SAN ANTONIO -- A Valero Energy Corp. executive once expected to take the reins of the company, resigned this week. Greg King has decided to resign as president of Valero Energy and to leave the company effective December 31, as reported yesterday in a CSP Daily News Flash.
"Five years ago, he was definitely the heir apparent" to be CEO of the company, Fadel Gheit, chief oil analyst with Oppenheimer & Co., New York, told CSP Daily News. "But things changed just as [current chairman and CEO] Bill Klesse came into the picture."Gheit refers to a shift [image-nocss] in the refining industry that turned once-fast-growing companies such as Valero, the largest independent refiner in the country, into more conservative, asset-wary businesses.
"Ten or 15 years ago [when Valero was in a growth mode], it would have been different because it was run as a business more, and now it's at a different phase of Valero," said Gheit. "They are selling refineries; they are not buying refineries. They are upgrading refineries. So they need somebody who can really fully appreciate the technical aspect of the assets that they have at hand.
"Greg King is a lawyer. Valero has lots of lawyers," Gheit added. "But Bill Klesse is a chemical engineer. He's been in the business over 40 years. So as far as refining is concerned, there's no one who knows the business better. The succession definitely moved away from Greg King to the operating guy."
Analyst Justin Perucki of Morningstar Inc., Chicago, agreed a change in the direction of the refining industry dictated King's exit. "Their refineries have had quite a run over the past several years, and the next several years don't look as bright," he told CSP Daily News, "just due to increased capacity build-out and increased efficiencies on the automobile front as well. It's going to be a leaner company several years from now. The industry had its heyday in the past couple years. Going forward, it just doesn't look as rosy as it did."
Klesse, who took over the helm of Valero's ship from Bill Greehey in 2006, said of King's departure, "This was unexpected, but I want to thank Greg for his dedication to Valero's success over his more than 14 years with the company. I would also like to personally thank him for his support and loyalty over the last two years. We wish Greg and his family much success and happiness in the future."
Gheit, however, was less surprised by this week's announcement. "I think it was expected," he said. "I don't know why it took so long, because he was president, but he was passed over for [the CEO position] by Bill Klesse. He was handpicked basically by Bill Greehey, but Greehey had second thoughts [and decided] that Bill Klesse is obviously much more qualified."
Klesse did not offer a reason for King's departure, and he did not name a successor. Valero spokesperson Bill Day declined to comment to CSP Daily News on the reason and would not discuss a succession plan. He would only say, "This was Mr. King's decision."
King was a key architect of the San Antonio refiner-marketer's growth-by-acquisition strategy, added a Dow Jones report. During his 14-year tenure, he helped to orchestrate complicated acquisitions, including the company's purchase of rival Premcor in 2005. He became Valero's general counsel in 1997 and served as the company's COO and as an executive vice president before being named president in January 2003.
Earlier this month, The Wall Street Journal said that Valero Energy Corp. is considering an overhaul of its portfolio of refineries to prepare for a time when the once-flush refinery industry faces greater pressure on its bottom line.
According to the report, Klesse has identified a group of 10 core refineries on which it will focus its investment and attention. It is considering strategic options for a refinery in Aruba, including a potential sale. The CEO declined to specify what will happen to its other five refineries, but said the company will discuss potential sales next year, leaving open the possibility of deals for facilities valued at billions of dollars.
Valero is following moves by integrated oil companies like Royal Dutch Shell PLC and ConocoPhillips to reduce their refining capacity, the report said. Valero's plan reverses a growth spurt that transformed the company into the largest independent U.S. refiner through acquisitions of rivals as well as individual refineries.
The company hopes to focus on refineries mainly on the U.S. coasts, giving it greater access to oil from more sources, and that are set up to handle oil that is tougher to refine and therefore cheaper to buy. Focusing investment on those refineries also could help reduce downtime and improve reliability.
Valero's shift could leave it with a better portfolio of more valuable assets, said the Journal. In May, the company sold its Lima, Ohio, refinery to Canada's Husky Energy Inc. for $1.9 billion. The price amounted to $11,515 per barrel of refining capacity. At that price, the five assets Valero may sell could fetch a total of $8.9 billion, though the per-barrel price paid for a particular refinery could vary greatly. Valero's Ardmore, Okla., refinery, a tiny piece of Valero's total system, could play an important role for a smaller refiner, analyst Nicole Decker of Bear Stearns, New York, told the newspaper. "There are a lot of independent refiners out there, or a lot of want-to-be independent refiners out there, who are still in a growth mode," she said.
Valero had 2006 annual revenues of more than $90 billion. It owns and operates 17 refineries in the United States, Canada and the Caribbean with a combined throughput capacity of approximately 3.1 million barrels per day, making it the largest refiner in North America. It is also one of the nation's largest retail operators, with approximately 5,800 retail and branded wholesale outlets in the United States, Canada and the Caribbean under the Valero, Diamond Shamrock, Shamrock, Ultramar and Beacon brands.
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