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Analyst Day – Tesoro Corporation

Tesoro Corporation · Dec 12, 2012 · 73 slides

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Slides

  1. Analyst Day – Tesoro Corporation – slide 1
    Analyst and Investor Presentation Wednesday, December 12, 2012
  2. Analyst Day – Tesoro Corporation – slide 2
    Leadership Team 3
  3. Analyst Day – Tesoro Corporation – slide 3
    Key Messages Delivering key strategic initiatives and driving significant shareholder value Strengthening our West Coast business Advantaged position in the Mid-Continent Driving feedstock advantage to PADD5 refineries Tesoro…
  4. Analyst Day – Tesoro Corporation – slide 4
    Tesoro Today Positioned in the western United States Seven refineries 675,000 barrels per day capacity Kenai, AK (72 mbpd) About 1,400 retail stations branded Tesoro, Shell and USA Gasoline Mandan, ND (68 mbpd) Advantaged crude…
  5. Analyst Day – Tesoro Corporation – slide 5
    Strategic Priorities Operational efficiency and effectiveness Safety and reliability System improvements Cost leadership Commercial excellence Financial discipline Value-driven growth High-performing culture 6
  6. Analyst Day – Tesoro Corporation – slide 6
    Review Progress of Strategic Initiatives Driving a high-performing culture Environmental, health and safety success Operational efficiency and effectiveness improvements High-return capital program exceeding expectations Asset…
  7. Analyst Day – Tesoro Corporation – slide 7
    High-Performing Culture Actions driven by our guiding principles Focused and accountable for delivering on our Guiding Principles commitments Building strong leadership capability at all levels of the organization Employees from…
  8. Analyst Day – Tesoro Corporation – slide 8
    Environmental, Health and Safety Moving Toward Best In Class Personal Safety Incident Rates Number per 200,000 hours OSHA Recordable Rate 1.0 0.8 0.5 0.4 0.3 2009 2010 2011 2012 Best In YTD Class 1 Process Safety Incident…
  9. Analyst Day – Tesoro Corporation – slide 9
    Operational Efficiency & Effectiveness Delivering Refinery Reliability and Utilization Operational Availability, % EDC Significant investment in asset integrity 97 97 98 94 Implemented predictive maintenance program 1 2010…
  10. Analyst Day – Tesoro Corporation – slide 10
    Operational Efficiency & Effectiveness 1 Gross Margin vs Index Improving margin capture despite /bbl 3.22 2.83 2.91 significant 2012 turnaround activity Advantaged logistics support commercial value capture 2010 2011 2012…
  11. Analyst Day – Tesoro Corporation – slide 11
    Operational Efficiency & Effectiveness Delivering High-Return Capital Projects 1 1 Income Capital Spend by Year Cumulative EBITDA in millions in millions 375 300 330 220 125 103 72 40 30 17 2009 2010 2011 2012 2012 2009 2010…
  12. Analyst Day – Tesoro Corporation – slide 12
    Operational Efficiency & Effectiveness Large Capital Program Bakken Crude Oil Supply to Anacortes Capital: 60 million Annual EBITDA: 160-180 million Mandan Refinery Expansion Project IRR: 220% Completed in September 2012 Capital:…
  13. Analyst Day – Tesoro Corporation – slide 13
    Operational Efficiency & Effectiveness Small Capital Program, 2012 Projects Kenai Anacortes Mandan Hydrocracker modification NHT hydrogen recovery Water system upgrades Capital: 0.5 million Capital: 0.3 million Capital: 2.4 million…
  14. Analyst Day – Tesoro Corporation – slide 14
    Asset Portfolio Optimization Acquisition of BPs Southern California refining and marketing business Return on Capital Employed Acquisition of Chevrons Northwest Products 14% 14% system 13% 12% Process to divest Hawaiian…
  15. Analyst Day – Tesoro Corporation – slide 15
    Strong EBITDA Growth Three year EBITDA CAGR of 80% EBITDA in millions 2,108 Despite 2012 heavy turnaround schedule: 1,480 Refinery utilization rate at 86% Gross margin capture up over 10% 551 364 Manufacturing cost down…
