1
Curt Anastasio
President and CEO
Master Limited
Partnership
Investor Conference
March 1, 2005
Investor Notice
Valero L.P. has filed on January 25, 2005 an amended Form S-4 Registration Statement with the
Securities and Exchange Commission (SEC) regarding its proposed mergers with Kaneb Services LLC
(“Kaneb Services”) and Kaneb Pipe Line Partners, L.P. (“Kaneb Partners”). Valero L.P., Kaneb
Services and Kaneb Partners have also filed other relevant documents with the SEC. Investors and
security holders are urged to read carefully the Form S-4 Registration Statement and other relevant
documents, because they contain important information regarding Valero L.P., Kaneb Services, Kaneb
Partners and the merger.
A definitive joint proxy statement/prospectus has been sent to security holders of Valero L.P., Kaneb
Services, and Kaneb Partners seeking their approval of the merger transactions. The date for the
special meetings of the unitholders of Valero L.P. and Kaneb Partners and shareholders of Kaneb
Services has been set for March 11, 2005. Investors and security holders may obtain a free copy of the
registration statement and other relevant documents containing information about Valero L.P., Kaneb
Services, and Kaneb Partners, without charge, at the SEC’s web site at www.sec.gov. Copies of the
definitive joint proxy statement/prospectus and the SEC filings that will be incorporated by reference in
the joint proxy statement/prospectus may also be obtained for free by directing a request to Kaneb
Services or the respective partnerships.
Valero L.P., Kaneb Services, Kaneb Partners, and the officers and directors of Kaneb Services and of
the respective general partners of Valero L.P. and Kaneb Partners may be deemed to be participants in
the solicitation of proxies from their security holders. Information about these persons can be found in
Valero L.P.’s, Kaneb Services’, and Kaneb Partner’s respective Annual Reports on Form 10-K filed with
the SEC, and additional information about such persons may be obtained from the Form S-4
Registration Statement.
2
Valero L.P. Forward Looking Statements
Cautionary Statement Regarding Forward-Looking Statements
This presentation includes forward-looking statements within the
meaning of the Securities Litigation Reform Act of 1995 regarding
future events and the future financial performance of Valero L.P.
All forward-looking statements are based on the partnership's
beliefs as well as assumptions made by and information currently
available to the partnership. These statements reflect the
partnership's current views with respect to future events and are
subject to various risks, uncertainties and assumptions. These
risks, uncertainties and assumptions are discussed in Valero
L.P.’s 2003 annual report on Form 10-K, the amended Form S-4
Registration Statement filed by Valero L.P. on January 25, 2005,
and subsequent filings with the Securities and Exchange
Commission.
3
A leading publicly traded growth MLP in the U.S. (NYSE:VLI)
Market cap at IPO of $470 million; currently around $1.4 billion
Total shareholder return of over 90 percent since Valero Energy acquired
UDS
Increased quarterly distribution from $.60 to $.80 per unit
Has delivered outstanding distribution growth while maintaining one of
the strongest distribution coverage ratios in our peer group
Owns and operates diversified portfolio of logistics assets, serving
8 Valero Energy refineries
3,800 miles of refined product pipelines
800 miles of crude oil pipelines
22 refined product terminals
4.5 million barrels of refined product storage capacity
60 crude oil storage tanks
12.5 million barrels of crude oil storage capacity
Valero L.P.
4
Valero L.P. System Overview
5
Refined Product Pipelines
3,800-mile pipeline system -
24 refined product pipelines
39% of 2004 revenues
Transports refined product from
Valero Energy’s McKee, Three
Rivers, Corpus Christi and
Ardmore refineries to
terminals/3rd party pipelines
Market Distribution – Mexico,
Texas, Oklahoma, Colorado, New
Mexico, Arizona and other Mid-
continent states
6
Crude Oil Pipelines
800-mile pipeline system
comprised of 9 crude oil
pipelines
24% of 2004 revenues
Transports to Valero Energy’s
McKee, Three Rivers and
Ardmore refineries
Markets – Texas, Oklahoma,
Kansas and Colorado
7
Refined Product Terminals
22 terminals with 4.5 million
barrels of refined product
storage capacity
18% of 2004 revenues
Located in Texas, Colorado, New
Mexico, California, Oklahoma,
New Jersey and Mexico
Per barrel handling fee and per
barrel fee for refined product
blending or filtering
8
Crude Oil Storage Tanks
60 crude oil storage tanks with
12.5 million barrels of crude oil
storage capacity
19% of 2004 revenues
Serve Valero Energy’s Benicia,
Corpus Christi and Texas City
refineries
Fee charged for each barrel of
crude oil and certain other
feedstocks delivered
1
1
Acquired March 18, 2003
9
Reported record 2004 earnings of $72.5 million or $3.15 per
limited partner unit
Delivered total unitholder return of over 26 percent
Increased annual distribution by nearly 9 percent
Capped incentive distribution payments to our general
partner at 25 percent
One of only 2 master limited partnerships to have done so
Acquired two state-of-the-art asphalt terminals from Royal
Trading
Commissioned new propane storage and distribution
terminal in Nuevo Laredo, Mexico
Announced agreement to acquire Kaneb Services LLC and
Kaneb Pipe Line Partners, L.P.
