UBS Global Oil and Gas Conference May 22, Joe Gorder Executive Vice President Marketing and Supply

Transcription

1 UBS Global Oil and Gas Conference May 22, 2008 Joe Gorder Executive Vice President Marketing and Supply

2 2008 Year-to-Date Performance Raised annual dividend rate by 25% to $0.60 per share Purchased more than 11 million shares of stock Initiated strategic evaluation of Ardmore refinery Announced sale of Krotz Springs refinery to Alon for $333 million plus an earn-out valued at least $150 million and inventory to be valued at closing Expected to close in late 2Q08 or early 3Q08 One of the few refiners with positive earnings in 1Q08 1Q08 earnings helped by strong diesel margins and discounted feedstocks 1Q08 performance adversely affected by operating and equipment issues Coking plants very profitable in 1Q08, but Port Arthur ran at low rates due to cracks in coker drum walls Aruba run rates limited by vacuum tower fire Delaware City operated below capacity for two weeks while recovering from plant-wide power failure Addressed issues in 2Q08 Port Arthur coker drum cracks repaired Aruba vacuum tower repaired Delaware City running as planned 1

3 Driving Season Is Just Beginning 9.8 Gasoline Demand, 4-Week Avg (mmbpd) 240 Total U.S. Gasoline Stocks (mmbpd) Yr Avg Yr Avg Jan Apr Jul Oct Source: DOE unadjusted weekly data; 2008 through May 9 YTD 2008 U.S. gasoline demand down 0.7% from same period in 2007 Weakened economic conditions, high crude oil prices and high pump prices may be contributing to slowdown in demand 190 Jan Apr Jul Oct Source: DOE unadjusted weekly data; 2008 through May 9 Note: Finished and Blendstocks U.S. gasoline inventories have declined in eight of the past nine weeks Levels are 15 million barrels above same week 2007 Increasing ethanol volume is contributing to higher inventories 2 2

4 Gasoline Margins Improving Slightly 27 U.S. Gasoline Days of Supply $40 Gulf Coast Gas Crack (per bbl) $35 $30 $ Yr Avg Jan Apr Jul Oct Source: DOE unadjusted weekly data; 2008 through May 9 $20 $15 $10 $ $0 Jan Apr Jul Oct Source: Platt s weekly averages; 2008 through May 9 5-Yr Avg U.S. gasoline days of supply closing toward 5-year average Anticipate inventory management by adjusting rates on gasoline-producing units, e.g., fluid catalytic crackers (FCC) and overall refinery run rates Through May 9, 2Q08 average Gulf Coast gas crack is around 50% higher than the first quarter of 2008 Anticipate combination of seasonal demand growth and supply-side reductions to reduce gasoline inventories and support margins 3

5 Diesel Margins Have Been Excellent 36 U.S. Distillate Days of Supply $35 Gulf Coast On-Road Diesel Crack (per bbl) Yr Avg $30 $25 $ $ Jan Apr Jul Oct Source: DOE unadjusted weekly data; 2008 through May 9 $10 $5 5-Yr Avg Jan Apr Jul Oct Source: Platt's weekly averages, 2008 through May 9; LSD prior to May 2006; ULSD after April 2006 U.S. distillate days of supply far below 2007 and 5-year average Reflects overall tightness in global refining capacity for distillates YTD 2008 margins higher than same period in 2007 Forward curve shows 2008 diesel margins higher than 2007 and 2009 higher than 2008! 4

6 Wide Differentials For Low-Quality Feedstocks $25 $20 $15 $10 $5 $0 Heavy Sour Crude Differentials to WTI (per bbl) Maya Mars Source: Platt's monthly averages; 2008 through May 9 Medium and heavy sour differentials are attractive Maya recently trading more than $22 per barrel below WTI Mars recently trading around $7 per barrel below WTI Expect feedstock differentials to remain wide High price of light-sweet crude oil due to strong demand to meet specs and volume $55 $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 USGC Resid Differentials to WTI (per bbl) Asphalt 3% No. 6 Fuel Source: No. 6, 3% - Platt s; Asphalt Argus; monthly averages; 2008 through May 9 However, other products hurting margins Residual fuel oil, asphalt, bunker fuel trading at steep discounts to crude oil Asphalt season mainly in summer, but high prices and road budgets could hurt volumes LPGs, propylene, lubes prices not keeping up with crude oil prices 5

