Valero prefers to swap rather than sell Golden Eagle refinery

By the OGJ Online Staff

HOUSTON, Dec. 4 -- Valero Energy Corp. Chairman and CEO William E. Greehey said Tuesday he'd rather swap than sell Ultramar Diamond Shamrock Corp.'s 168,000-b/d Golden Eagle refinery in the San Francisco Bay area, as part of the company's deal with the US Federal Trade Commission to complete that proposed merger.

Greehey told reporters in Houston that he is exploring both possibilities. However, he said, "We're not interested in losing refining capacity."

Valero Energy announced Monday it accepted the FTC's stipulation that it divest that refinery and some northern California marketing assets valued at more than $1 billion as part of the pending merger between the two companies (OGJ Online, Dec. 3, 2001).

That agreement will permit the merger to be completed before yearend, prior to divesting that refinery and 70 associated Beacon and Ultramar-branded retail sites throughout northern California, Greehey said. The consent decree gives Valero a year to dispose of those assets.

UDS operates a 78,000 b/d-refinery at Wilmington, Calif., and Valero has a 135,000-b/d plant at Benicia. Geehey said Valero expects synergies from the merger will exceed the original target of $200 million.

UDS bought the refinery a year ago from Tosco Corp. for $950 million, including the cost of inventories and a $150-million earnout payment. It said its capital improvements would total $180 million by yearend. Net book value of the retail network is $35 million.

After the merger, Valero will be one of the three largest US refiners with 12 plants and capacity of nearly 2 million b/d. It will operate more than 5,000 retail outlets in the US and Canada.

Greehey said Tuesday his company plans to continue its strategy of growth through both acquisitions and internal expansions. He noted that there are "a number of refineries for sale" in areas of the US where Valero currently has no operations.

The UDS acquisition is being funded half in debt and half in stock. Valero officials earlier indicated they would use half of the anticipated divestiture proceeds to aggressively buy back stock to maintain the 50:50 split of equity and debt originally anticipated in the merger agreement.

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