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Bill Greehey discusses the moves that helped put Valero at the head of the refining industry.

CSD: In 1997, Valero became focused on acquiring refineries. What made you come to this decision?

Greehey: That was always our goal, but it was in 1997 when we changed strategies by selling our pipeline and liquid operations to concentrate on being a refiner. We set a goal of two million barrels a day in five years, and we were going to reach that goal through acquisitions.

We saw that no new refineries were being built, and that the refinery business was not a good business to be in. We were buying at deep discounts, and we knew that demand was going to exceed supply and margins would eventually improve. Then we added one other factor: we wanted refineries that can process the heavier sour crudes. If you look at the total world of reserves, they are mostly heavy sours, and they’re always going to produce the light crudes because they are worth more. As the incremental barrel gets produced, the higher percentage are going to be the sour crudes and it’s going to sell at big discounts. Everything that we said would happen in 1997 has, plus we beat our goal of 2 million barrels a day.

CSD: Explain your first steps in going after older facilities?

Greehey: We were looking for value. In the first year we bought the three refineries from Basis Petroleum [Texas City, Texas, Houston and Krotz Springs, La.]. The following year, we bought one refinery from Exxon Mobil outside of Philadelphia. Then the following year we bought Exxon’s Benecia refinery, and that really put us in the big leagues.

CSD: What was special about the Benicia acquisition?

Greehey: Benecia gave us a lot of momentum in the industry, which carried over and enabled us to buy Ultramar Diamond Shamrock (UDS) right in our own backyard in San Antonio. From there, we bought the St. Charles refinery, a plant in Aruba and then capped it off with the acquisition of Premcor last year.

CSD: With your strong history in the refinery and energy business, what made you decide to go into convenience retailing?

Greehey: It wasn’t a conscious decision. We bought some stores with Exxon, and then we had to come up with our own brand name because we could not use the Exxon brand. That’s when we tasked our retailing group to come up with the Valero logo and the image we are now using at our retail sites. When we bought UDS, they were big in retail, so we ended up being a major player. The thing that we found out with UDS was that they had really not done a good job of maintaining their stores, and so when we acquired them, the first charge that I gave Gary [Arthur, senior vice president of retail and specialty product marketing] was to sell every store that is not worth remodeling, and every store that is worth remodeling should be updated immediately. They did just that, and we ended up with fewer stores but better stores. We turned something around that really wasn’t making money, and now it’s a profitable operation.

CSD: What about the original brand strategy? What kind of brand strategy did you employ? Was there specific criteria that you utilized?

Greehey: Gary and his team had guidelines on how much volume was sold, the size and location of the store, and it had to have pay at the pump. The one mistake that we made at retail was, to be honest, when we acquired UDS is 2002, came in the aftermath of 9/11. The events of 9/11 put the economy in a downward spiral making it a terrible year for the energy business. Fortunately, we made money, but at the time, we made the decision to stay with Diamond Shamrock, which was a recognized name. In hindsight that was a mistake. We should have gone to the Valero brand right away.

CSD: When you look at the changes that you made since acquiring Diamond Shamrock, what improvements do you feel the most satisfied with?

Greehey: When we bought UDS, they were way behind in the retail business. Starting with the uniforms—they were really goofy, so we gave them new uniforms. The brand had the highest turnover of anyone in retail. When I saw this I got with Gary and his people and said, “What is the problem? Why are we losing people?” The two words that came up were “reward” and “recognition.” We did not have any programs for the employees. As a result, Gary and his team developed all of these programs to reward and recognize their employees and give them more benefits. In a short time, we went from the bottom to where we are pretty much at the top with respect to turnover because we’ve emphasized employees first. [For more on Valero's corporate culture, see HR Story on p.28]

CSD: Can you provide some specific examples of how you reward and recognize your employees?

Greehey: When we first purchased UDS, we held roundtable meetings with our retail employees. From that feedback we implemented a number of key programs to meet those needs. Today, we offer our retail employees competitive pay and great employee benefits, including a retention bonus structure, enhanced store performance bonus plans and special recognition and reward programs in the areas of safety, customer service and community involvement. The result has been lower turnover, happier employees and improved customer service—all of which has led to higher sales and in-store gross profits. In fact, over the past few years we have reduced our employee turnover to less than half of what it was when we acquired UDS.

CSD: During Hurricane Katrina, you provided some special support for your St. Charles refinery employees. Can you tell us about the hurricane relief effort?

Greehey: When the hurricane was coming into New Orleans and we knew that our St. Charles refinery was going to get hit, we had a meeting with all of our top management and I said, “I don’t care what it costs the company financially, we are going to take care of all the needs of our employees.” We immediately bought house trailers and moved them down there. We had trucks from our distribution plant in Texas deliver food and water, supplies and generators every day in order to keep people fed and generate electricity. We also sent people to cook three meals a day.

When the employees came to work we gave them $500 each for free because the banks were closed. For any damage to their houses, we were able to give them up to $10,000 free money on the spot because we had on-site adjusters surveying the damage. We gave them free gasoline, and we did the same thing for the community—anybody that needed emergency use of gasoline, were welcome at our refinery. I believe we fed everybody in the community as well. It cost our company, with two hurricanes, maybe $5 million dollars, but having said that, the St. Charles refinery was back in service in eight days. The refinery across the street was three weeks later. Everyday out of operation for that refinery likely cost $5 million dollars, and they probably lost a great deal more than us by not doing what we did. If you look at what Valero did, we accomplished for our refinery what FEMA could not.

CSD: What successes over the last year, and beyond, have brought you the most satisfaction and why?

Greehey: Last year’s acquisition of Premcor, which made Valero the largest refiner in North America, was a major achievement for the company. And, with Valero’s growth, the timing couldn’t have been better to roll out the Valero brand nationwide. It’s exciting to know that when the national conversion is complete, the company’s brand image will be featured on retail and branded wholesale sites stretching from coast to coast. But for me, personally, I take the greatest pride in Valero’s caring and sharing culture, which has improved tens of thousands of lives in the communities where we
have business operations.

By Shahla Hebets, Publisher, and John Lofstock, Editor-in-Chief

Few chains have achieved the rapid growth Valero Energy Corp. has displayed over the past decade. A virtual unknown in the refining industry in 1997, the San Antonio-based marketer has grown into the largest refiner-marketer in North America with 18 refineries, a throughput capacity of 3.3 million barrels per day and a branded marketing network of more than 5,500 convenience stores and gas stations. With these impressive numbers, Valero was an easy choice to earn honors as Convenience Store Decisions‘ 2006 Chain of the Year.

Bill Greehey, the venerable architect behind Valero’s success, sat down with CSD to discuss the award and the events that facilitated the company’s rapid growth.

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