7 Worldwide Capacity Expected to Remain Tight Through This Decade MMBPD Global Refining Supply and Demand Petroleum Demand Growth CDU Expansions Conversion Capacity Growth (Coker, FCC, HCU) E 2008E 2009E Source: Industry reports and Valero forecast; 2008 and 2009 estimates are based on consultant averages and are subject to change; includes capacity creep Refining capacity is being added in the world, but market continues to grow (1-1.5 million barrels per year) Conversion capacity remains tight especially with down time Refining more complex, product specifications much tighter 6

8 Valero s Conversion Capacity Is a Key Advantage 1,600 U.S. Conversion Capacity (mbpd) Valero s 2007 Feedstock Slate 1,400 1,200 1, Cat Cracking Hydrocracking Coking Light Sweet Crudes 36% Heavy Sour and Resids 35% VLO XOM COP BP RDS CVX MRO TSO SUN Sour and Acidic Crudes 29% Price below light sweet crude oil Source: Company reports Source: Company reports High-complexity system leads in U.S. conversion capacity Enables Valero to convert low-quality, discounted feedstocks into highquality products Significant capital investments and long lead times slow the addition of new conversion capacity Almost 2/3 of Valero s feedstocks price below light sweet crude oil Feedstock discounts provide potential for more sustainable earnings Flexibility in Valero s system enables the use of a wide variety of feedstocks 7

9 Per Barrel $30 $25 Higher Margins are Realized with Low Cost Feedstocks USGC Crack Spread $20 $15 $10 $5 $ YTD 5/16 LLS - Light Sweet Mars - Medium Sour Maya - Heavy Sour Strong distillate margins and wide discounts for low-quality feedstocks provide favorable economics for high-conversion, coking refineries 8

10 Taking Steps Toward Building a Better Valero Strategies Optimizing Refining Portfolio Investing in Growth Projects at Core Refineries Focusing on Reliability and Cost Efficiency Using Balanced Approach to Allocate Cash Continuing to Seek Acquisitions That Meet Our Criteria Objective Achieve best returns on on investment in in the industry 9

11 Optimizing Refining Portfolio Benicia, California 170,000 bpd capacity 15.0 Nelson complexity Quebec, Canada 215,000 bpd capacity 7.8 Nelson complexity Paulsboro, New Jersey 195,000 bpd capacity 9.1 Nelson complexity Wilmington, California 135,000 bpd capacity 15.9 Nelson complexity Delaware City, Delaware 210,000 bpd capacity 13.2 Nelson complexity McKee, Texas 170,000 bpd capacity 9.4 Nelson complexity Three Rivers, Texas 100,000 bpd capacity 12.4 Nelson complexity Legend Valero Marketing Presence Core Refinery Corpus Christi, Texas 315,000 bpd capacity 18.4 Nelson complexity Texas City, Texas 245,000 bpd capacity 10.8 Nelson complexity Non-Core Refinery Under Strategic Evaluation Houston, Texas 145,000 bpd capacity 15.1 Nelson complexity Non-Core Refinery Sold or Under Contract for Sale Capacity shown in terms of crude and feedstock throughput Source: Nelson complexities, Oil & Gas Journal and Valero estimates Krotz Springs, Louisiana 85,000 bpd capacity 6.5 Nelson complexity Under Contract for Sale Port Arthur, Texas 310,000 bpd capacity 11.8 Nelson complexity Lima, Ohio 165,000 bpd capacity SOLD in 2007 Memphis, Tennessee 195,000 bpd capacity 7.5 Nelson complexity Under Strategic Evaluation Ardmore, Oklahoma 90,000 bpd capacity 10.9 Nelson complexity Under strategic evaluation St. Charles, Louisiana 250,000 bpd capacity 14.3 Nelson complexity San Nicholas, Aruba 275,000 bpd capacity 7.0 Nelson complexity Under Strategic Evaluation 10

12 Focusing on Reliability and Cost Efficiency Mechanical availability (reliability) Issues have been identified, plans are in-place Major coker repair completed at Port Arthur Increasing throughput rates May postpone turnaround currently planned for 1Q09 to 4Q09 Projects: Cat cracker revamp at St. Charles, coker drums replacements at St. Charles and Port Arthur, utilities Completing in 2009 and 2010 Large potential for profit improvement and major reliability improvement Energy efficiency Projects: New hydrogen plants at Corpus Christi (completed) and at Benicia plus new CO furnaces, new turbo expander at St. Charles, new boilers, heater controls, and operations focus Non-energy operating costs Reliability improvements reduce maintenance expenses, accounting and procurement centralization, contractor efficiencies, and other administrative consolidations 11

