Refining Trends and Outlook 2020 TXOGA Property Tax Conference Karl Bartholomew, PE, ASA, MRICS Manager, US Property Tax Shell Oil Company 1 February 2020
Refining Trends and Outlook
2020 TXOGA Property Tax Conference
Karl Bartholomew, PE, ASA, MRICSManager, US Property TaxShell Oil Company
1February 2020
Agenda
▪ Matters impacting Refining & Petrochemicals
▪ Refining Deals & Opportunities
Any views and opinions expressed in this presentation are the sole views and opinions of the presenter and do
not any way represent the views or the opinions of Shell Oil Company or any of its affiliates.
2February 2020
The storyboard is as important as the numbers
Matters Impacting Refining
1February 2020 3
What do you think most impacted refining & chemicals in 2019?
▪ Price of oil
▪ Global economy (supply & demand)
▪ Renewable fuels standard
▪ Electric vehicles
▪ IMO (bunker fuel spec)
February 2020 4
Oil Price History
0
20
40
60
80
100
120
140
160
Jan-
00
Aug
-00
Mar
-01
Oct
-01
May
-02
Dec
-02
Jul-0
3
Feb-
04
Sep-
04
Apr
-05
Nov
-05
Jun-
06
Jan-
07
Aug
-07
Mar
-08
Oct
-08
May
-09
Dec
-09
Jul-1
0
Feb-
11
Sep-
11
Apr
-12
Nov
-12
Jun-
13
Jan-
14
Aug
-14
Mar
-15
Oct
-15
May
-16
Dec
-16
Jul-1
7
Feb-
18
Sep-
18
Apr
-19
Nov
-19
$/ba
rrel
Global, U.S. marker prices for oil
WTI
Brent
February 2020 5Source: EIA
◼ Global financial crisis
◼ The Rise of Shale
Major crude fields - 2010
February 2020 6
Source: 2011 ENI
World Oil & Gas
Urals
Maya
Major crude fields – 2018
February 2020 7
Source: 2018 ENI
World Oil & Gas
Urals
Maya
Major crude oil production changes by country2010-2017
February 2020 8
(2,000,000)
(1,000,000)
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
Barr
els
per
Cale
ndar
Day
Source: EIA International Energy Statistics
Major crude oil production changes by country2010-2018
February 2020 9
(2,000,000)
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
Barr
els
per
Cale
ndar
Day
Source: EIA International Energy Statistics
US Shale oil productionSource: EIA
10February 2020
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
Barr
els
per
Cale
ndar
Day
Anadarko Appalachia Bakken Eagle Ford Haynesville Niobrara Permian
US Shale gas productionSource: EIA
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
90,000,000
100,000,000
Thou
sand
Cub
ic F
eet p
er C
alen
dar
Day
Anadarko Appalachia Bakken Eagle Ford Haynesville Niobrara Permian
11February 2020
Global oil demandSource: BP Statistical Review of World Energy 2019
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
90,000,000
100,000,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Barr
els
Per
Cale
ndar
Day
By Region
North America So. & Cent. America Europe & Eurasia Middle East Africa Asia Pacific
February 2020 12
What crude price do you think we’ll see next year?
February 2020 13
Jan Feb1Q 65.98 58.59 2Q 63.38 57.69 3Q 65.00 63.62 4Q 65.00 65.00
Average 64.83 61.25
AEO Long-Term Oil OutlookSource: EIA
-
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Wes
t Tex
as In
term
edia
te n
omin
al $
/bar
rel
AEO 2015 AEO 2020
February 2020 14
Operating RefineriesSource: EIA
February 2020 15
0
50
100
150
200
250
300
350
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Idled
Refineries
Operating
Refineries
18.7 MMBPD
132
3
15.7 MMBPD
254
47
U.S. Refining CapacitySource: EIA
80
82
84
86
88
90
92
94
96
98
100
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
20,000,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
% U
tiliz
atio
n O
pera
ble
Capa
city
Barr
els
Per
Cale
ndar
Day
US Operable Capacity US % Utilization TX GC % Utilization
February 2020 16
US net import/export balance crude & productSource: EIA
-2,000,000
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
Barr
els
per
Cale
ndar
Day
17February 2020
November 2019
Propane 1.2 MMBPD
Gasoline 1.04 MMBPD
Diesel/Jet 1.14 MMBPD
Crude 3.02 MMBPD
US net import/export balance – looking out to 2030Source: EIA AEO 2020
-6,000,000
-4,000,000
-2,000,000
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000Ja
n-20
00
Jan-
2001
Jan-
2002
Jan-
2003
Jan-
2004
Jan-
2005
Jan-
2006
Jan-
2007
Jan-
2008
Jan-
2009
Jan-
2010
Jan-
2011
Jan-
2012
Jan-
2013
Jan-
2014
Jan-
2015
Jan-
2016
Jan-
2017
Jan-
2018
Jan-
2019
Jan-
2020
Jan-
2021
Jan-
2022
Jan-
2023
Jan-
2024
Jan-
2025
Jan-
2026
Jan-
2027
Jan-
2028
Jan-
2029
Jan-
2030
Barr
els
per
Cale
ndar
Day
18February 2020
Diesel & Resid exports double
Crude exports ~ 3MMBPD
Coronavirus
February 2020 19
Renewables (Ethanol RINs)Source: Valero investor website
0
10
20
30
40
50
60
70
80
90
100
Cent
s pe
r G
allo
n
February 2020 20
What about Electric Vehicles (EV)?Source: Wall Street Journal
February 2020 21
AEO – Light Vehicle Sales by FuelSource: EIA AEO 2020
0
2
4
6
8
10
12
14
16
18
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Mill
ion
Vehi
cles
Sol
d
Gasoline Flex-fuel Diesel Battery EV Hybrid EV Other Plug in Hybrid EV
February 2020 22
Charging stations!!!!
