Excellence Refined - 30 Years - Valero

With that, the crucial search for the perfect natural gas
partner heated up. And by January 1997, a $1.5 billion
agreement hit the headlines. Valero would merge its
natural gas services business with San Francisco-based
PG&E Corporation and spin off the company’s refining
and marketing operations as a new independent company
that retained the Valero name. The company believed the
timing was perfect for the spin-merger, and the action
doubled shareholder value. “We got out (of the natural
gas business) at exactly the right time, and for top dollar,”
said Stan McLelland, former General Counsel for Valero.
“With that, it gave us capital and ability to pay down
debt and go out and acquire other refineries.” But Valero
still faced skeptics, who saw Valero essentially selling its
more established and profitable business to focus on an
uncertain future in refining.
The company had but a single, 170,000 BPD refinery
in Corpus Christi when the PG&E spin-merger was
announced. On paper, however, Valero envisioned for
itself a nationwide network of refineries with a combined
2 million BPD of refining capacity. Within five years. To
achieve this, Valero would not accept just any refinery.
Rather, it focused on operations that met four key criteria:
the ability to process more than 100,000 BPD of sour
crude; upgrade capability, with the ability to increase
capacity and yields; access to water; and the ability to
immediately contribute to earnings.
Before the PG&E ink had dried (PG&E closed July 31,
1997), Valero reached an agreement to purchase three
refineries by acquiring Basis Petroleum Inc., a subsidiary
of New-York-based Salomon Inc., an investment firm.
The Basis refineries, located in Texas (Houston, Texas
City) and Louisiana (Krotz Springs) were purchased at 10
cents on the dollar of replacement cost. Valero’s refining
capacity nearly tripled to more than 500,000 barrels per
day, making it the fourth largest independent refiner in
the nation. The $485 million acquisition took Valero to
a new level in size and scope. “We told people that yes,
refining was at the bottom of the cycle, but that created
a great opportunity for us to acquire assets at good
values,” said Keith Booke, former Chief Administrative
Officer for Valero (1996 to 2006). “We saw demand for
refined products growing … Did the rest of the market
believe it? Absolutely not.”
The former Basis plants represented both a tremendous
value and a tremendous challenge. Maintenance and
reliability issues required attention from day one, as
did employees who were looking for a reason to trust
Valero at the time. So, company officials took time
to explain the new culture and plans for the future, to
assure employees that brighter days were ahead, and to
address questions and concerns. Valero created volunteer
councils, launched spirited United Way campaigns and
other activities, and met their new communities with
Houston
Texas City
Strategy for Success
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