UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 18, 2016

 

 

VALERO ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   1-13175   74-1828067
(State or other jurisdiction   (Commission   (IRS Employer
of incorporation)   File Number)   Identification No.)
One Valero Way  
San Antonio, Texas   78249
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (210) 345-2000

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 7.01 Regulation FD Disclosure.

Senior management of Valero Energy Corporation (the “Company”) will make certain investor presentations beginning as early as March 20, 2016. The slides attached to this report were prepared for management’s presentations. The slides are included in Exhibit 99.01 to this report and are incorporated herein by reference. The slides will be available on the Company’s website at www.valero.com.

The information in this report is being furnished, not filed, pursuant to Regulation FD. Accordingly, the information in Items 7.01 and 9.01 of this report will not be incorporated by reference into any registration statement filed by the Company under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference. The furnishing of the information in this report is not intended to, and does not, constitute a determination or admission by the Company that the information in this report is material or complete, or that investors should consider this information before making an investment decision with respect to any security of the Company or any of its affiliates.

Safe Harbor Statement

Statements contained in the exhibit to this report that state the Company’s or its 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, as amended, and the Securities Exchange Act of 1934, as amended. It is important to note that the Company’s actual results could differ materially from those projected in such forward-looking statements. Factors that could affect those results include those mentioned in the documents that the Company has filed with the Securities and Exchange Commission.

 

Item 9.01 Financial Statements and Exhibits.

 

  (d) Exhibits.

 

  99.01 Slides from management presentation.

 

2


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

    VALERO ENERGY CORPORATION
Date: March 18, 2016     by:  

/s/ Jay D. Browning

      Jay D. Browning
      Executive Vice President and General Counsel

 

3



Slide 1

Investor Presentation March 2016 Exhibit 99.1


Slide 2

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.


Slide 3

Who We Are World’s Largest Independent Refiner 15 refineries, 3 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 Operator of Liquids-Focused Logistics Assets General partner and majority owner of Valero Energy Partners LP (NYSE: VLP), a fee-based master limited partnership (MLP) Significant inventory of logistics assets within Valero Wholesale Fuels Marketer Volumes distributed through branded and unbranded channels Approximately 7,500 marketing sites in the U.S., Canada, United Kingdom and Ireland Brands include Valero, Ultramar, Texaco, Shamrock, Diamond Shamrock and Beacon 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


Slide 4

Strong U.S. Gulf Coast and Mid-Continent Presence Refineries and ethanol plants are in advantaged locations See slide 20 for capacities


Slide 5

Current Macro Environment Abundant global supply of crude oil and natural gas Forecasted world GDP growth Structural product shortage in Latin America, Europe, Africa and Eastern Canada Demand response to lower product prices SUPPLY DEMAND North American logistics build out adds efficiency and removes mid-continent bottlenecks 2 See slide 19 in Appendix for notes regarding this slide and slides 24 – 27 for supply and demand details. Expect ample supply to keep prices low, which should continue driving increased petroleum demand. 1 3 4 5


Slide 6

Safety and Reliability are Imperative for Profitability See slide 19 in Appendix for notes regarding this slide.


Slide 7

Advantaged Location in U.S. Gulf Coast See slide 19 in Appendix for notes regarding this slide. Capacities as of January 1, 2016. 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 Pipeline takeaway capacity additions have increased crude competition Proximity to growing product export markets in Mexico and Latin America 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


Slide 8

High Complexity Refineries and Lowest Cost Operator See slide 19 in Appendix for notes regarding this slide.


Slide 9

Our Portfolio Facilitates Optimization of Product Exports Distillate Gasoline Actual export volumes for 2011 – 2015. See slide 19 in Appendix for notes regarding this slide.