13 Strategic Growth Projects Port Arthur Refinery $2.4 Billion Refinery Upgrade and Expansion New 50,000 bpd hydrocracker New 45,000 bpd coker Upgrade metallurgy for Canadian crude oils Expected to increase throughput by 100,000 bpd to 415,000 bpd Expected to increase ULSD production by 54,000 bpd Target 1H 2011 completion Becomes one of the largest and most complex refineries in the U.S. 12

14 Strategic Growth Projects St. Charles Refinery $1.4 Billion Refinery Upgrade and Expansion New 50,000 bpd hydrocracker 45,000 bpd crude expansion to 235,000 bpd 10,000 bpd coker expansion to 80,000 bpd Expected to increase ULSD production by 49,000 bpd Target 2Q 2010 completion Positions refinery for long term competitiveness 13

15 Expect Strategic Moves to Strengthen Valero s Long-Term Position 80% Increasing % of Discounted Feedstocks 1 37% Increasing Distillate % Yield 1 75% 36% 70% 35% 65% 34% 60% 33% 55% 32% 50% % Increases percentage of discounted feedstocks from 61% in 2006 to 77% by 2012 Enhances Valero s strength in conversion capacity and capability to run more volumes of heavy and sour feedstocks 1 Includes disposition of Lima in 2007; assumes exclusion of non-core refineries after 2008 Increases percentage yield of distillate from 32% in 2006 to 36% by 2012 Aligned with Valero s view that distillate margins will outperform gasoline over the long term Also making operational changes to shift 100,000 bpd of gasoline production to diesel over the next few quarters Equals an extra 3% of distillate percentage yield 14

16 Continuing Balanced Approach to Allocate Cash Billions Capital Expenditures and Stock Buybacks Millions Diluted Shares Outstanding (Wtd. Avg.) $9 680 $8 Stock Buybacks 660 $7 Capex and Turnarounds 640 $6 620 $5 $4 600 $3 580 $2 560 $1 540 $ E 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 Stock Buybacks Have approximately $3.8 billion of authorization Plan to continue buyback program in 2008 Dividends Increased dividend by 25% in May Debt Called $350 million of notes in 1Q08 May call more high-coupon debt later this year May build some cash 15

17 Valero Has Many Advantages Most Geographically Diverse Refining Capacity RM WC MC GC EC DK ALJ WNR HOC TSO FTO SUN VLO Leading Nelson Complexity Index DK ALJ WNR HOC TSO FTO SUN VLO 1 Source: Oil & Gas Journal and Valero estimates 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% Lowest Volatility of Quarterly Diluted EPS from Continuing Operations Since 2002 HOC TSO FTO SUN VLO Source: Oil & Gas Journal and Valero estimates 12x One of Lowest Price to 2008 Earnings Ratios 11x 10x 9x 8x 7x 6x 5x 4x DK ALJ WNR HOC TSO FTO SUN VLO Source: Bloomberg 1 VLO figures are for core refineries and exclude Aruba, Krotz Springs, Memphis and Ardmore Source: Bloomberg, May 9,

18 Committed to Creating Long-Term Shareholder Value Committed to safe and environmentally compliant operations Optimizing portfolio to our strengths Investing in projects at core refineries for longterm earnings and cash flow growth Focusing on reliability and cost efficiency Using balanced approach to allocate cash Plan to maintain investment grade credit rating Expect to continue returning cash to shareholders 17

19 Q&A 18

20 Appendix 19

21 Capital Spending Emphasizes Safety, Environmental, Reliability, and Long-Term Growth Millions $4,200 Strategic 2007 came in below $3,500 budget $2,780 $750 $325 $1,615 $45 $1,530 Tier II Sustaining/ Reliability $895 $520 $ A $495 $ E 2008 estimate includes all 17 refineries Increase in Sustaining/Reliability primarily due to key reliability projects Regulatory will continue high Scrubber at Benicia (over $600mm) Further benzene removal More sulfur removal, future gasoline vapor pressure reductions Increase in Strategic primarily due to initial spending on large, long-term growth projects estimated budget includes spending for some projects not yet approved by Board of Directors 1 Turnarounds Regulatory 20

22 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 The words "believe," "expect," "should," "estimates," 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 21