  16. Analyst Day – Tesoro Corporation – slide 16
    Financially Strong Debt Equity Total Debt to Total Capitalization 7 50% Debt as a % of Total Book Capitalization 6 45% Book Capitalization ( billions) 5 40% 4 35% 3 30% 2 1 25% 0 20% 2009 2010 2011 3Q 2012…
  17. Analyst Day – Tesoro Corporation – slide 17
    Operational Delivery Since 2010 OSHA recordable rate1 Down 48% Refinery utilization Up 19% Refinery gross margin capture1 Up 14% Refining cost per barrel1 Down 20% Major refinery projects completed (EBITDA) 240 million…
  18. Analyst Day – Tesoro Corporation – slide 18
    Financial Discipline Since 2010 Debt to Total Capitalization1 Down 34% Annual dividend per share 0.60 Initiated share buy back 500 million Extended debt maturities 4 years Annual interest expense Down 27% Tesoro Logistics…
  19. Analyst Day – Tesoro Corporation – slide 19
    How Does the Market Value Tesoro Based on historical cash flow, TSO Implied Share Price Value per share trades near the low end of 65 implied value range TLLP Current Unit Price plus GP Distribution Does not fully reflect: 40…
  20. Analyst Day – Tesoro Corporation – slide 20
    Market Outlook Key Drivers Tesoros View Economy Continued moderate growth World Product Demand Growth Gasoline 1% and diesel 2% per year U.S. Product Demand Growth Gasoline flat and diesel 2% per year U.S. Crude Oil Supply Strong…
  21. Analyst Day – Tesoro Corporation – slide 21
    Market Outlook Light Sweet Crude Oil, /bbl WTI / Brent Bakken / LLS 5 0 0 -5 -10 -5 -15 -10 -20 -15 -25 -20 -30 2004 2006 2008 2010 2012 2014 2011 2012 2013 2014 2015 Brent / WTI Diff 2013 2014 2015 Bakken / LLS Diff 2013…
  22. Analyst Day – Tesoro Corporation – slide 22
    Market Outlook Light/Heavy Differentials, /bbl 20 LLS to Maya 15 10 ANS to SJVH 5 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 LLS to Maya Diff 2013 2014 2015 SJVH to ANS Diff 2013 2014 2015 High 12.50…
  23. Analyst Day – Tesoro Corporation – slide 23
    Market Outlook Regional Crack Spreads, /bbl 30 West Coast 321 (ANS) 25 20 15 10 5 Group 3 321 (WTI) 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 WC 321 2013 2014 2015 G3 321 2013 2014 2015 High 17.00…
  24. Analyst Day – Tesoro Corporation – slide 24
    Market Outlook USGC Diesel to Gasoline Differential, /bbl 15 USGC Dsl to Gas 2013 2014 2015 High 4.30 4.30 4.30 Avg 3.05 3.05 3.05 10 Low 1.80 1.80 1.80 5 0 -5 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014…
  25. Analyst Day – Tesoro Corporation – slide 25
    Market Outlook US Gasoline and Diesel Balance, mbpd 1,500 Net Imports Gasoline 1,000 500 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (500) Diesel Net Exports (1,000) (1,500) U.S. became a…
  26. Analyst Day – Tesoro Corporation – slide 26
    Market Outlook Tesoro Index, /bbl 20 15 10 5 Average YTD Average 2009-11 2012 2013E-15E Tesoro Index 9.00 14.25 10.11 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Fundamentals support profitable…
  27. Analyst Day – Tesoro Corporation – slide 27
    Market Outlook Federal Regulatory Environment RFS2 Biofuel Mandate Enacted (in billions of gallons) Renewable Fuels Standard 2 (RFS2) 35 30 Potential 25 20 Tier 3 gasoline 15 10 Greenhouse gas emissions 5 Low carbon fuel…
  28. Analyst Day – Tesoro Corporation – slide 28
    Analysis of West Coast Position What it takes to succeed on the West Coast West Coast feedstock overview Driving operational improvements Transformational Carson opportunity 29
  29. Analyst Day – Tesoro Corporation – slide 29
    West Coast Market 2.9 million bpd light product supply Refinery production Ethanol contribution Pipeline imports from PADD4/3 to Washington, Nevada and Arizona 2.4 million bpd light product demand holding flat Export…
  30. Analyst Day – Tesoro Corporation – slide 30
