Excellence Refined - 30 Years - Valero

As a former UDS executive, Valero CEO Bill Klesse still
recalls the diversity and sheer size of the acquisition
in 2001. “The UDS deal gave Valero the size it needed
to take on more risk going forward,” said Klesse,
who became CEO in 2006. “It gave Valero a lot more
mass, and with that, the ability and the opportunity
to invest in places like St. Charles and Aruba.”
The deal also gave Valero entry into sweet crude
refining, and into new business territories in Canada.
With the close of 2001, Valero was indeed a whole new
company. Purpose-driven growth was its guidepost, now
even more attainable with the financial stability created
by UDS. The addition meant even more employees
and instant ownership of 1,000 retail stores and 3,000
branded outlets. Through it all, Valero continued to
focus on sour crude refining and capture the benefits of
diversification. While the refineries would provide synergy
and bigger geographic punch to Valero’s presence in
North America, the new retail arm gave the company
something refining could not: a face to the general public.
UDS’ Diamond Shamrock brand had been around since
the 1970s and was a fixture in certain parts of the country
– particularly its headquarters state of Texas. Before that,
Ultramar stores in Eastern Canada had been in operation
since the 1960s. And even earlier, Diamond Shamrock’s
predecessors, including the original Shamrock brand,
had operated successfully since the 1930s. The entire
system had been supported by the UDS Credit Service
Center in Amarillo, Texas, which to this day serves credit
card customers each year. By 2002, Valero had improved
the profitability of its retail division by investing in topperforming
sites, including remodeling or even rebuilding
stores, acquiring new sites and closing marginal sites.
As a side venture, Valero also began to grow a branded
wholesale business that began with the Exxon purchase
in 2000 but grew with the UDS acquisition in 2001. In the
wholesale market, Valero could build brand recognition
and customer loyalty through independent operations,
without the high cost of operating and staffing its own
stores. These “jobbers,” as they are known, offered Valero
credit cards and had access to advertising and promotions
but were independently owned and operated. In August
2006, Valero announced an 11-year agreement with
Susser Petroleum – the largest single-branded wholesale
deal in Valero history in fuel volumes and number of
sites – to supply fuel and brand programs to more than
300 of Susser’s network of 324 retail stores in Texas and
Oklahoma. Valero also began branding selected sites
from Susser’s network of 352 wholesale dealers – thus
becoming Texas’ No. 1 rack fuel marketer with 1,900
branded wholesale and company-owned locations, and
significant unbranded sales volumes around the state.
By 2007, Valero had earned Convenience Store Chain of
the Year by Convenience Store Magazine and was actively
looking to grow its jobber network. It was clear Valero
needed a strong national image to hook consumers and
investors. So on June 30, 2005, on the eve of one of the
busiest driving holidays of the year, Valero announced
its most ambitious retail plans yet – transform its entire
U.S. network to the Valero brand, converting Diamond
Shamrock stores to Valero’s signature teal and gold.
A plot of land alongside Interstate 37 in Corpus Christi,
Texas – within view of Valero’s flagship refinery – gave
birth to the first company-owned, branded Valero site
outside of California. By the end of 2009, the company
operated 1,000 Valero Corner Stores and held contracts
with more than 4,000 jobber sites. Diamond Shamrock,
Shamrock and Ultramar brands still dotted the U.S.
landscape as well.
St. Charles:
A Diamond in the Rough
In May 2003, Valero announced its $500 million purchase
agreement for Orion Refining Corporation’s 185,000
BPD refinery in south Louisiana – roughly 20 cents on the
dollar compared with replacement value. The investment
community saw the refinery as a run-down plant with a
host of operational issues and a parent company that
was deep in bankruptcy, but some analysts saw beauty
in the deal. Valero’s solid financial footing (as a result of
deconsolidating Valero L.P. and Valero Energy in 2002)
allowed the purchase to happen without compromising
the company’s balance sheet. The facility, located 15
miles west of New Orleans, had the makings of one of the
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