Valero Energy was not only named after a mission (the Mission San Antonio de Valero), it is on a mission to be the largest independent refiner in the US. Valero churns out about 3.1 million barrels per day, refining low-cost residual oil and heavy crude into cleaner-burning, higher-margin products, including low-sulfur diesels. It operates 16 refineries in the US, Canada, the UK, and Aruba. It also has 10 ethanol plants with a combined production capacity of about 1.2 billion gallons per year. In 2013 the company spun off CST Brands, (which held Valero's company-operated convenience stores in the US and Canada; and filling stations, cardlock facilities, and heating oil operations in Canada).
Valero has refining and wholesale operations in Aruba, Canada, Ireland, the UK, and the US. In 2013 the US accounted for 73% of the company's total revenues.
The company operates two business segments: Refining (refining operations, wholesale marketing, product supply and distribution, and transportation); and Ethanol (sales of internally produced ethanol and distillers grains in the US); and Retail
Sales and Marketing
The company markets branded and unbranded refined products on a wholesale basis through an extensive bulk and rack marketing network. Valero sells refined products through 5,600 branded sites in the US, 1,000 branded sites in the UK and Ireland, and 800 branded sites in Canada. The company sells ethanol to large customers (primarily refiners and gasoline blenders) under term and spot contracts, and in bulk markets such as New York, Chicago, the US Gulf Coast, Florida, and the US West Coast.
After experiencing sizable revenue growth since 2009, in 2013 Valero's revenues decreased by 1% due to lower average refined product prices. It also experienced a decline in gasoline margins throughout all of its regions.
After experiencing net income dip in 2012 due to increased asset impairment losses stemming from the impairment of the refining assets at its Aruba Refiner, in 2013 Valero’s net income increased by 31% primarily due to lower operating costs and a gain on the disposition of its retained interest in CST Brands.
In 2013 the company’s operating cash inflow increased to $5.56 billion (from $5.27 billion in 2012) due to net cash received in connection with the separation of its retail business ($550 million of proceeds on short-term debt, a $500 million cash distribution from CST less $315 million of cash retained by CST), and $525 million of proceeds on short-term debt related to the disposition of Valero's retained interest in CST.
To get better shareholder returns, in 2013 the company spun off its retail business as an independent public company, CST Brands. Valero continues to supply fuel to CST Brands' retail sites through long-term supply agreements. (Valero subsequently sold its remaining 20% stake in the company.)
Valero is also pursuing a long-term strategy of ramping up its profitable businesses in the US while selling about a third of its high-cost North American refineries and other non-core US assets, in order to explore more cost-efficient projects in faster-growing markets in Europe, the Middle East, and Asia.
In 2013 the company’s Valero Terminaling and Distribution unit formed a joint venture with TGS Development to start construction on a new marine terminal on the lower Sabine-Neches Waterway near Port Arthur, Texas to support the expansion of oil receipts and the marine movements of other commodities at that strategic port.
Growing its foothold in the petrochemical segment, that year the company also announced plans to build a major methanol plant at its 270,000 barrel per day St. Charles refinery near New Orleans. Scheduled to commence operating in 2016, the $700 million plant will yield 1.6 million tons of methanol per year.
Hedging its bets, Valero moved into the alternative fuel business. Given that ethanol is a requirement in many of the gasoline fuel mixes it sells, the company decided that it could cut costs by owning ethanol plants, rather than buying ethanol wholesale. It made its first foray into ethanol production in 2009, buying seven ethanol production facilities from VeraSun Energy, which was operating under Chapter 11 bankruptcy protection. Valero paid about $475 million for the facilities. After acquiring other ethanol companies, in 2014 the company owned a total of 11 ethanol plants, with a collective capacity of 1.3 billion gallons a year.