S. Mid-Continent Pembroke Quebec City North Atlantic Benicia Wilmington U.S. West Coast
370 175 135 375 305 260 100 1,720 90 200 195 485 270 235 505 170 135 305
275 90 125 335 215 225 89 1,354 86 195 180 461 210 230 440 145 85 230
15.1 15.4 9.7 12.7 16.1 11.1 13.2 13.4 12.1 8.3 7.9 8.9 10.1 7.7 8.8 16.1 15.8 16.0
Total
3,015
2,485
12.0*
Refinery
(1)Capacities
and Nelson complexity indices as of Jan 1, 2016. the combined capacities of two refineries—Corpus Christi East and Corpus Christi West. 45MBPD increase in throughput compared to 2014 is related to the 70MBPD Crude Unit commissioned in December of 2015, net of 25MBPD of displaced low sulfur atmospheric resid purchases. *Weighted average. (2)Represents
20
Reliability Initiatives Have Improved Refinery Availability and Enabled Higher Utilization Valero Refinery Availability and Utilization Rates
Solomon availability
95% 92% 88%
86% 82%
21
87%
96%
95%
U.S. Natural Gas Provides Opex and Feedstock Cost Advantages • Our refining operations consume approximately 896,000 mmBtu/day of natural gas, of which 56% is operating expense and balance is cost of goods sold • Significant annual pre-tax cost savings compared to refiners in Europe or Asia • Prices expected to remain low and disconnected from global oil and gas markets
Natural Gas Cost Sensitivity for Valero’s Refineries
$1.7 billion higher pre-tax annual costs
$2.20/mmBtu U.S. $0.70/bbl
$0.75 billion higher pre-tax annual costs
$9.60/mmBtu Asian LNG $3.20/bbl
$4.40/mmBtu Europe $1.50/bbl
Natural gas prices month to date as of Oct 31, 2015 for Asia and year to date as of Feb 16, 2016 for U.S. and Europe. Estimated per barrel cost of 896,000 mmBtu/day of natural gas consumption at 93% refinery throughput capacity utilization, or 2.8 MMBPD.
22
Estimated Crude Oil Transportation Costs to Eastern Canada Rail $9 to $10/bbl
Alberta
Rail $9/bbl
Alberta to Bakken $1 to $2/bbl
Bakken U.S. Ship $4 to $5/bbl to West Coast Rail $11 to $13/bbl
to Cushing Pipe $5 to $6/bbl
to USEC Rail $10 to $11/bbl
USGC to Canada Foreign Ship $2/bbl
Brent to USEC $2/bbl
to Cushing Rail $7/bbl to St. James Rail $9/bbl Cushing
Midland
to Houston Pipe $2 to $4/bbl
to Houston Pipe $3/bbl Corpus Christi to Houston $1 to $2/bbl 23
Houston to St. James $1 to $2 /bbl
USGC to USEC U.S. Ship $4/bbl
USGC to Europe Foreign Ship $2-3/bbl
Pipeline Takeaway Capacity Additions Have Increased Crude Competition in the U.S. Gulf Coast Alberta
Bakken
Niobrara
Cushing Permian
• Discounts for inland crudes versus WTI and Brent expected to narrow
KEY Completed 2014 – 15 2016 or Later Startup
Eagle Ford
Capacities in MBPD. Pipeline completion and startup dates are subject to change.
24
• Pipeline takeaway capacity additions expected to increase market liquidity and crude competition in U.S. Gulf Coast
• Eagle Ford and Houston WTI likely to price at quality adjusted differentials to LLS
Production Growth Provides Resource Advantage to North American Refiners U.S. Crude Oil Production and Imports
U.S. Natural Gas Production
(MBPD)
(Bcf/day)
Imports
Production 74
9,447 9,212
7,312 58 5,475
Source: DOE, 2015 data through November
25
Global Petroleum Demand Growth Expected to Outpace Refinery Capacity Expansion MMBPD
2.0 1.6 1.2 0.8 0.4
0.0 -0.4 -0.8 2012 Europe
China
2013 Middle East
Other
2014 Net CDU Capacity Additions
2015E
World Petroleum Demand Growth
Source: Consultant and Valero estimates. Net Global Refinery CDU Additions = New Capacity + Restarts – Announced Closures.
26
2016E
U.S. Gasoline Exports 800
12 Month Moving Average Other
700 600 500
(MBPD)
Europe Other Latin America Mexico Canada
400 300
Latest 4 Wk avg estimate (Finished only)
200 100 0 2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Gasoline represents all finished gasoline plus all blendstocks (including ethanol, MTBE, and other oxygenates) Source: DOE Petroleum Supply Monthly data through November 2015. 4 Week Average estimate from Weekly Petroleum Statistics Report and Valero estimates.
27
U.S. Diesel Exports 1400
12 Month Moving Average (MBPD)
1200 1000
Other Europe Other Latin America
800
Mexico Canada
600
Latest 4 Wk avg estimate 400 200 0 2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: DOE Petroleum Supply Monthly data through November 2015. 4 Week Average estimate from Weekly Petroleum Statistics Report.
28
2015
VLP’s Competitive Strengths Strong Sponsor
Quality Assets
Stable Revenues
• Strategic relationship with investment grade sponsor VLO
• High quality, well maintained assets integrated with VLO’s refineries and located in advantaged regions
• Stable and predictable cash flows from long term, fee-based contracts with no direct exposure to commodity price risks
• High level of minimum volume commitments from VLO
Long Runway for Growth • Drop downs from sponsor to primarily fuel growth • Opportunities to diversify business and develop third party volumes as VLP matures
29
Strong Balance Sheet • Minimal debt and ample liquidity provides opportunities for accretive acquisitions • Targeting investment grade credit ratings
Top Tier Distribution Growth • 23% CAGR for distributions since IPO • Targeting distributions to grow at about 25% for next couple of years
VLP Assets Located in U.S. Gulf Coast and Mid-Continent IPO assets Drop downs
Texas Crude Systems McKee, Three Rivers, Wynnewood July 1, 2014 - $154 mm(1) Houston and St. Charles Terminals March 1, 2015 - $671 mm(1)
Corpus Christi Terminals October 1, 2015 - $465 mm(1) (1)Total
consideration value.
VLP’s assets are integrated with Valero’s refining system 30
VLP Unit Price Outperformed Peers since 2014 VLP
TLLP
MPLX
PSXP
$85
-14%
-8% -32%
-65%
$15
Prices through Feb 25 close.
31
Investor Relations Contacts
For more information, please contact: John Locke
32
Karen Ngo
Vice President, Investor Relations
Manager, Investor Relations
210.345.3077
210.345.4574
[email protected] [email protected]