Copyright 2004 San Antonio Express-News
San Antonio Express-News (Texas)
July 24, 2004, Saturday , METRO
SECTION: BUSINESS EXPRESS; Pg. 10H
LENGTH: 1733 words
HEADLINE: COVER STORY ; The Valero way ; When Valero started buying oil refineries two decades ago, critics hooted. No one's laughing now.
BYLINE: Analisa Nazareno
BODY: Two decades ago, at a time when the energy industry was facing great turmoil, Valero Energy Corp. climbed up from the ruins of a failed natural gas company, ascended to solvency and then to profitability.
In those ensuing years, despite the skepticism of many, the company quietly and aggressively pursued a growth strategy in the oil refining industry, one by one and then by the threes, acquiring refineries from ailing competitors.
Today, the San Antonio company is the nation's largest independent oil refiner and one of the most profitable, with projected revenues this year of more than $40 billion and projected earnings of $10.62 per share.
With limited refining capacity worldwide and U.S. refiners balking at the approximate $2.5 billion startup costs to build a new plant, Valero stands to profit even more from increasing gasoline demand, at least for the next five years.
"They've got a lot of foresight and made adjustments to assets that they needed to do ahead of time so they could hit the trend in discounting and high refining margins," said Jay Saunders, an oil industry analyst with Deutsche Bank.
Valero acquired its first refining operation in 1981 and pumped more than $1 billion into building a new refinery that could process the cheapest and least desirable crudes and convert them into high-quality gasolines. It did so in a volatile energy market and with analysts flinching at the finances behind the move.
But with prices climbing for the highest quality crudes, and 82 percent of the world's oil reserves in heavy, low-quality crudes, the company's gamble has been paying off with higher and higher profit margins year after year.
"We looked at where the refining industry was and we realized that it was absolutely at the bottom of the cycle, which meant that it was only going to start getting better," said Bill Greehey, Valero's chairman and CEO. "And we knew that there were not going to be any new refineries built in the United States, and we also knew that capacity additions could not keep up with increased demands."
Greehey said the company began its growth campaign in 1997 after he and his strategists realized that Americans and the aspiring classes worldwide were growing hungrier for gasoline and other petroleum-based fuels, even as vehicles were supposed to be built with greater fuel efficiency.
That year, it acquired Basis Petroleum and its three refineries. In 1998, it bought Mobil's Paulsboro, N.J., refinery. Then in 2000, Valero purchased Exxon Mobil's Benicia, Calif., refinery, its 270-store distribution chain and 80 retail sites near San Francisco.
Valero made its most aggressive acquisitions in 2001, when many U.S. companies - including oil refiners - suffered during the recession and economic downturn following Sept. 11, 2001. Valero gained access to El Paso Corp.'s pipelines and terminals in Texas. It bought two asphalt refineries on the West Coast.
Its biggest acquisition took place that same year - a $5.3 billion takeover of San Antonio-based Ultramar Diamond Shamrock, which had seven refineries, and assets in the West, Southwest, Mid-continent and Canada.
Valero continued its acquisition strategy in 2003 and 2004 when it bought a Louisiana refinery from Orion Refining Corp. and another refinery in Aruba from the El Paso Corp.
Since 1997, the company's revenue has grown more than 555 percent, from $5.8 billion to $38 billion last year. Its refining capacity has grown from 530,000 million barrels a day to 2.5 million barrels, with 15 refineries in North America. And the stock has climbed from $13 a share to $78. Valero announced last week it would split its stock two-for-one.
In doing all this, the company has defied expectations, becoming a growth company in an industry that had long been deemed stagnant and stumped by high production costs, political uncertainties and its own maturity.
The San Antonio Express-News owns the copyright to this story. For a full copy of this story, e-mail Analisa and she will send you a clip via e-mail or snail mail.
San Antonio Express-News (Texas)
July 24, 2004, Saturday , METRO
SECTION: BUSINESS EXPRESS; Pg. 10H
LENGTH: 1733 words
HEADLINE: COVER STORY ; The Valero way ; When Valero started buying oil refineries two decades ago, critics hooted. No one's laughing now.
BYLINE: Analisa Nazareno
BODY: Two decades ago, at a time when the energy industry was facing great turmoil, Valero Energy Corp. climbed up from the ruins of a failed natural gas company, ascended to solvency and then to profitability.
In those ensuing years, despite the skepticism of many, the company quietly and aggressively pursued a growth strategy in the oil refining industry, one by one and then by the threes, acquiring refineries from ailing competitors.
Today, the San Antonio company is the nation's largest independent oil refiner and one of the most profitable, with projected revenues this year of more than $40 billion and projected earnings of $10.62 per share.
With limited refining capacity worldwide and U.S. refiners balking at the approximate $2.5 billion startup costs to build a new plant, Valero stands to profit even more from increasing gasoline demand, at least for the next five years.
"They've got a lot of foresight and made adjustments to assets that they needed to do ahead of time so they could hit the trend in discounting and high refining margins," said Jay Saunders, an oil industry analyst with Deutsche Bank.
Valero acquired its first refining operation in 1981 and pumped more than $1 billion into building a new refinery that could process the cheapest and least desirable crudes and convert them into high-quality gasolines. It did so in a volatile energy market and with analysts flinching at the finances behind the move.
But with prices climbing for the highest quality crudes, and 82 percent of the world's oil reserves in heavy, low-quality crudes, the company's gamble has been paying off with higher and higher profit margins year after year.
"We looked at where the refining industry was and we realized that it was absolutely at the bottom of the cycle, which meant that it was only going to start getting better," said Bill Greehey, Valero's chairman and CEO. "And we knew that there were not going to be any new refineries built in the United States, and we also knew that capacity additions could not keep up with increased demands."
Greehey said the company began its growth campaign in 1997 after he and his strategists realized that Americans and the aspiring classes worldwide were growing hungrier for gasoline and other petroleum-based fuels, even as vehicles were supposed to be built with greater fuel efficiency.
That year, it acquired Basis Petroleum and its three refineries. In 1998, it bought Mobil's Paulsboro, N.J., refinery. Then in 2000, Valero purchased Exxon Mobil's Benicia, Calif., refinery, its 270-store distribution chain and 80 retail sites near San Francisco.
Valero made its most aggressive acquisitions in 2001, when many U.S. companies - including oil refiners - suffered during the recession and economic downturn following Sept. 11, 2001. Valero gained access to El Paso Corp.'s pipelines and terminals in Texas. It bought two asphalt refineries on the West Coast.
Its biggest acquisition took place that same year - a $5.3 billion takeover of San Antonio-based Ultramar Diamond Shamrock, which had seven refineries, and assets in the West, Southwest, Mid-continent and Canada.
Valero continued its acquisition strategy in 2003 and 2004 when it bought a Louisiana refinery from Orion Refining Corp. and another refinery in Aruba from the El Paso Corp.
Since 1997, the company's revenue has grown more than 555 percent, from $5.8 billion to $38 billion last year. Its refining capacity has grown from 530,000 million barrels a day to 2.5 million barrels, with 15 refineries in North America. And the stock has climbed from $13 a share to $78. Valero announced last week it would split its stock two-for-one.
In doing all this, the company has defied expectations, becoming a growth company in an industry that had long been deemed stagnant and stumped by high production costs, political uncertainties and its own maturity.
The San Antonio Express-News owns the copyright to this story. For a full copy of this story, e-mail Analisa and she will send you a clip via e-mail or snail mail.