2004 Accomplishments
10
Kaneb Acquisition
Valero L.P. (NYSE: VLI) to acquire Kaneb Services (NYSE:
KSL) and Kaneb Pipe Line Partners (NYSE: KPP) for $2.8
billion
VLI will acquire KSL for $43.31 cash per share
VLI will acquire KPP for $61.50 per unit, subject to a fixed
value collar of +/- 5%
Upon closing, Valero Energy (NYSE: VLO) will continue to
own 100% of the GP of VLI and 21% of the common units
Upon closing, VLI management intends to recommend an
increase in its common unit distribution to $3.42 per unit
Expect transaction to close in the second quarter of 2005
11
Creates the largest terminal operator and 2nd largest
petroleum liquids pipeline operator in the U.S.
Transaction is expected to be cash flow accretive
2005 pro forma distributable cash flow accretion of 37
cents per unit
Expect $365 million of 2005 projected pro forma
EBITDA
Expect to achieve at least $25 million annually in
synergies
Greatly expands geographic presence and enhances
growth prospects
Diversifies VLI’s customer base
Strategic Rationale
See Appendix for pro forma assumptions.
1
1
1
12
Combined Operations
Pro Forma Key Statistics:
Around 9,700 miles of crude
and refined product pipeline
100 terminal facilities and 4
crude oil storage tanks with
around 85 million barrels of
storage
13
KPP
Enhances Earnings Diversity
VLI
Combined Operations
Pipeline Operations Terminal Operations
Crude Oil Storage Tanks Product Sales Operations
Percent of Operating Income by Segment
1 Excludes operating income of Martin Oil, a marketing subsidiary of KSL.
Note: Percentage of total operating income is for the nine months ended
September 30, 2004
1
1
14
Less Dependence on One Customer
Dependence on McKee System reduced from 40% to 15% of
EBITDA
Valero Energy 98%
Third Parties 2%
Pro Forma Post-Merger
Customer Base1
Valero Energy
26%
Third Parties
74%
Pre-Merger Customer Base
1 Excludes revenue of Martin Oil, a marketing subsidiary of KSL.
Note: Percentages based on total revenues for the nine months ended
September 30, 2004
15
Strategy Going Forward
Successfully integrate Kaneb assets and
employees into the Valero L.P. system
Identify opportunities to grow the newly expanded
base business
Continue to pursue external growth opportunities
Maintain conservative financial structure
Maintain strong distribution coverage and deliver
top-tier distribution growth
16
Appendix
17
Fixed Value Collar
18
Pro Forma Assumptions
1
1
See footnote on slide 20.
19
Closing Date:
Assumed at December 31, 2004
Forecast:
2004: Based on 9 mos. actuals and 4 th quarter
forecasts for each entity as of November 1, 2004
2005: Internal budgets prepared by each entity as
of November 1, 2004
Distribution:
GP’s incentive distribution limited to 25%. Adopt
Kaneb’s distribution of $3.42 per unit.
Distributable cash flow accretion calculated
assuming distribution of all distributable cash flow.
Synergies:
$25 million per year
Units Outstanding:
47.9 million units outstanding pro forma
Fixed Value Collar:
Baseline value set at $61.50 and exchange ratio
of 1.074 VLI units for each KPP unit
Interest Rates:
Interest rate on new term debt at 6.5%
Interest rate on revolving credit debt at 4%
Debt Assumption/Refinancing:
VLI will assume KPP’s public debt and refinance
bank debt
KSL Purchase:
To be paid in cash and debt-financed by VLI in
either the public or bank market
Based on the assumptions set forth on Slide 19. While we believe that the assumptions underlying these budgets and the
other pro forma calculations included in this presentation are reasonable in light of current beliefs concerning future events,
the assumptions are inherently uncertain and are subject to significant business, economic, regulatory (including the effect of
any divestitures that may be required for governmental clearance of the proposed mergers) and competitive risks and
uncertainties that could cause actual results to differ materially from those anticipated. If the assumptions are not realized,
then actual cash available for distribution could be significantly lower.
Reconciliation of Net Income to EBITDA and
Distributable Cash Flow
The following is a reconciliation of net income to EBITDA and distributable cash flow (in thousands):
221,668
Distributable Cash Flow
(46,427)
Less reliability capital
(4,188)
Less income taxes
(92,455)
Less interest expense
364,738
EDITDA
94,034
Plus depreciation & amortization
94,449
Plus net interest expense & other
$176,255
Net income
2005
Projected Pro Forma
91,804
(17,439)
(3,403)
(31,389)
144,035
41,677
32,180
$67,123
Kaneb Partners
YTD 9/30/2004
76,690
(7,030)
-
(15,630)
99,229
24,536
15,630
$59,063
Valero L.P.
n/a
Less VLI’s Skelly interest
n/a
121
Plus income tax expense
n/a
3,055
n/a
1
1
20
Valero L.P. Financial Performance
(Dollars in millions, except EPU)
21
1Q04
2Q04
3Q04
4Q04
FY 04
Total Throughput (MBPD)
1,535
1,589
1,592
1,501
1,554
Revenue
$52.3
$55.7
$58.1
$54.7
$220.8
Operating Expenses
17.9
20.2
21.6
18.6
78.3
G&A
2.0
2.6
3.6
3.1
11.3
Depreciation
7.9
8.3
8.4
8.6
33.2
Operating Income
24.5
24.6
24.5
24.4
98.0
Interest Expense
5.1
5.1
5.4
5.3
20.9
Equity Income from Affiliates
0.6
0.2
0.3
0.3
1.3
Net Income
20.0
19.7
19.4
19.4
78.4
Income Tax Provision
-
-
-
-
-
GP Distribution
1.5
1.5
1.5
1.5
5.9
Net Income applicable to LPs
$18.5
$18.2
$17.9
$17.9
$72.5
EPU
$0.80
$0.79
$0.78
$0.78
$3.15
Common units (in thousands)
23,041
23,041
23,041
23,041
23,041
