VALERO LP LOGO
ACQUISITION OF
KANEB SERVICES, LLC &
KANEB PIPE LINE PARTNERS, L.P.
NOVEMBER 1, 2004
VALERO L.P. FORWARD LOOKING STATEMENTS
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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 THE PROSPECTUS AND PROSPECTUS SUPPLEMENT, VALERO
L.P.'S 2003 ANNUAL REPORT ON FORM 10-K AND SUBSEQUENT FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION.
VALERO LP LOGO 2
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KANEB FORWARD LOOKING STATEMENTS
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN OF KANEB'S STATEMENTS IN THIS PRESENTATION ARE NOT PURELY HISTORICAL,
AND AS SUCH ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. THESE INCLUDE STATEMENTS REGARDING
MANAGEMENT'S INTENTIONS, PLANS, BELIEFS, EXPECTATIONS OR PROJECTIONS OF THE
FUTURE. FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, INCLUDING
WITHOUT LIMITATION, THE VARIOUS RISKS INHERENT IN KANEB'S BUSINESS, AND OTHER
RISKS AND UNCERTAINTIES DETAILED FROM TIME TO TIME IN KANEB'S PERIODIC REPORTS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ONE OR MORE OF THESE FACTORS
HAVE AFFECTED, AND COULD IN THE FUTURE AFFECT, KANEB'S BUSINESS AND FINANCIAL
RESULTS IN FUTURE PERIODS, AND COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM PLANS AND PROJECTIONS. THERE CAN BE NO ASSURANCE THAT THE FORWARD-LOOKING
STATEMENTS MADE IN THIS DOCUMENT WILL PROVE TO BE ACCURATE, AND ISSUANCE OF SUCH
FORWARD-LOOKING STATEMENTS SHOULD NOT BE REGARDED AS A REPRESENTATION BY KANEB,
OR ANY OTHER PERSON, THAT THE OBJECTIVES AND PLANS OF KANEB WILL BE ACHIEVED.
ALL FORWARD-LOOKING STATEMENTS MADE IN THIS PRESENTATION ARE BASED ON
INFORMATION PRESENTLY AVAILABLE TO MANAGEMENT, AND KANEB ASSUMES NO OBLIGATION
TO UPDATE ANY FORWARD-LOOKING STATEMENTS.
VALERO LP LOGO 3
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INVESTOR NOTICE
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Valero L.P. ("Valero LP"), Kaneb Services LLC ("Kaneb Services") and Kaneb Pipe
Line Partners, L.P. ("Kaneb Partners") will file a joint proxy
statement/prospectus and other documents with the Securities and Exchange
Commission. Investors and security holders are urged to read carefully the joint
proxy statement/prospectus when it becomes available because it will contain
important information regarding Valero LP, Kaneb Services, Kaneb Partners and
the merger. A definitive joint proxy statement/prospectus will be sent to
security holders of Valero LP, Kaneb Services, and Kaneb Partners seeking their
approval of the merger transactions. Investors and security holders may obtain a
free copy of the joint proxy statement/prospectus (when it is available) and
other documents containing information about Valero LP, 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 LP, Kaneb Services, Kaneb Partners, and the officers and directors of
Kaneb Services and of the respective general partners of Valero LP 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
LP'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 proxy statement/prospectus when it becomes available.
VALERO LP LOGO 4
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MANAGEMENT PRESENTATION
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CURT ANASTASIO - PRESIDENT AND CEO,
VALERO L.P.
ED DOHERTY - CHAIRMAN AND CEO,
KANEB PIPE LINE PARTNERS, L.P.
STEVE BLANK - CFO,
VALERO, L.P.
VALERO LP LOGO 5
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TRANSACTION SUMMARY
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O VALERO LP (NYSE: VLI) TO ACQUIRE KANEB SERVICES (NYSE: KSL)
AND KANEB PIPE LINE PARTNERS (NYSE: KPP) FOR $2.8 BILLION
O VLI WILL ACQUIRE KSL FOR $43.31 CASH PER SHARE
O VLI WILL ACQUIRE KPP FOR $61.50 PER UNIT, SUBJECT TO A FIXED
VALUE COLLAR OF +/- 5%
O UPON CLOSING, VALERO ENERGY (NYSE: VLO) WILL CONTINUE TO OWN
100% OF THE GP OF VLI AND 21% OF THE COMMON UNITS
O UPON CLOSING, VLI INTENDS TO RECOMMEND AN INCREASE IN ITS
COMMON UNIT DISTRIBUTION TO $3.42 PER UNIT
O EXPECT TRANSACTION TO CLOSE IN THE 1ST QUARTER 2005
VALERO LP LOGO 6
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STRATEGIC RATIONALE
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O CREATES THE LARGEST TERMINAL OPERATOR AND 2ND LARGEST PETROLEUM LIQUIDS
PIPELINE OPERATOR IN THE U.S.