Slide 10

Capital Allocation Maintain Strong Balance Sheet (1)Debt-to-cap ratio based on total debt reduced by $2 billion of cash. (2) Payout ratio is the sum of dividends plus stock buybacks divided by net income from continuing operations excluding special items. Sustaining Capex Approximately $1.5 billion annually Key to safe and reliable operations Dividend Strategy is to maintain a sustainable dividend Non-Discretionary Growth Capex Prioritize higher-value, higher-growth, quicker payback opportunities Cash Returns 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 Acquisitions Evaluate versus alternative uses of cash Discretionary Maintain investment grade credit rating and strong balance sheet Target 20% to 30% debt-to-cap ratio(1) 1 2 3


Slide 11

Capital Investments Focused on Maintaining Asset Base, Enhancing Margins, and Growing Logistics Targeting $2.6 billion in 2016 Includes some 2015 carry forward 2016 growth investments allocated approximately 50/50 for logistics and asset optimization Logistics 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


Slide 12

Investing in Asset Optimization Products & Other Hydrocracker expansions at Port Arthur (completed Oct 2015) and St. Charles (expected in 1H16) estimated to increase distillate yield by approximately 23 MBPD New 13 MPBD Houston alkylation unit expected to startup in 1H19 Projects under development: Octane enhancement Feedstock flexibility FCC feed desalting Cogeneration 160 MBPD total new CDU capacity at Corpus Christi (commissioned Dec 2015) and Houston (expected 2Q16) to process up to 50 API sweet crude Replaces approximately 55 MBPD of purchased low sulfur resid for FCCs with indigenous production Expect net throughput capacity increase of about 105 MBPD and annual EBITDA contribution of approximately $430 MM using 2015 prices Light Crude


Slide 13

Investing to Improve Access to North American Crude Diamond Pipeline 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


Slide 14

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 Our Sponsored MLP Valero Energy Partners (NYSE:VLP) Summary 23% CAGR over MQD * This is the minimum quarterly distribution (MQD). The actual distribution was smaller as it was prorated for the period of December 16 – 31. 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 Accomplishments since IPO


Slide 15

More Than $1 Billion of Estimated MLP Eligible EBITDA Inventory Racks, Terminals, and Storage(1) Over 80 million barrels of active shell capacity for crude and products 139 truck rack bays Rail Three crude unloading facilities with estimated total capacity of 150 MBPD 5,320 purchased railcars, expected to serve long-term needs in ethanol and asphalt Pipelines(1) Over 1,200 miles of active pipelines 440-mile Diamond Pipeline from Cushing to Memphis expected to be commissioned in 3Q17 Marine(1) 51 docks Two Panamax class vessels (1)Includes assets that have other joint venture or minority interests. Wholesale Fuels Marketing Approximately 800 MBPD fuels distribution volume


Slide 16

Renewables Business Renewables Operations 11 ethanol plants with 1.4 billion gallons total annual production capacity Low capital investment with scale and location in corn belt Operational best practices transferred from refining Diamond Green Diesel plant 50-50 JV with approximately 11 MBPD of renewable diesel production capacity Renewables Outlook Low crude and gasoline prices expected to challenge ethanol margins Expect ethanol demand to be strong globally, driven by increasing usage mandates, low absolute finished gasoline prices, and increased vehicle miles traveled Expect renewable diesel margins to be supported by increased usage mandates and carbon pricing Ethanol plant in Linden, Indiana


Slide 17

We Believe Valero is an Excellent Investment Chart data sources: Bloomberg estimates as of March 7, 2016. See slide 19 in Appendix for notes regarding this slide. We Believe VLO is Undervalued Disciplined management team Strong financial position Favorable macro environment Proven operations excellence Reliability drives profitability Delivering industry-leading returns Disciplined investing to drive earnings growth Unlocking value through growth in MLP-eligible assets and drop-downs to VLP Demonstrated commitment to capital allocation to stockholders


Slide 18

Appendix Contents Topic Pages Notes 19 Refining Operating Statistics 20 – 21 Natural Gas Cost Sensitivity 22 Crude Oil Transportation 23 Fundamentals 24 – 27 Valero Energy Partners LP 28 – 30 Investor Relations Contacts 31


Slide 19

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), dividend yield, and 2016E price to earnings ratios (P/E) consist of PSX, MPC, TSO, HFC, PBF, and DK.


