Excellence Refined - 30 Years - Valero

By the end of its first year, Valero stood solidly as Texas’ largest intrastate
pipeline operator and the nation’s second-largest producer of natural gas liquids.
serendipitous move, considering Houston Natural Gas’
infamous future parent company: Enron Corporation.
Valero’s toughest early year, arguably, was 1986, when it
reported a $100 million loss. Many predicted bankruptcy
for the company, but employees – as they had done in
the beginning – agreed to hang in and await better
times. Ever so slowly, conditions improved – starting that
same year, in fact, with Valero’s arrival onto the coveted
Fortune 500 list, based on its 1985 performance. Tough
economic times only made Valero stronger.
The company has always had the
ability to be flexible. And we are not
overburdened with huge bureaucracy.
That, coupled with the Valero spirit,
is what brings about success.
——
Ruben Escobedo, longtime Valero board member
Valero’s debt-reduction course culminated in 1986, when,
in December of that year, the company initiated plans
to place its natural gas pipeline and liquids assets into
a limited partnership. A Valero subsidiary would be the
general partner and own a 49 percent interest. This was
the most complicated financial step taken in the history
of the company, but it was one virtually everyone believed
single-handedly saved the company.
At the time, no one in the investment community believed
the limited partnership could be formed in less than six
months. But within the company, employees realized this
move had to be made by the end of the first quarter of
1987 to alleviate debt problems. Many worked around
the clock, seven days a week, to achieve the seemingly
impossible goal. As a result of everyone’s efforts, on
March 27, 1987, Valero Natural Gas Partners, L.P. was
formed as a publicly traded partnership on the New York
Stock Exchange under the symbol VLP. “We all worked
long days, but the key was working together as a team,”
said Ed Benninger, Valero’s Chief Financial Officer at the
time. “Everyone had a role to play and a contribution to
make. Whether you were a secretary or a vice president,
each was significant.” Because of the strong market
for natural gas and NGLs at the time, Valero was able
to maximize the value of those assets. As a result, the
company raised more than $740 million from the net
proceeds of the spin-off, and reduced its debt-tocapitalization
ratio from approximately 70 percent to
30 percent. In a 1990 tribute to Valero’s first decade,
Benninger said the entire L.P. effort was something to
behold. “The formation of Valero Natural Gas Partners,
L.P., is a tribute to the quality and the character of the
people we have at Valero,” Benninger said. “It wasn’t
any one person who accomplished the formation of the
partnership; it took the effort of more than 100 people.”
Six years after the limited partnership began, Valero
solidified its finances and bought back the outstanding
shares. The company, committed to being a leader
in the energy industry, had survived its first 10 years.
“If you believed what you read in the papers, we were
going to go bankrupt,” Greehey said in 1990. “But we
knew we weren’t. That was the difference.” By 1997, an
unprecedented wave of growth stood poised to begin.
We will build on our strengths. Our
momentum is only the beginning.
——
1997 Annual Report
11 Valero Lines 3oth anniversary edition