Your SlideShare is downloading. ×
valero energy Credit Suisse Energy Summit - February 5, 2009
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

valero energy Credit Suisse Energy Summit - February 5, 2009

977
views

Published on

Published in: Economy & Finance

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
977
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
34
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Credit Suisse Energy Summit February 5, 2009 Fb 5
  • 2. We Need an Economic Recovery U.S. U S Non-Farm Payroll Employment Change U.S. U S Freight Shipment Index (Month-Over-Month) 1.4 Thousands 400 1.3 200 Market Fundamentals 1.2 0 1.1 -200 1.0 Jan 1990 = 1.0 -400 0.9 0.8 -600 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Source: U.S. Bureau of Labor Statistics Source: Cass Freight Systems 1
  • 3. Demand Has Weakened Substantially MMBPD Global Refining Supply and Demand 3.5 Petroleum Demand Growth 3.0 30 Jan 2008 Crude Unit Expansions 2.5 Demand Conversion Capacity Growth Forecast 2.0 1.5 1.0 Market Fundamentals 0.5 0.0 -0.5 -1.0 2003 2004 2005 2006 2007 2008E 2009E 2010E 2011E 2012E 2013E Source: Industry reports and Valero forecast; 2008 through 2013 estimates are based on consultant averages and are subject to change; includes capacity creep • Near-term demand weakness creating g • Eventually, economic recovery drives y, y spare capacity demand growth • Projects getting canceled and deferred • The world will need more refining capacity again • Threat to less competitive refiners Building greenfield projects Leading to bankruptcies d t ti l L di t b k t i and potential closures Return on investments at replacement costs 2
  • 4. Expect OPEC Cut on Relatively Low Crude Oil Prices MMBPD WTI Cushing (per bbl) OPEC-11 Production and Quota 31 $150 30 $130 29 $110 28 $90 27 $70 Market Fundamentals Quota 26 Actual Crude Production $50 25 $30 24 Nov-05 May-06 Nov-06 May-07 Nov-07 May-08 Nov-08 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Source: Argus weekly averages; 2009 through January 30 Source: Average of Industry Reports and Consultants • Longer-term – oil prices may climb as • Crude oil market looking for support demand increases • 2009 economic activity very weak Lower prices causing some project Huge worldwide stimulus being applied delays • Expect OPEC to cut again Non-OPEC crude production at low • Lo crude oil prices good for the Low cr de growth or decline th d li economy and ultimately demand U.S. restrictions on drilling 3
  • 5. Gasoline Supply Capacity in Surplus Relative to Demand 250 $40 U.S. Gasoline Inventory (millions of barrels) Gulf Coast Gas Crack (vs. WTI, per bbl) $35 240 $30 230 $25 2008 220 5-Yr Avg $20 2008 210 $15 2009 2009 $10 200 5-Yr Avg $5 Market Fundamentals 190 $0 2009 Forward Curve 180 -$5 -$10 170 Jan Apr Jul Oct Jan Apr Jul Oct Source: Argus weekly averages; 2009 through January 30 Source: DOE unadjusted weekly data; 2009 through January 23 • U.S. gasoline inventories in good • Gulf coast gas crack much shape – near 5-year average improved impro ed since 4Q08 • Refiners reducing utilization of • Expect actual 2009 gasoline gasoline making units margins will be better than FCCs and reformers forward curve Valero taking extra units down during Refiners must restrict output planned maintenance • Lower pump prices helping demand Demand improvements recovery 4
  • 6. Distillate Margins Continue To Be Favorable U.S. and Europe Commercial Distillate/ Gulf Coast On-Road Diesel Crack 500 $40 Gasoil Inventories (millions of barrels) (vs. WTI, per bbl) $35 475 4 2008 2006 $30 2007 2005 450 2009 $25 5-Yr Avg $20 425 2008 Market Fundamentals $15 400 2009 Forward Curve $10 375 $5 Jan Apr Jul Oct Jan Apr Jul Oct Source: IEA and Euroilstock as of December 2008; Includes heating oil, diesel, gasoil Source: Argus weekly averages; 2009 through January 27; LSD prior to May 2006; ULSD after April 2006; 2009 Forward Curve as of January 30 • Expect long-term demand growth • Distillate margins strong all of 2008 and in January 2009 Growing faster than gasoline • Despite U.S. volumes down, getting near-term worldwide support from: Economic growth drives diesel Colder-than-normal weather in northern demand hemisphere p • Supply options limited Tight European inventories due to disruption of Fewer substitutes such as ethanol for Russian gas supply gasoline • World is still tight on diesel 5