    Keys to Success on the West Coast Reliable operating performance Competitive cost structure Efficient logistics infrastructure Access to cost advantaged crude High conversion / flexible yield structure High degree of refining and…
  31. Analyst Day – Tesoro Corporation – slide 31
    California Outlook 1 California Unemployment Rate, % 12.3 Unemployment rate improving 11.4 11.8 10.6 9.6 8.7 7.8 Population continues to grow Home price index increasing 2009 2010 2011 2012E 2013E 2014E 2015E 1…
  32. Analyst Day – Tesoro Corporation – slide 32
    West Coast Refineries 20 18 16 TSO Wilmington 14 Nelson Complexity TSO Martinez Wilmington / Carson 12 BP Carson Combination 10 8 TSO Anacortes 6 4 2 0 0 50 100 150 200 250 300 350 400 Throughput Capacity,…
  33. Analyst Day – Tesoro Corporation – slide 33
    Commercial Excellence Tesoro West Coast Crude Cost Advantage State of Washington Crude Oil Source 17% Differential 2012 2010 2011 40-50% Bakken to ANS YTD 26% Canadian 0-10% Foreign (3.35) (12.85) (23.80) Light Sweet 57%…
  34. Analyst Day – Tesoro Corporation – slide 34
    Refining and Marketing Tesoro West Coast Integration Maximizes refinery utilization Tesoro West Coast Refining and Marketing Integration Optimizes product placement 88% 78% High volume retail stations 53% Low capital marketing…
  35. Analyst Day – Tesoro Corporation – slide 35
    Wilmington Yield Improvement Vacuum distillation unit replacement Product yield upgrade from petroleum coke to clean products Total cost of 40 million Annual EBITDA contribution 20-25 million* Completed in November 2012 New…
  36. Analyst Day – Tesoro Corporation – slide 36
    California Cost Structure Improvements Targeting sustainable cost reduction of 1/bbl, energy price neutral TSO California Manufacturing Cost 1 /bbl Multi-year journey focused on 7.54 Improved reliability 6.90 6.23 Increased…
  37. Analyst Day – Tesoro Corporation – slide 37
    Carson Acquisition Increases clean product yields Enhances gasoline to diesel production flexibility Lowers manufacturing costs Reduces stationary source air emissions Expands advantaged feedstock supply opportunities Reduces…
  38. Analyst Day – Tesoro Corporation – slide 38
    Carson Synergy Overview Synergy EBITDA Synergy Capital millions millions 250 145 215 - 235 165 - 185 100 - 120 60 35 35 25 - 35 (10) 2013E 2014E 2015E 2016E 2017E 2013E 2014E 2015E 2016E 2017E Synergies Capital…
  39. Analyst Day – Tesoro Corporation – slide 39
    California Regulatory Environment AB32 regulations Lower Stationary source air emissions Gasoline to Distillate Ratio More reductions Competitive Low carbon fuel standard Fuels under the cap Impact of AB32 regulations…
  40. Analyst Day – Tesoro Corporation – slide 40
    BP Transaction Funding Closing from a Position of Financial Strength Expected to fund with a combination of cash and debt Cash of 500 to 750 million TSO revolver and term loan borrowings TLLP debt and equity for a portion of the BP…
  41. Analyst Day – Tesoro Corporation – slide 41
    West Coast Market Tesoros Relative Performance Access to cost advantaged crude oil High conversion / flexible yield structure Efficient logistics infrastructure Reliable operating performance High degree of refining and…
  42. Analyst Day – Tesoro Corporation – slide 42
    Highlight Mid-Continent Position Significant Mid-Continent presence Capitalizing on Tesoro position in Mid-Continent Driving cost-advantaged crude oil supply West 43
  43. Analyst Day – Tesoro Corporation – slide 43
    Significant Mid-Continent Advantage Canadian Crude Oil Production mbpd 4,500 3,500 2,500 Anacortes, WA Refinery 1,500 2011 2012E 2015E 2020E Domestic* Crude Oil Throughput: 40-50% Canadian Crude Oil Throughput: 30-40% Mandan, ND…
  44. Analyst Day – Tesoro Corporation – slide 44
    Premier Mid-Continent Position /bbl Mid-Continent Refining Gross Margin 40 3Q 2012 2011 30 20 10 0 TSO CVI PSX HFC WNR VLO MPC Mid-Con Company Central Company Company Mid-Con Company Corridor Highest margin per…
