FTC Approves Valero-UDS Merger


Valero Energy Corp. and Ultramar Diamond Shamrock announced last week that the U.S. Federal Trade Commission has approved their merger and that they plan to close on the deal Monday. Valero will be the surviving company.

Motivated mostly fuels concerns, the union also combines Diamond Shamrocks production of naphthenic base oils with Valeros paraffinic business. Officials said, however, that those components will operate the same after the merger as they did before.

The merger doesnt do much for us in terms of lubes, Valero Senior Vice President of Development and Technical Support John Hohnholt said. We really dont see any significant growth strategies coming as a result of it.

Valero becomes the third-largest refiner of petroleum products in the United States and is also one of the largest gasoline retailers. Because of concerns that the merger would over-concentrate refining and marketing activities in Northern California, the commission required the companies todivest Valeros 168,000-barrel-per-day Golden Eagle Refinery and 70 gasoline stations. Valero has 12 months to sell the facilities but expects to do soby the middle of 2002. After the divestiture, the new organization will have 12 refineries with a total throughput capacity of nearly 2 million b/d and approximately 5,000 service stations in the United States and Canada.

Each of the partners contributes one base oil refinery to the union. Valero operates an 11,500 b/d paraffinic facility in Paulsboro, N.J., while Ultramars Three Rivers, Texas, naphthenic refinery has capacity of 2,300 b/d. While downplaying the possibility of major changes in those operations, Hohnholt said the merger would make lubricant operations more flexible. Feedstock from Ultramar’sfacilities south of San Antonio could be used to increase output of bright stock in Paulsboro, which is now maxed out on that product.

Its not a matter of increasing volume but rather of lowering overall feedstock costs and allowing us to produce more bright stock, he said. The market for bright stock is good so that would be a shift toward making a little bit more money.

Lube and Base Oils Sales and Marketing Director Cary Palulis noted that post-merger Valero will be one of just a few companiesproducing both types of base oil. Plus well be selling solvents, so whatever people are looking for, we can be a one-stop shop for them, he said.

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