  • 7. Expect Feedstock Discounts to Improve $20 35% Maya Crude Differentials (per bbl) Maya Percentage Crude Differentials 30% vs. WTI $15 vs. WTI vs. LLS 25% vs. LLS $10 20% Market Fundamentals $5 15% 10% $0 2002 2003 2004 2005 2006 2007 2008 2009 2002 2003 2004 2005 2006 2007 2008 2009 YTD YTD Source: Argus quarterly averages; 2009 through January 30 Source: Argus monthly averages; 2009 through January 30 • Crude discounts vs. WTI recently • Longer-term, cancellations and narrowed deferrals of cokers and upgraders reduce demand for heavy oil WTI’s recent weakness and steep Examples: MRO Detroit, VLO Port Arthur, contango – Cushing issue Petro-Canada Fort Hills, Suncor Voyageur, OPEC cutting medium sour barrels g and BA E d Energy H tl d Heartland • Compared to LLS, discounts still good • Also, Valero working to encourage delivery of Canadian heavy crude oil 6 to Gulf Coast
  • 8. Why Own Valero? • Larger More Complex, Lower cost Larger, Complex Lower-cost Refineries • Strong Financial Position • Continuing to Invest in Growth Projects with Disciplined Capital Program • Shareholder Focused Company Shareholder-Focused • Improving Competitiveness 7
  • 9. Valero’s Refineries Are Larger and More Complex U.S. Refinery Crude Distillation Unit Capacity vs. Nelson Complexity 25 121 MBPD Avg Avg. CDU Capacity Valero Refineries 20 Avg. VLO CDU Capacity = 160 MBPD Nelson Complexity Index Avg. VLO Complexity = 11.9 Other U.S. refineries y 15 Why Own Valero? 10 V 10.6 Avg. 10 6 Avg n Complexity 5 0 0 100 200 300 400 500 600 CDU Capacity, MBPD Source: Oil and Gas Journal, PIRA, and Valero estimates • Smallest, least complex refineries in lower-left quadrant: total of 75 refineries and 3.3 million barrels per day of CDU capacity • Valero’s average CDU capacity is 160,000 barrels per day and complexity is 11.9 8
  • 10. Valero Has Lowest Cost per Barrel Cash Operating Expense per Barrel for Independent Refiners1 $7.00 $ $6.50 $6.00 Why Own Valero? $ $5.50 V $5.00 $4.50 $4.00 TSO FTO HOC SUN WNR ALJ VLO 120081Q through 3Q refining operating expense excluding depreciation and amortization divided by refinery throughput volumes; data per company filings and Valero estimates
  • 11. Strong Financial Position Debt Maturities and Puts (millions) • Investment-grade credit rating $600 Upgraded a notch by Moody’s in 4Q08 Moody s S&P and Moody’s re-affirmed rating in $400 January • Over $5 billion in liquidity at year-end $200 $940 million i cash illi in h $4.7 billion of credit available, net of letters Why Own Valero? $- of credit issued 2009 2010 2011 No borrowings on credit facilities V • Manageable debt schedule Net Debt-to-Capitalization Ratio (period-end) In 2008, paid off $357 million of debt 60% 2009 debt maturities of $310 million 50% 2010 debt maturities only $30 million 40% • Year-end net debt-to-cap ratio at 26.2% 30% Includes goodwill write-off in 4Q08 20% Maximum net debt-to-cap ratio per bank 10% agreement is 60% 0% No coverage-type ratios in covenants 2001 2002 2003 2004 2005 2006 2007 2008 • No goodwill on year-end balance sheet 10
  • 12. Continuing to Invest in Growth Projects with Disciplined Capital Program • 2009 budget estimated at $2.7 billion, down from previous $3.5 billion Will continue to evaluate budget for additional reductions • Non-strategic workload declining as legacy issues addressed • Strategic capital focused on flagship refineries • Estimate minimum capital of $1.8 billion over next couple of years, including p $ p y , g regulatory Why Own Valero? $3,750 Millions V $3,200 Strategic $920 $2,695 $2,700 $1,110 Tier II $680 $990 $ ,0 0 $1,020 $50 $325 Sustaining/ $- Reliability $705 $1,200 $555 $895 $490 $550 Turnarounds $ $410 $505 $635 $585 $430 $290 Regulatory 2006 2007 2008 2009 Estimate 11
  • 13. Shareholder- Shareholder-Focused Company Diluted Shares Outstanding (Wtd. Avg.) Millions Annual Dividends per Share $ $0.60 700 $0.50 660 Cut share count by 134 million $0.40 620 (21%) since year-end 2005 d $0.30 580 Why Own Valero? $0.20 540 $0.10 V 500 $0.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 Stock Buybacks Reduced Sharecount Dividend Growth • I 2008, purchased 23 million shares, In 2008 h d illi h • At stock price of $23/ h 2 5% yield tki f $23/sh., 2.5% i ld reducing share count by 4% using last 4 quarters of dividends payments • Since early 2006, have reduced share count by 21% • In 2008, raised quarterly dividend per share by 25% from $0.12 to $0.15 • In 2009, plan is to conserve cash • In 2009, planning to maintain dividend 12
  • 14. Improving Competitiveness millions $1,000 Other $200 Operating $800 Expenses $250 Energy $600 Efficiency Why Own Valero? $400 $550 Mechanical V $200 Availability (Reliability) $0 2008 2009 2010 2011 • In early 2007, identified gaps of approximately $1 billion of annual operating income Assessed refining system based on 2006 Solomon Survey results and prices • Developed initiatives to close gaps • Reliability a main focus via “Commitment to Excellence Management System” 13