O TRANSACTION IS EXPECTED TO BE CASH FLOW ACCRETIVE TO BOTH
VLI AND KPP UNITHOLDERS
O EXPECT TO ACHIEVE AT LEAST $25 MILLION IN SYNERGIES
O GREATLY EXPANDS GEOGRAPHIC PRESENCE AND ENHANCES GROWTH
PROSPECTS
O DIVERSIFIES VLI'S CUSTOMER BASE
O RELATIONSHIP WITH VALERO ENERGY CREATES ADDITIONAL
OPPORTUNITIES
VALERO LP LOGO 7
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THE COMBINED ENTERPRISE
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O CREATES ONE OF THE LARGEST MLPS WITH AN ENTERPRISE VALUE OF
APPROXIMATELY $4.3 BILLION
O COMBINED ENTITY WILL OPERATE AROUND 9,700 MILES OF REFINED
PRODUCT AND CRUDE PIPELINES
O 101 TERMINALS WITH APPROX. 85 MILLION BARRELS OF STORAGE
CAPACITY
O COMBINED PARTNERSHIP EXPECTED TO BE RATED INVESTMENT GRADE
BY MOODY'S AND S&P
O BILL GREEHEY WILL REMAIN CHAIRMAN OF THE BOARD AND CURT
ANASTASIO WILL REMAIN PRESIDENT AND CEO
O HEADQUARTERED IN SAN ANTONIO
VALERO LP LOGO 8
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KANEB OVERVIEW
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O KANEB OPERATES AS A SINGLE BUSINESS REPRESENTED BY TWO NYSE
COMPANIES
O KANEB SERVICES LLC ("KSL") - OWNS THE GENERAL PARTNER
O KANEB PIPE LINE PARTNERS ("KPP") - THE MASTER LIMITED
PARTNERSHIP
O KPP OWNS AND OPERATES MID-STREAM ENERGY ASSETS CONSISTING PRIMARILY OF
REFINED PETROLEUM PRODUCTS AND AMMONIA PIPELINES, PETROLEUM AND SPECIALTY
LIQUIDS STORAGE AND TERMINALING FACILITIES
O PIPELINE OPERATIONS
O FOUR PIPELINE SYSTEMS IN MID-WESTERN UNITED STATES
O OVER 5,000 MILES OF PIPELINE
O 25 PIPELINE TERMINALS, APPROX. 7.7 MILLION BARRELS OF STORAGE
O TERMINAL OPERATIONS
O 54 FACILITIES WITH APPROX. 60 MILLION BARRELS OF STORAGE
O PRODUCT SALES OPERATIONS
O DELIVER BUNKER FUEL TO SHIPS IN THE CARIBBEAN AND NOVA
SCOTIA, CANADA
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VALERO LP LOGO 9
KANEB SYSTEM OVERVIEW
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[GRAPH]
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LEGEND
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Kaneb Terminals
Kaneb North Pipeline System
Kaneb East Pipeline System
Kaneb West Pipeline System
Kaneb Ammonia Pipeline System
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KEY STATISTICS:
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3,080 MILES OF REFINED PRODUCT PIPELINES
2,000 MILE AMMONIA PIPELINE
54 TERMINAL FACILITIES WITH APPROX. 60 MILLION BARRELS OF
STORAGE
25 ASSOCIATED PIPELINE TERMINALS WITH APPROX. 7.7 MILLION
BARRELS OF STORAGE
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VALERO LP LOGO 10
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BENEFITS TO KANEB INVESTORS
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O OFFER REPRESENTS A 38% PREMIUM TO KSL SHAREHOLDERS
O OVER 20% PREMIUM TO KPP UNITHOLDERS
O KPP UNITHOLDERS ALSO EXPECTED TO REALIZE A 9% INCREASE IN
THEIR TOTAL DISTRIBUTION
O GOING FORWARD, KPP UNITHOLDERS TO BENEFIT FROM:
O BROADER GEOGRAPHIC PLATFORM AND BETTER DIVERSITY OF
OPERATIONS
O LOWER GP SPLIT MEANS MORE CASH AVAILABLE TO LPS
O LOWER COST OF CAPITAL
O SIGNIFICANT SYNERGIES
O IMPROVED PLATFORM FOR GROWTH
O GROWTH OPPORTUNITIES WITH THE LEADING INDEPENDENT REFINING
COMPANY IN NORTH AMERICA
VALERO LP LOGO 11
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VALERO L.P. SYSTEM OVERVIEW
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[GRAPH]
LEGEND:
Refined Product Pipelines
Crude Oil Pipelines
Liquified Petroleum Gas Pipeline
Hydrogen Pipeline
Refined Product Terminals
Nuevo Laredo Propane Terminal
Crude Oil Storage Tanks
Bulk Feedstock Storage Facilities
Valero Energy Refineries
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KEY STATISTICS:
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3,800 MILES OF REFINED PRODUCT PIPELINES
800 MILES OF CRUDE OIL PIPELINES
22 TERMINALS WITH 4.5 MILLION BARRELS OF REFINED PRODUCT
STORAGE CAPACITY
4 PRIMARY CRUDE OIL STORAGE TANK FACILITIES WITH 12.6
MILLION BARRELS OF CRUDE OIL STORAGE CAPACITY
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VALERO LP LOGO 12
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COMBINED OPERATIONS
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[GRAPH]
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LEGEND
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Valero Corp. Refineries
Valero LP Pipelines
Valero LP Refined Product Terminals
Valero LP Crude Tanks
Kaneb Terminals
Kaneb North Pipeline System
Kaneb East Pipeline System
Kaneb West Pipeline System
Kaneb Ammonia Pipeline System
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PRO FORMA KEY STATISTICS:
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AROUND 9,700 MILES OF CRUDE AND REFINED PRODUCT PIPELINE
101 TERMINAL FACILITIES AND 4 CRUDE OIL STORAGE TANKS WITH
AROUND 85 MILLION BARRELS OF STORAGE
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VALERO LP LOGO 13
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COMBINED PIPELINE OPERATIONS
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[GRAPH]
- ----------------------------
KANEB NORTH PIPELINE SYSTEM
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-------------------------------
KANEB EAST PIPELINE SYSTEM
-------------------------------
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KANEB WEST PIPELINE
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-------------------------------
KANEB AMMONIA PIPELINE
-------------------------------
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VLI PIPELINE SYSTEM
- ----------------------------
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LEGEND
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Valero Corp. Refineries
Valero LP Pipelines
Valero LP Refined Product Terminals
Valero LP Crude Tanks
Kaneb Terminals
Kaneb North Pipeline System
Kaneb East Pipeline System
Kaneb West Pipeline System
Kaneb Ammonia Pipeline System
- ---------------------------------------------------
VALERO LP LOGO 14
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COMBINED TERMINAL OPERATIONS
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[GRAPH]
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LEGEND
Kaneb Terminals
Valero LP Refined Product Terminals
Valero Corp. Refineries
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VALERO LP LOGO 15
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BETTER EARNINGS DIVERSITY
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PERCENT OF OPERATING INCOME BY SEGMENT
VLI COMBINED OPERATIONS1
[PIE CHART] [PIE CHART]
KPP1
[PIE CHART]
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[ ] PIPELINE OPERATIONS [ ] TERMINAL OPERATIONS
[ ] CRUDE OIL STORAGE TANKS [ ] PRODUCT SALES OPERATIONS
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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
VALERO LP LOGO 16
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LESS DEPENDENCE ON ONE CUSTOMER
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PRE-MERGER PRO FORMA POST-MERGER
CUSTOMER BASE CUSTOMER BASE1
[PIE CHART] [PIE CHART]
VALERO ENERGY 98% THIRD PARTIES
VALERO ENERGY 74%
26%
THIRD PARTIES 2%
O DEPENDENCE ON MCKEE SYSTEM REDUCED FROM 40% TO 15% OF EBITDA
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
VALERO LP LOGO 17
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FINANCIAL HIGHLIGHTS
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(Dollars in 000s, except per unit amounts)
VALERO L.P. KANEB PARTNERS
YTD 9/30/04 YTD 9/30/04
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NET INCOME APPLICABLE TO LPS $54,612 $59,883
EPU $2.37 $2.11
EBITDA $99,229 $144,035
DISTRIBUTABLE CASH FLOW $76,690 $91,804
DISTRIBUTABLE CASH FLOW APPLICABLE
TO LIMITED PARTNERS $67,942 $83,768
DISTRIBUTION PAID TO LIMITED
PARTNERS $55,299 $72,219
COVERAGE RATIO APPLICABLE TO LPS 1.23X 1.16X
DEBT-TO-CAPITALIZATION 47.4% 57.9%
VALERO LP LOGO 18
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FINANCING PLAN
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(DOLLARS IN MILLIONS)
SOURCES OF FUNDS:
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Valero L.P. common unit exchange1 $1,422
New debt issuance 550
Less: cash assumed (79)
Debt assumed at book value 686
Debt assumed FV write-up 44
Other liabilities assumed 180
Valero Energy capital contribution to 28
maintain 2% GP ---
TOTAL SOURCES $2,831
=====
USES OF FUNDS:
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Current Assets $112
Property, Plant & Equipment 1,681
Other Assets 34
Goodwill & other intangible assets 1,004
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TOTAL USES $2,831
=====
1 Assuming exchange at mid-point of fixed value collar
VALERO LP LOGO 19
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PRO FORMA ASSUMPTIONS
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Closing Date: Assumed at December 31, 2004
Forecast: 2004: Based on 9 mos. actuals and 4th
quarter forecasts for each entity
2005: Internal forecasts for each entity
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
VALERO LP LOGO 20
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PRO FORMA STATISTICS
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O EXPECTED SYNERGIES OF $25 MILLION TO COME FROM . . .