Slide 20

Our Refining Capacity and Nelson Complexity Refinery Capacities (MBPD)(1) Nelson Complexity Index Throughput Crude Corpus Christi(2) 370 275 15.1 Houston 175 90 15.4 Meraux 135 125 9.7 Port Arthur 375 335 12.7 St. Charles 305 215 16.1 Texas City 260 225 11.1 Three Rivers 100 89 13.2 U.S. Gulf Coast 1,720 1,354 13.4 Ardmore 90 86 12.1 McKee 200 195 8.3 Memphis 195 180 7.9 U.S. Mid-Continent 485 461 8.9 Pembroke 270 210 10.1 Quebec City 235 230 7.7 North Atlantic 505 440 8.8 Benicia 170 145 16.1 Wilmington 135 85 15.8 U.S. West Coast 305 230 16.0 Total 3,015 2,485 12.0* (1)Capacities and Nelson complexity indices as of Jan 1, 2016. (2)Represents 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.


Slide 21

Reliability Initiatives Have Improved Refinery Availability and Enabled Higher Utilization


Slide 22

U.S. Natural Gas Provides Opex and Feedstock Cost Advantages Natural gas prices year to date as of March 8, 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. $750 MM higher pre-tax annual costs 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 Prices expected to remain low and disconnected from global oil and gas markets


Slide 23

KEY Trunkline 400 Flanagan 600 Pipeline Takeaway Capacity Additions Have Increased Crude Competition in the U.S. Gulf Coast TransCanada Mainline Conversion 1,100 TMX 890 Keystone XL 700 Grand Mesa / Saddlehorn 350 Niobrara Seaway 450 Completed 2014 – 15 2016 or Later Startup Capacities in MBPD. Pipeline completion and startup dates are subject to change. Southern Access (phase2) 300 Line 9B Reversal 240 Cactus 250 BridgeTex 300 XL 700 Cushing ETP Dakota Access 450 Bakken Alberta Clipper 230 Alberta Bayou Bridge 250 Midland to Sealy 450 Permian Express II 200 Permian Eagle Ford Pipeline takeaway capacity additions expected to increase market liquidity and crude competition in U.S. Gulf Coast Discounts for inland crudes versus WTI and Brent expected to narrow Eagle Ford and Houston WTI likely to price at quality adjusted differentials to LLS


Slide 24

Production Growth Provides Resource Advantage to North American Refiners Source: DOE, 2015 data through December


Slide 25

Source: Consultant and Valero estimates. Net Global Refinery CDU Additions = New Capacity + Restarts – Announced Closures. Global Petroleum Demand Growth Expected to Outpace Refinery Capacity Expansion


Slide 26

Gasoline represents all finished gasoline plus all blendstocks (including ethanol, MTBE, and other oxygenates) Source: DOE Petroleum Supply Monthly data through December 2015. 4 Week Average estimate from Weekly Petroleum Statistics Report and Valero estimates. U.S. Gasoline Exports


Slide 27

Source: DOE Petroleum Supply Monthly data through December 2015. 4 Week Average estimate from Weekly Petroleum Statistics Report. U.S. Diesel Exports 12 Month Moving Average (MBPD)


Slide 28

VLP’s Competitive Strengths Strong Sponsor Strategic relationship with investment grade sponsor VLO Quality Assets High quality, well maintained assets integrated with VLO’s refineries and located in advantaged regions Stable Revenues 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 Strong Balance Sheet Minimal debt and ample liquidity provides opportunities for accretive acquisitions Targeting investment grade credit ratings Long Runway for Growth Drop downs from sponsor to primarily fuel growth Opportunities to diversify business and develop third party volumes as VLP matures Top Tier Distribution Growth 23% CAGR for distributions since IPO Targeting distributions to grow at about 25% for next couple of years


Slide 29

VLP Assets Located in U.S. Gulf Coast and Mid-Continent VLP’s assets are integrated with Valero’s refining system (1)Total consideration value. 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) IPO assets Drop downs


Slide 30

VLP Unit Price Outperformed Peers since 2014 Prices through March 8 close.


Slide 31

Investor Relations Contacts For more information, please contact: John Locke Vice President, Investor Relations 210.345.3077 john.locke@valero.com Karen Ngo Manager, Investor Relations 210.345.4574 karen.ngo@valero.com

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