Valero CEO: “We need people to get back to work”

December 28, 2010, 10:49 PM UTC

Valero CEO William Klesse

Interview by Shelley DuBois, reporter

Valero ‘s (VLO) William Klesse is coming up on his fifth year as CEO, where he’s worked for over 40 years. He offers some insight about how his company and the energy sector have navigated the recession, and why refining companies like Valero behave differently in the market than companies that also do exploring and refining, like BP. Klesse also talks about what energy sector investors might want to look for in 2011:

Fortune: You’ve been CEO of this company on either side of the recession. How do you lead during tough times?

Klesse: One thing you would probably ask me is did I see this big downturn coming, and the answer would be of course not. But we did always feel that even in the golden age of refining, it would not stay as high as it was in 2005-2007. What we didn’t see was the complete collapse that we had in September 2008.

What did you do?

We went ahead and tried to optimize our portfolio into the strategic areas that we felt we were the strongest, and let a couple of these other assets go to other companies.

So then, we were looking at reducing costs, our work process, how we optimized around our refineries, and all those kinds of stewardship items that you hear form everybody. We watched our cash. We buy 2 million barrels a day of crude oil, and on top of that, another 500,000 barrels a day of other feedstock. So credit was very important to us to maintain our investment grade.

Were you affected differently by the downturn than other oil companies?

We don’t have the production profits. High oil prices have allowed the exploration and production companies a stable cash flow. So as our volumes start to drop with this recession and margins have of course declined, we had to move faster because our cash flow was disappearing very quickly.

You’re one of the top Fortune 50 companies, why don’t you guys have the same kind of visibility as, say Exxon or BP?

Remember, the Fortune 500 is a sales measurement. We’re  buying a lot of crude oil and other feedstocks, so our revenues are very high. We’re a 100 billion dollar business in revenues. But then the difference between us and, for instance, the companies you mentioned is that we are this one dimension, and we tend to be just North America. Our diversity isn’t anything near the majors.

We’re also a relatively new company in the sense of the business—we started in 1980 as Valero, and in this business, that’s relatively new.

We’re not a BP (BP) or an Exxon (XOM), but I think people that deal where we live and work know us very well. We’re very proud of our name.

What’s coming up in 2011 for Valero?

I think 2011 is going to be a little better year than it has been in 2010. I see the economy recovering, even though it’s been very slow.

We sell fuels, and gasoline tends to be fuel that people use to drive to work, to take vacation, to drive the kids. Diesel fuel tends to be tied more to industrial trucking the railroads, and then of course there’s jet fuel—so we need people to get back to work. I think gradually we’re going to see the unemployment rate come down, but it is a hurdle.

What have you brought to the company?

I’ve been in the business my whole career. What I bring is a lot of knowledge of the business. I’ve seen these cycles.

Who has most inspired your management strategy?

When I reflect back, I moved my wife to Dumas, Texas and everything I owned was in a U-Haul trailer, and I had a college loan and a car payment, and that was over 40 years ago. I’ve had bosses through that time that had strengths and had weaknesses. What I have tried to do, especially as I have advanced in the organization, I’ve worked for 3 different CEOs directly. I’ve seen things that I’ve thought they’ve done very well and things they didn’t do very well, so I have to consciously try to take the strengths that they have and try to put them into my portfolio.

I would say the people I’ve worked for really helped me a lot to form my style. I actually have been very fortunate, thus I try to be that same kind of boss, I try to be demanding, I try to pursue excellence in every single thing I ever do, but at the same time I try very hard to be fair, and to have my people’s interest at heart. You know a company’s nothing but a bunch of assets. All we are is a bunch of steel buildings and things like that—go look at a refinery, it’s just a bunch of hardware out there. The people do everything—they make all the difference.