  45. Analyst Day – Tesoro Corporation – slide 45
    Mid-Continent Contribution 1 Feedstock advantage less at risk due Regional Net Refining Margin in billions to higher marginal transportation cost 1.9 2.0 Salt Lake City feedstock advantage via long-term crude oil supply…
  46. Analyst Day – Tesoro Corporation – slide 46
    Mandan Refinery Expansion Expanded capacity from 58 to 68 mbpd Total cost of 35 million Annual EBITDA contribution 45-55 million* Completed in June 2012 Supports growth of Tesoro Logistics Increases throughput of advantaged…
  47. Analyst Day – Tesoro Corporation – slide 47
    Mandan DDU Expansion Expand diesel desulfurization unit (DDU) capacity from 17 to 22 mbpd Increase diesel fuel yield at Mandan Total cost of 35 million Annual EBITDA contribution 10-12 million* Expected completion 2Q 2013…
  48. Analyst Day – Tesoro Corporation – slide 48
    Salt Lake City Conversion Project Improve yields of gasoline and diesel Increase throughput capacity by 4 mbpd 100% increase of advantaged waxy crude oil throughput to 21 mbpd Total cost of 180 million Annual EBITDA contribution…
  49. Analyst Day – Tesoro Corporation – slide 49
    Bakken Crude Oil Supply to Anacortes Permitted to unload 50 mbpd, 40% of refining capacity Supplements cost-advantaged Canadian crude oil Annual EBITDA contribution - 160-180 million* Delivered in September 2012 Sold to TLLP for…
  50. Analyst Day – Tesoro Corporation – slide 50
    Commercial Excellence Rail Cost from the Bakken1 Bakken TSO Cost Advantaged Feedstocks (percent of total throughput) California 55-60% Pacific Northwest 50-55% Mid-continent 100% Consolidated 65% West Coast logical…
  51. Analyst Day – Tesoro Corporation – slide 51
    Tesoro Logistics Strategic Value Tesoros Strategic Rationale for TLLP Performance to-date Chevron Northwest Products System Transformational Carson logistics acquisition Tesoros implied value opportunity Further growth…
  52. Analyst Day – Tesoro Corporation – slide 52
    Value of Tesoro Logistics Unlocks embedded value of logistics assets Supports refining and marketing integration Allows greater capture of total refining and marketing value chain Lower cost of capital Strategic vehicle for…
  53. Analyst Day – Tesoro Corporation – slide 53
    Success of Tesoro Logistics Quarterly Cash Distributions 25% CAGR in cash distributions per unit 0.46 0.41 0.36 0.38 0.35 Delivery on organic growth plan 0.34 Three asset purchases from Tesoro since 2Q 3Q 4Q 1Q 2Q 3Q initial…
  54. Analyst Day – Tesoro Corporation – slide 54
    Chevron Northwest Products System Northwest Products System 760 mile FERC regulated pipeline Five-mile jet fuel pipeline to SLC airport Pasco Refined product terminals in Boise, Pocatello, and Pasco Boise 1.3 million barrels…
  55. Analyst Day – Tesoro Corporation – slide 55
    Chevron Northwest Products System Strategic Fit Value-driven growth, expands Stable, growing revenue stream logistics business Synergies with existing system Supports integrated value chain Strategic asset in primary Supports…
  56. Analyst Day – Tesoro Corporation – slide 56
    TLLP and Carson Logistics Marine and Storage Terminals and Pipelines Three marine terminals; 400 mbpd of crude oil and product throughput VLCC capable dock Over 7 mmbbls feedstock and product storage 114 miles of active pipelines…
  57. Analyst Day – Tesoro Corporation – slide 57
    Value-Driven Growth Tesoro Benefits From TLLPs Growth TLLP EBITDA Expectations Implied TLLP Enterprise Value1 in millions in billions 260 - 285 4.0 - 4.3 Tesoro Equity (per TSO share) Public Equity and Debt 170 - 175 2.7 -…
  58. Analyst Day – Tesoro Corporation – slide 58
    Future Growth Opportunities Continue investing in Kenai Anacortes organic growth projects Mandan Further optimize existing asset base Martinez Salt Lake City Additional third party acquisitions Los Angeles Tesoro…
