Corpus Christi Caller Times Caller.com - Valero, Coastal getting upgrade

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Tuesday, June 5, 2001
Valero, Coastal getting upgrade
$552 million will be spent in next 3 years
By Tom Whitehurst Jr.
Caller-Times Business Editor

Paul Iverson/Caller-Times

Bill Greehey, Valero Energy Corp. chairman and chief executive officer, prepares to raise the company's flag at its latest acquisition, the former Coastal Corp. refinery. Valero, which is headquartered in San Antonio, will spend $250 million over three years to upgrade the 115,000-barrel-per-day plant.

   Valero Energy Corp. did something Monday at the former Coastal Corp. refinery here that El Paso Energy never did since acquiring it in January. Valero put up a sign with its name on it.
   The sign was temporary but Valero's plans are long-term, at a cost of nearly $1 billion.
   Valero announced Monday that it is the operator of the 115,000-barrels-per-day former Coastal plant, under a lease agreement at $18.5 million annually for the next two years. After that, Valero has a $294 million purchase option that Valero chairman and chief executive officer Bill Greehey said the company will exercise.
   The acquisition is no surprise because Valero had disclosed its intent two months ago. What was not expected was Greehey's announcement that the company will spend $552 million in the next three years to upgrade the former Coastal plant and Valero's 110,000-barrels-per-day Corpus Christi refinery. That's $250 million apiece for updates and additions, plus $52 million to integrate the two refineries into one operation.
   That operation will have a total capacity of 380,000 barrels per day, and will be the nation's fifth-largest refinery.
   Valero also paid $105 million for inventory and equipment.
   The refineries' combined workforce is 820. That workforce surely will grow, Greehey said, though he couldn't say when or by how many.
   "We look at employees as a profit center, not a loss center. If we end up with a few extra employees, we'll absorb them quickly because the company is growing so fast."
   Complementary operations
   Last month, Valero announced a $6 billion acquisition of Ultramar Diamond Shamrock, raising the company's total employment from 3,100 to more than 23,000, its number of refineries from six to 13, and its number of retail outlets from 350 to 5,350.
   By Greehey's math, one plus one will equal a lot more than two when the two local refineries are combined.
   "These two refineries are much more profitable operating together than standing alone," he said.
   The two will complement each other through a combined management team and complementary refining processes, said George Kain, Valero's Corpus Christi plant manager, who now will be in charge of both plants. One example is that the Valero plant had been sending product to Houston for benzene extraction, which now will be done here at the former Coastal plant at a savings of about $4 million a year.
   The two refineries, already connected by pipeline, complement each in so many ways that the Coastal plant was more valuable to Valero than to any other refiner, company spokeswoman Mary Rose Brown said.
   Pipelines are another important aspect of the deal. Valero is acquiring pipelines to Houston, San Antonio and the Rio Grande Valley. Of the $294 million purchase price, $179 million is for the pipelines, Valero officials said.
   City to win
   Valero officials met with employees of the acquired refinery Monday. By all recent accounts, they should be happy with what they were told.
   Valero has made Fortune magazine's 100 Best Companies to Work For list the past two years.
   Corpus Christi is a winner in Greehey's one-plus-one-equals-more-than-two equation, he said.
   "We have a company history that everywhere we've acquired a refinery, we've done three things: We've increased our investment, we've added employees and we've increased charitable contributions to the community beyond what the previous owners gave."
   One bit of math work may be a bit off the mark, however. During Valero's news conference Monday at the Coastal plant, Nueces County Judge Richard Borchard complimented Valero upon becoming Nueces County's largest taxpayer. But the Valero-El Paso combination still is unlikely to displace Koch Industries, which last year was the largest taxpayer with $639 million.
   Valero was sixth on the rolls with $176 million and Coastal was seventh with $123 million. That $123 million included the Coastal Javelina plant, which wasn't part of the Valero deal. Ultramar Diamond Shamrock wasn't listed in the top 20.
   But those numbers are bound to change in two years, with a known $294 million purchase price for the ex-Coastal refinery, plus the pipelines, plus the Ultramar products terminal at the Port of Corpus Christi and at least 26 Diamond Shamrock stations.
   Full circle
   The refinery acquisition is a full circle for Valero and the former Coastal Corp., Greehey said. Valero was a Coastal spinoff formed under Greehey in 1980 from the former Coastal subsidiary Lo-Vaca Gathering Corp. Greehey is a former Corpus Christi resident.
   In agreeing to the sale of the refinery, El Paso Energy was only following through with Coastal's intent before El Paso acquired Coastal, El Paso spokesman Mel Scott said. Coastal already had put the plant up for sale, he said. El Paso owns three other refineries, in Aruba, Eagle Point, N.J., and Mobile, Ala., with no current intent to sell them, he said.
   The refining business has profitability possibilities not generally recognized or understood by Wall Street analysts, Greehey said. Their projections consistently underestimate the company's earnings, he said.
   Other large refiners such as Exxon-Mobil place greater emphasis on other aspects such as exploration because the profit margin is larger, and don't put Valero's effort into realizing the profitability potential of refining, he said.
   Valero, headquartered in San Antonio, is traded on the New York Stock Exchange under the symbol VLO. Its closing share price Monday was $46.56.


Contact Business Editor Tom Whitehurst Jr. at 886-3619 or whitehurstt@caller.com

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