O TERMINAL OPERATIONS - $6 MILLION
O PIPELINE OPERATIONS - $5 MILLION
O CORPORATE EXPENSE REDUCTION & OTHER - $10 MILLION
O OPERATING COST REDUCTIONS - $4 MILLION
O $365 MILLION OF 2005 PROJECTED PRO FORMA EBITDA
O 2005 PRO FORMA DISTRIBUTABLE CASH FLOW ACCRETION OF 37 CENTS
PER UNIT
O PRO FORMA DEBT-TO-CAPITALIZATION RATIO AT APPROXIMATELY 46%
O EXPECTED TO BE INVESTMENT GRADE RATED
VALERO LP LOGO 21
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GREAT COMBINATION FOR INVESTORS
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O DISTRIBUTABLE CASH FLOW ACCRETIVE
O TO RECOMMEND AN INCREASE IN THE DISTRIBUTION FROM $3.20 TO
$3.42 PER UNIT FOR VLI UNITHOLDERS
O KPP UNITHOLDERS TOTAL DISTRIBUTION INCREASES DUE TO
ADDITIONAL UNITS
O BETTER EARNINGS DIVERSIFICATION
O BROADER SCOPE OF OPERATIONS CREATES PLATFORM FOR GROWTH
O RELATIONSHIP TO VALERO ENERGY EXPANDS OPPORTUNITIES
GOING FORWARD - WELL POSITIONED TO CONTINUE DELIVERING INDUSTRY
LEADING DISTRIBUTION GROWTH
VALERO LP LOGO 22
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APPENDIX
VALERO LP LOGO 23
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FIXED VALUE COLLAR
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FIXED VALUE COLLAR STRUCTURE
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VALERO L.P. KANEB RATIO KANEB
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-10% $ 51.53 $ 58.26 1.131
-9% 52.10 58.91 1.131
-8% 52.67 59.56 1.131 [GRAPH]
-7% 53.24 60.21 1.131
-6% 53.82 60.85 1.131
-5% 54.39 61.50 1.131
-4% 54.96 61.50 1.119
-3% 55.53 61.50 1.107
-2% 56.11 61.50 1.096
-1% 56.68 61.50 1.085
BASELINE 57.25 61.50 1.074
+1% 57.82 61.50 1.064
+2% 58.40 61.50 1.053
+3% 58.97 61.50 1.043
+4% 59.54 61.50 1.033
+5% 60.11 61.50 1.023 ACQUIROR SHARE PRICE
+6% 60.69 62.09 1.023
+7% 61.26 62.67 1.023
+8% 61.83 63.26 1.023
+9% 62.40 63.84 1.023
+10% 62.98 64.43 1.023
VALERO LP LOGO 24
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RECONCILIATION OF NET INCOME TO EBITDA AND DISTRIBUTABLE CASH FLOW
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The following is a reconciliation of net income to EBITDA and distributable cash
flow (in thousands):
YTD 9/30/2004 2005
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Valero L.P. Kaneb Partners Projected Pro Forma
Net income $59,063 $67,123 $176,255
Plus net interest 15,630 32,180 94,449
expense & other
Plus depreciation & 24,536 41,677 94,034
amortization
Plus income tax expense N/A 3,055 N/A
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EDITDA 99,229 144,035 364,738
Less VLI's Skelly
interest 121 n/a n/a
Less interest expense (15,630) (31,389) (92,455)
Less income taxes - (3,403) (4,188)
Less reliability capital (7,030) (17,439) (46,427)
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Distributable Cash Flow 76,690 91,804 221,668
VALERO LP LOGO 25
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