February 2020 23
The real reason I have hope for EVs
February 2020 24
How about the IMO low sulfur fuel standard?
▪ IMO – International Maritime Organization
▪ Starting January 1, 2020, no more high sulfur fuel oil can be sold as bunker fuel
▪Compliance will be met by:
▪ Lighter crude slate
▪More resid destruction (cokers)
▪Marine diesel
▪Onboard ship scrubbers
▪Cheat
February 2020 25
Maya Crude Pricing Change
▪ Old formula was 40% (West Texas Sour + 3% HSFO) + 10% (LLS + Brent dated) + K factor
▪ New formula is 65% (Argus WTI Houston) + 35% (ICE Brent) + new K factor
▪ Why the change – IMO – move away from a large fuel oil component of the price formula
▪ If new formula had been in place in October 2019, Maya would have been price $5.63/barrel higher
▪ October K factor = 3.75
▪ January 2020 K factor = (8.00)
▪ This means market will have to adjust to a new metric for heavy oil economics
February 2020 26
Scrubbers have become more economic
February 2020 27
In case you thought the last option wasn’t real…
February 2020 28
Refining Economic IndicatorsSource: Company filings, SEC
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
(2.00)
0.00
2.00
4.00
6.00
8.00
10.00
12.0020
10 Q
1
2010
Q4
2011
Q3
2012
Q2
2013
Q1
2013
Q4
2014
Q3
2015
Q2
2016
Q1
2016
Q4
2017
Q3
2018
7 Q
2
2019
Q1
2019
Q4
WTI
3-2
-1 M
argi
n $/
barr
el
Earn
ings
Indi
cato
r $/
barr
el
Earnings Indicator WTI 3-2-1
February 2020 29
What to say about refining in 2019?
February 2020 30
Steam cracker light feed advantage
(10)
(5)
0
5
10
15
20
25
30
35
40
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Cent
s pe
r po
und
mar
gin
(Ethane - Nap) Ethane Naphtha
February 2020 31
Steam cracker light feed advantage (continued)Source: ICIS Dashboard
(15.00)
(10.00)
(5.00)
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
8/2/2019 9/2/2019 10/2/2019 11/2/2019 12/2/2019 1/2/2020Feed
stoc
k Va
riabl
e M
argi
n ¢/
lb
Ethane LPG Naphtha
February 2020 32
Chemicals Economic IndicatorsSource: Company filings, SEC
0
10
20
30
40
50
60
70
80
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.0020
10 Q
1
2010
Q4
2011
Q3
2012
Q2
2013
Q1
2013
Q4
2014
Q3
2015
Q2
2016
Q1
2016
Q4
2017
Q3
2018
7 Q
2
2019
Q1
2019
Q4
Ethy
lene
, ¢/l
b.
Earn
ings
Indi
cato
r ¢/
lb.
Earnings Indicator Spot Ethylene
February 2020 33
More capacity, more cost
February 2020 34
What to say about basic petrochemicals in 2019?
February 2020 35
Let’s build some more crackers!
Refining Deals and Opportunities
436February 2020
PBF - Martinez, CA
February 2020 37
Refinery Transactions
Year Location Buyer Est. FMV $MM2015 Chalmette PBF 3052016 Torrance PBF 1582016 Newcastle PAR Pacific 1142016 Dickinson Tesoro 662017 Superior Husky 4352018 Tacoma PAR Pacific ~150-1752019 Pasadena Chevron ~245-2502020 Martinez PBF 960
February 2020 38
U.S. refinery sales - % RCN
February 2020 39
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
% R
epla
cem
ent C
ost N
ew
Inland Coastal
PBF Martinez
Chevron - Pasadena
PAR Pacific - Tacoma
U.S. refinery sales - $/complexity barrel
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
$ pe
r co
mpl
exity
bar
rel
Inland Coastal
February 2020 40
PBF - Martinez
Chevron - Pasadena
PAR Pacific - Tacoma
U.S. refinery sales – statistical analysis
0
200
400
600
800
1,000
1,200
2012 2013 2014 2015 2016 2017 2018 2019 2020
$ pe
r co
mpl
exity
bar
rel
Actual Correlation
February 2020 41
PBF - Martinez
Chevron - Pasadena
PAR Pacific - Tacoma
Husky - Superior
Tesoro - DicksonPAR Pacific - Newcastle
Marathon – Texas City
Northern Tier – St. Paul Park
Tesoro – Carson
PAR Pacific - Hawaii
PBF - Chalmette
PAR Pacific - Newcastle
How many refineries (allegedly) may be on the market?
▪ 2
▪ 4
▪ 6
▪ 8
▪ 10
▪ From published reports, many reasons why they are on the block: shareholder pressure; divest non-core assets;
regional refining economics; not disclosed
February 2020 42
◼ 1. PES Philadelphia (Hilco announced as winner, but may be in litigation)
◼ 2. Delta Trainer
◼ 3. CVR Coffeyville
◼ 4. CVR Wynnewood
◼ 5. ExxonMobil Billings
◼ 6. Marathon Salt Lake City
◼ 7. Marathon Kenai
◼ 8. Shell Puget Sound
To wrap it up
▪ Refining
▪ Expected market drivers didn’t move the market (IMO)
▪ So far 2020 isn’t trending any different
▪ Refineries on the block
▪ Coronavirus large short-term impact
▪ Chemicals
▪ Expected overbuild of basic petrochemicals (crackers, plastics) has occurred
▪ 2019 earnings reflect this
▪ More capacity expected 2021-2025
▪ Puts pressure on poor performing sites – do they rationalize or not?
February 2020 43
Questions and answers
44February 2020