Valero Energy

Last edited by apocalypticbeef on July 11, 2008 - 12:02pm

Company Snapshot:

Valero Energy Corporation is a Fortune 500 company based in San Antonio, Texas, with 21,836 employees and annual revenue of more than US$90 billion. The company owns and operates 17 refineries throughout the United States, Canada and the Caribbean with a combined throughput capacity of approximately 3.3 million barrels per day, making it the largest refiner in North America. Valero is also one of the nation's largest retail operators with more than 5,000 retail and branded wholesale outlets in the United States, Canada and the Caribbean under various brand names, including Valero, Diamond Shamrock, Ultramar, Shamrock and Beacon.

Ownership status:

Publicly traded

Number of employees worldwide:

21,836

Chief executive officer:

William R. Klesse

2008 Global Fortune 500 rank:

Website:

http://www.valero.com/

Corporate accountability

Tax issues:

Property Assessment Challenges

In 2006 Valero filed 150 lawsuits against 42 appraisal districts in 85 Texas courts, arguing that assessments for properties ranging from convenience stores to refineries were overvalued. The appeals covered several years of property assessments, with millions of dollars in already-paid tax revenue at stake.

The scale of Valero's litigation surpassed all previous tax battles, according to Michael Amezquita, chief of the Bexar Appraisal District.

Contesting property appraisals is a national trend among companies, but it has grown stronger in Texas during the past decade because of the state's increasing reliance on property taxes to fund the state budget, according to J. Andrew Hansz, professor with the finance and real estate department in the College of Business at the University of Texas at Arlington.

"For companies, it is one way to minimize their expenses to maximize their profits," Hansz told the San Antonio Express-News. "Every year, companies routinely appeal their property assessments. Sounds like Valero is a bit more aggressive than others at doing this."

"This is all about corporate greed," Ken Nolan, chief appraiser in Dallas County told the paper. Valero is contesting the value of more than 80 gas and convenience stores in Dallas County from 2002 to 2005. "It's about corporations not wanting to pay their fair share." (Source: L.A. Lorek, "Counties face paying Valero many millions," San Antonio Express-News, 8/16/06)

Labor:

Wrongful Death Lawsuits

A refinery maintenance project at the Valero Delaware City refinery complex was short-staffed and plagued by safety troubles in November 2005 when two men working for a contractor -- Matrix Service Co. -- were asphyxiated while retrieving a roll of duct tape that had fallen into a refinery reactor, according to interview transcripts and documents released as evidence in wrongful death suits against the company.

In public statements shortly after the accident, Valero said the victims failed to abide by verbal instructions and a prohibition against entering the unit where they died. Others disputed the claim and pointed out that a work permit gave no warning of suffocation hazards as required. News stories reported that OSHA fined Valero the previous year for failing to adequately oversee handling of work permits, and supervisors were unconcerned about discipline for violations. (Jeff Montgomery, "Valero staffing an issue in deaths," Wilmington News Journal, 5/17/07).

Attorneys for the families of the workers also said they were upset by a corporate officer's public comments that maintenance delays at the Delaware refinery held down returns. Another wrongful death claim associated with the same refinery was settled in 2003 for $36 million. (Jeff Montgomery, "Suit in worker's death: Valero put 'profits over safety'," Wilmington News Journal, 2/8/06)

A fatal explosion and fire at the Delaware plant in 2001 led to tough new state laws for above-ground storage tanks as well as tens of millions of dollars in criminal and civil fines and penalties.

Chronology of problems at the Delaware Refinery (Source: Wilmington News Journal, 11/7/05):

March 2005: State regulators warn refinery managers about concerns over leaks, fires and risk of catastrophe.
January 2005: 12,500-pound propane leak.
September 2004: 20,000 and 9,000 pound butane leaks.
February 2004: 11,000-pound propylene/butane leak.
May 2003: Chemical reaction bursts a tank roof open, releasing 25,000 pounds of acid and 15,000 pounds of hydrocarbons, forcing employees to flee for their lives. (Occupational Safety and Health Administration recommended a $132,000 fine).
March 2002-August 2003: Excessive releases of carbon monoxide and other pollutants. (237,500 fine by Delaware).
July 17, 2001: Explosion and fire in a sulfuric acid tank kills one man, cripples several others and releases more than 1 million gallons of gasoline-laced acid.
April 2001: State regulators file criminal pollution charge accusing refinery managers of twice neglecting caustic chemical leaks that damaged the environment.
May 2000: Worker burned by pipe failure.
December 1997: Four workers injured when a tank explosion splashes them with a caustic chemical.

Troubles in Texas

According to Kim Nibarger, a health and safety specialist with the United Steel Workers Union, in the first few months of 2007 alone Valero "had a total of eight incidents (at its Sunray, Texas refinery) "ranging from loss of utilities that resulted in production cutbacks and flaring (abnormal releases) -- to four incidents that caused fires."