  59. Analyst Day – Tesoro Corporation – slide 59
    Strategic Value through Financial Discipline Balanced financial priorities Capital and turnaround spending outlook Balance sheet strength Significant free cash flow potential 60
  60. Analyst Day – Tesoro Corporation – slide 60
    Financial Priorities Maintain minimum cash balance of 600 to 750 million Solid Operating Target debt to capitalization ratio Results below 30% Strategic Strong Cash Growth Return Excess Flows Invest in high-return capital…
  61. Analyst Day – Tesoro Corporation – slide 61
    Capital Spending 1 Tesoro Capital Spending TLLP Capital Spending in millions in millions 535 455 380 295 Income Maintenance 75 70 65 45 Regulatory 2012E 2013E 2014E 2015E 2012E 2013E 2014E 2015E Income capital plans…
  62. Analyst Day – Tesoro Corporation – slide 62
    High-Return Capital Investments 1,2 1,2 Income Capital Spend Cumulative EBITDA in millions in millions 550-560 570-580 300 510-520 210 165 285 65 2012E 2013E 2014E 2015E 2012E 2013E 2014E 2015E Shorter-term spending…
  63. Analyst Day – Tesoro Corporation – slide 63
    Turnaround Spending in millions 310 260 140 150 109 85 2010 2011 2012E 2013E 2014E 2015E 2013 completes peak in turnaround cycle, lower spending going forward 64
  64. Analyst Day – Tesoro Corporation – slide 64
    Strengthening the Balance Sheet Progress Beginning in 2010 Total Debt to Total Capital, % Repurchased 627 million in debt 37 38 30 25 Decreased debt to capitalization ratio by a third to 25% 2009 2010 2011 2012 Extended debt…
  65. Analyst Day – Tesoro Corporation – slide 65
    Delivering Free Cash Flow Based on consensus estimates and Free Cash Flow 1-4 transaction cash flows: in billions Expected to generate about 3.0 1.1 1.1 billion over three years 0.8 Plan to spend over 400 million in income…
  66. Analyst Day – Tesoro Corporation – slide 66
    Key Elements of 2013 Plan Drive improvements in base business Execute high-return capital growth plan Complete major turnaround plan Execute Tesoro Logistics organic growth initiatives Successfully integrate acquisition of BPs…
  67. Analyst Day – Tesoro Corporation – slide 67
    How the Market Should Value Tesoro Based on forward cash flow, TSO Implied Share Price Value trading well below low end of per share implied value TLLP Implied Unit 95 Price plus Does not fully reflect: GP Distribution Multiple…
  68. Analyst Day – Tesoro Corporation – slide 68
    Summary Delivering on key initiatives in Share Price Performance strategic plan 250% 200% Strengthening West Coast business 150% 100% Capitalizing on Mid-Continent 50% feedstock advantage 0% TLLP creating significant value…
  69. Analyst Day – Tesoro Corporation – slide 69
    Appendix
  70. Analyst Day – Tesoro Corporation – slide 70
    Non-GAAP Financial Measure EBITDA represents earnings before interest and financing costs, interest income, income taxes, and depreciation and amortization expense. We present EBITDA because we believe some investors and analysts use…
  71. Analyst Day – Tesoro Corporation – slide 71
    Non-GAAP Financial Measure (In millions) Unaudited Large Capital Program Annual EBITDA Estimate Wilmington Yield Bakken Crude Oil Mandan Refinery Major Refinery Mandan DDU Salt Lake City Waxy Total Large Capital Improvement Supply to…
  72. Analyst Day – Tesoro Corporation – slide 72
    Non-GAAP Financial Measure Reconciliation of Net Earnings (Loss) to EBITDA Year Ended Year Ended Year Ended Nine Months Ended (In millions) Unaudited December 31, 2009 December 31, 2010 December 31, 2011 September 30, 2012 Net earnings…
  73. Analyst Day – Tesoro Corporation – slide 73
    Non-GAAP Financial Measure (In millions) Unaudited Projected TLLP Annual EBITDA (2) Current Post Chevron Post Carson IPO Run Rate Acquisition Logistics Projected net earnings 42 101 104 124 Add depreciation and amortization expense 9…

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