Valero Energy Corp.: Fires, Philanthropy And Pretty Good Profits

Texas oil refiner deals with disaster and leadership changes.

The new year has started off on somewhat of a sour note for Valero Energy Corp. -- one of IndustryWeek's 50 Best Manufacturing Companies for 2006.

The San Antonio, Texas-based oil refining and marketing company's Texas City refinery caught on fire on Jan. 29 and the company was forced to close three of the facility's units -- a crude unit, a fluid catalytic cracking unit and an alkylation unit.

According to the San Antonio Business Journal, it will take three weeks to bring the units back on line, and estimated production loss is approximately 67,500 barrels per day (BPD) of gasoline and 40,000 BPD of distillates such as diesel. The Texas City facility has the capacity to process 245,000 BPD of crude oil.

Despite the setback, Valero -- which boasts approximately 3.3 million BPD capacity and has more than 5,500 retail and wholesale stores in the United States, Canada and the Caribbean -- posted favorable fourth-quarter results.

A Feb. 1 press release announcing Valero's financials stated that fourth-quarter income was $1.1 billion, or $1.80 per share, which compares to $1.3 billion, or $2.06 per share, in the fourth quarter of 2005.

For the year ended Dec. 31, 2006, the company's reported net income was $5.5 billion, or $8.64 per share, versus $3.6 billion, or $6.10 per share, in 2005.

"This was the best fourth quarter we've ever seen for refining margins other than in last year's fourth quarter when margins were affected by the hurricanes," said Bill Klesse, Valero's chairman and CEO. "In the fourth quarter, gasoline margins averaged more than $5.25 per barrel, while on-road diesel margins averaged over $13.50 per barrel on the Gulf Coast. In addition, sour crude oil discounts remained wide. The sour crude oil discounts benefited from ample sour crude oil supplies and very deep discounts on residual fuel oil, which can compete with crude oil as a feedstock in many of our complex refineries."

Valero Energy Corp.
At A Glance


Valero Energy Corp.
San Antonio, Texas
Primary Industry: Petroleum and Coal
Number of employees: 22,000
2005 In Review
Revenue: $82.2 billion
Profit Margin: 4.37%
Sales Turnover: 2.51
Inventory Turnover: 23.47
Revenue Growth: 50.43%
Return On Assets: 18.51%
Return On Equity: 46.04%

Klesse was recently named chairman and CEO after Valero's chairman, Bill Greehey, stepped down and resigned from the board of directors in order to focus on the newly independent Valero GP Holdings LLC and Valero LP.

"When I retired as CEO, I said that I would remain as chairman to ensure a smooth transition and to oversee the initial public offering of Valero GP Holding's interest in Valero LP," Greehey said. "Now that the LP is independent of Valero Energy, both companies are in a good position to continue growing, so it is inevitable that there will be conflicts of interest between the companies going forward. Since Valero is now the largest refiner in North America and the LP is just getting its start as an independent company, I have decided to turn my full attention to helping the LP build on its success in the coming years. And, of course, I will be able to spend more time on a number of philanthropic endeavors that are important to me."

Philanthropy is obviously important to Valero employees as well. According to its Web site, employees donated 272,000 hours of time last year to volunteer for community projects, including mentoring students, organizing fund-raisers, participating in clean-up events and volunteering at youth centers. In addition, Valero and its employees pledged $13 million to the 2006 United Way Campaign -- $1 million more than they contributed in 2005.


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