An accidental release of sulfur dioxide at a Valero refinery in east Houston in October 2006 sent nearly 30 workers to area hospitals, where they were treated for respiratory complaints. The leak was [reportedly] contained and workers were allowed back inside the refinery shortly after 1 p.m.

Environment and product safety:

According to the University of Massachusetts’ Political Economy Research Institute, the Valero Energy Corporation is the 28th most toxic corporation in America, releasing 3,363,294 pounds of toxic chemicals into the air annually.

Air Pollution: Texas

In August 2007 Valero agreed to pay a $4.25 million fine and to spend $147 million on new and upgraded pollution controls at its refineries in Port Arthur (TX), Memphis (TN), and Lima (Ohio) under a consent decree reached with the Justice Department and the Environmental Protection Agency.

Valero was blasted by Port Arthur residents at a town-hall gathering just days before the announcement, after a July 28 release of a toxic gas at Valero's Port Arthur refinery sent some living near the plant to area hospitals and an Aug. 8 fire at the refinery caused city officials to demand an alert system to warn residents of refinery accidents. The company reportedly paid up to $1,500 and picked up medical bills for some residents who needed attention following the July gas leak.

The settlement with EPA/DoJ requires Valero to spend $1 million to support a local health center treating under-insured and uninsured residents for respiratory illnesses. The company told reporters that it voluntarily approached EPA, seeking to resolve concerns that stemmed from before it purchased the refineries from Premcor Inc. in late 2005.(Vicki Vaughn, "Valero fined $4.25 million," San Antonio Express-News 8/18/07). (Months later the company announced it would expand the refinery.)

In June 2005, Valero settled a five-state/US EPA joint complaint by pledging to install $700 million in pollution controls and pay a $5.5 million penalty to settle violations of federal air-pollution laws. According to the Houston Chronicle ("Oil refiner Valero must make upgrades", 6/17/05), higher-than-average levels of benzene (a carcinogen) were found near its Houston refinery in the Manchester community. In addition, "Valero's refineries in Houston and Texas City were among the worst in the state in the amount of pollution from so-called upsets, unplanned releases above what the law allows," in 2003.

Valero's original (in the USA) Corpus Christi refinery was approved in late 2001 to install a backup Sulfur Recovery Unit (SRU) because their primary SRU was breaking down, resulting in repeated large volume flaring of sulfur dioxide. (SRU's are typically the primary sulfur scrubbers in most large sour crude refineries; they may have additional devices such as amine treaters and caustic scrubbers to assist as well.)

In late 2001, Valero Refining's Corpus Christi flagship refinery was ordered by US EPA Region 6 Dallas to install a backup Sulfur Recovery Unit (SRU)/Sulfur Pollution Controls due to numerous upsets related to the failures in the primary SRU between 1994-1998. SRU's are the most important sulfur pollution control devices in any refinery. They recover the sulfur as molten sulfur rather than allowing the sulfur to be emitted as SO2 along with other toxic sulfur gases.

In a major enforcement action settled on May 17, 2000, the Texas Natural Resources Commerce Commission (TNRCC) forced Valero to pay a $174,455 penalty to resolve alleged violations at its Texas City petroleum refinery.

Valero's Corpus Christi refinery ranked first in Texas in terms of upset release volumes from 1994-98, according to Region 6 EPA data, with more than 8 million pounds (+4,000 tons) of SO2 released during that same period.

The Chronicle reported that Valero's Houston refinery received 14 notices of violation from the city's Air Quality Control Bureau between March 1, 2000 and January 6, 2005, resulting in $258,270 in fines.

New Jersey

In April, 2005, the New Jersey DEP fined Valero $793,000 and ordered it to install $3.5 million in emission controls to settle alleged Clean Air Act violations between 2001 and 2004 at its Paulsboro (NJ) refinery. The new controls are intended to reduce nitrogen oxides and sulfur dioxide from the company's wastewater treatment plant.

California

In 2002 the company the requested a permit from the City Council of Benicia to process lower-grade crude, promising to install sulfur scrubbers (SRUs) to handle the extra emissions. (See discussion of TX refinery above.)

Water Pollution

An oil spill at the company's Corpus Christi West Refinery in June 2006 resulted in a proposed $ 2.4 million fine by US EPA and US Department of Justice.

MTBE Pollution Liability

In the company's 2007 10-K filing with the SEC, the company reported that as of 2/1/2008 it was a defendant in more than 83 cases alleging liability related to MTBE contamination in groundwater, and that "an adverse result in all or a substantial number of these cases could have a material effect on our results of operations and financial position."

Hazardous Waste (RCRA) Violations

On 4/1/2005 EPA Region 9 announced that Valero had agreed to pay $97,940 to settle environmental violations at its Benicia, CA refinery, for transporting and treating hazardous waste (sludge) without a permit.

Human rights:

Environmental Racism

In 1994, two grassroots community groups in Texas' Nueces County -- People Against Contaminated Environments ("PACE") and the American GI Forum of Texas ("AGIT"), the Dr. Hector P. Garcia Chapter, filed a Title VI (Civil Rights Act of 1964) complaint against the State of Texas ("TNRCC") and the City of Corpus Christi, Texas ("COCC").