  • 15. Improving Competitiveness • Improving reliability Implementing standards for consistent, world class operations world-class No cracks in Port Arthur coke drums since repair in spring 2008 • Increasing energy efficiency Implemented strategies at six refineries in 2008 and already achieving savings • Reducing maintenance costs Why Own Valero? Better work scheduling and improvements in reliability • Improving margins with molecule management V initiative Identified and achieving savings through non-capital improvements to optimize profitability of each refinery unit • Reducing costs via measurement assurance Identified and achieving savings by mass/volume analysis throughout system • Adjusting feedstock slate Added Add d 11 new di discounted crudes i 2007 and 13 i 2008 td d in d in • Systematically reviewing each department’s costs and how we do business 14
  • 16. Stock Price Same as Early 2005, But Much Stronger Company Now per Valero Split-Adjusted Stock Price share $80 $70 $60 $50 $40 Why Own Valero? $30 $20 V $10 $0 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Then Now Cash (millions) $846 $940 Additional Available Liquidity (billions) $1.5 $4.7 Debt-to-Cap Ratio, net of cash 30.7% 26.2% Average Refinery Throughput Capacity (MBPD) 164 188 Total Refining Throughput Capacity (MMBPD) 2.5 3.0 15
  • 17. Committed to Creating Long- Long-Term Shareholder Value • Refining Industry Expect margins to be volatile and seasonal E t i tb l til d l Refiners showing production discipline Asset values very cheap y p Economic recovery will improve demand Refined products still most economic • Valero Geographically diverse portfolio of refineries Refineries are larger more complex and have lower larger, complex, cost per barrel Exporting diesel/gasoline to a global market Profitable in 4Q08 and profitable now Best value in refining! 16
  • 18. Appendix 17
  • 19. Refining Portfolio Quebec, Canada • 235,000 bpd capacity Benicia, California • 7.7 Nelson complexity • 170,000 bpd capacity • 15.0 Nelson complexity Paulsboro, Paulsboro New Jersey • 195,000 bpd capacity • 9.4 Nelson complexity Wilmington, California Delaware City, Delaware • 135,000 bpd capacity • 210,000 bpd capacity • 15.9 Nelson complexity • 13.2 Nelson complexity Lima, Ohio • 165,000 bpd capacity • SOLD in 2007 for $1.9 McKee, Texas billion • 170,000 bpd capacity • 9.4 Nelson complexity Memphis, Tennessee • 195 000 bpd capacity 195,000 b d it • 7.5 Nelson complexity • Under Strategic Evaluation Three Rivers, Texas • 100,000 bpd capacity Ardmore, Oklahoma • 12.4 Nelson complexity • 90,000 bpd capacity Corpus Christi, Texas • 12.0 Nelson complexity • 315,000 bpd capacity • Under Strategic Evaluation • 19.1 Nelson complexity Legend Krotz Springs, Louisiana • 85,000 bpd capacity St. Charles, Louisiana Texas City, Texas • 6.5 Nelson complexity • 250,000 bpd capacity Valero Marketing Presence • 245,000 bpd capacity • Sold July 2008 for more • 15.3 Nelson complexity • 11.1 Nelson complexity than $500 million Core Refinery Houston, Texas Port Arthur, Texas San Nicholas, Aruba , • 145,000 bpd capacity • 310,000 bpd capacity • 235,000 bpd capacity • 15.1 Nelson complexity • 12.5 Nelson complexity Non-Core Refinery Under Strategic Evaluation • 8.0 Nelson complexity • Under Strategic Evaluation Non-Core Refinery – Sold Note: Capacity shown in terms of crude and feedstock throughput 18 Sources: Nelson complexities, Oil & Gas Journal and Valero estimates
  • 20. Prudently Investing in Strategic Growth Projects Estimated Total Start- Cost1 Refinery Project Up Description $mm Strategy to Enhance Shareholde Value Hydro- New hydrocracker – 50 mbpd estimated Port Arthur cracker/ $1,700 3Q11 Crude expansion – unlock up to 75 er mbpd existing capacity b d i ti it Crude Crude unit expansion – 45 mbpd Crude/ St. Charles $250 1Q10 estimated Coker Coker expansion – 10 mbpd estimated S Convert to conventional design St. Charles FCC $225 2Q10 Improve reliability and get 5%+ volume expansion New hydrocracker – 50 mbpd Hydro- Hydro o St. Charles $1,250 4Q12 Upgrades low-value feedstocks mainly cracker into ULSD with 25% volume expansion 1 Total project cost includes non-strategic capital costs and interest and overhead To maintain financial strength focusing on key projects and adjusting schedule strength, • Delayed St. Charles hydrocracker and Port Arthur hydrocracker, gasifier, and new coker • Reduced scope of St. Charles paraxylene project • Cut other, discretionary projects at many refineries 19
  • 21. 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 quot;believe,quot; quot;expect,quot; quot;should,quot; quot;estimates,quot; 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. 20

×