PACE and AGIT alleged that TNRCC and COCC discriminated against people of color residents of Texas and Corpus Christi respectively by ignoring their environmental protection and public health needs with respect to the Valero refinery.

A TNRCC report noted that 25-50,000 families live in the densely populated industrial district neighborhoods in the vicinity of the northeast industrial district of Corpus Christi, and demographic data indicates that a majority of these citizens are people of color and low-income families. Residents reportedly suffered adverse impacts that they believe were caused by exposure to toxic, hazardous and noxious chemicals and wastes associated with operations of the refinery and other facilities. The pollutants involved include Benzene, Hydrogen Fluoride, other volatile organic compounds (VOCs). A 1990 cancer mortality study found higher rates in neighborhoods located closer to the plant.

Anti-competitive and consumer protection:

Valero grew from the fourteenth-largest domestic refiner at the outset of 2000 into the second-largest (and largest non-vertically integrated) refiner pending approval of the company's acquisition of Premcor Inc. for $6.9 billion in cash and stock.

"If anything smells worse than an oil refinery, it's a big merger of oil refiners at a time when gasoline prices are at all-time highs," Business Week noted wryly. "Naysayers raised concerns that more consolidation would reduce competition, letting refiners get away with underinvesting in capacity -- tightening supplies and driving up prices and profits." (BW also conceded that Valero "has a history of upgrading the refineries it buys and boosting their output.")

According to a 2007 GAO study, "[f]or most of the past 25 years, there has been excess refining capacity globally, but this excess has shrunk considerably in recent years as demand has increased faster than capacity growth, casing refineries to run closer to their production capacity, and contributing to recent increases in petroleum product prices, price volatility, and refining profits."

According to Mark Cooper of Consumers Union the merger wave of the past decade dramatically reduced the number of refineries and companies in the wholesale market, resulting in increased market concentration and a failure to build new capacity to relieve increased demand. As a result, the average American household expenditure on gasoline rose by $1,000 in the five year period ending in 2007: "A major cause of this immense increase in consumer cost is the failure of Federal antitrust authorities to prevent the abuse of market power by oil companies and the failure of the Administration and Congress to enact policies that will fix the failures that plague the gasoline market. ... Between January 2007 and the first week in May, gasoline prices increased about 80 cents per gallon and over 60 cents (more than three quarters) was the result of an increase in the amount taken by domestic refining and marketing."

The US Federal Trade Commission agreed to Valero's 2001 $6 billion merger with Ultramar Diamond Shamrock Corporation only after forcing Valero to divest itself of Ultramar's Golden Eagle Refinery, bulk gasoline supply contracts, and 70 Ultramar retail service stations in Northern California to a Commission-approved buyer. According to FTC's original complaint, the merger of Valero and Ultramar would otherwise have violated Section 7 of the Clayton Act and Section 5 of the FTC Act by substantially lessening competition in various gasoline markets in California.

In 2005 the FTC challenged Valero's acquisition of Kaneb Services and Kaneb Pipe Line Partners, alleging that the acquisition could increase bulk gasoline and diesel prices. The consent order required the companies to divest enough assets to maintain pre-merger levels of competition. The order forbids Valero L.P. from giving preference to its affiliates in bulk ethanol terminal services.

Fuel Temperature Lawsuits

In the company's 2007 10-K it reported being named in 22 class action lawsuits relating to fuel temperature. "The complaints, filed in federal courts in several states, allege that because fuel volume increases with fuel temperature, the defendants have violated state consumer protection laws by failing to adjust the volume of fuel when the fuel temperature exceeded 60 degrees Fahrenheit. ... We believe that we have several strong defenses to these lawsuits and intend to contest them." (see p 113.)

CEO Pay

CEO Bill Klesse's 2007 compensation totaled almost $35 million, including a $1.5 million salary, $3.7 million bonus, $8.5 million in stock and options, another $4 million in performance stock, and pension, deferred compensation awards and other perks worth about $1.24 million. In addition, his stock options increased in value by $15.8 million as the company's stock rose 40 percent. Klesse earned about $7.8 million in 2006.

Others according to the San Antonio Express-News.

Former president Greg King: $22.6 million.
Rich Marcogliese, VP and COO.: Over $10 million.
Mike Ciskowski, VP and CFO: $7.7 million.

(See Vicki Vaughn, "Valero CEO earned $15 million in 2007," 3/17/08)

Financial information

Stock ticker symbol:

VLO

Total revenue:

$91,051.0 (Mil)

Fiscal year:

2006

Additional descriptive data

Geographic breakdown of revenues (sales and profits), assets, employees:

Valero owns seven refineries in Texas: Houston (1); Corpus Christi (2), Three Rivers (1), Sunray (1), Texas City (1), Port Arthur (1). It also owns refineries in Benicia (California), Louisiana, Oklahoma, Colorado, New Jersey, Lima (Ohio), and Memphis (Tennessee).

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Valero Energy

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