Valero Energy Corporation's Strategy

Valero Energy Corporation's Strategy
Executive Summary
The report caters analyzed Valero’s strengths, weaknesses, opportunities, and threats and discusses relevant strategies based on which the recommendations are proposed. It is analyzed that the business has strong automation of activities, distribution network, brand portfolio, and product innovation. However, the business lacks a product range and requires more investment in technology, research, and development. The company has an opportunity to expand its business roots in Asian markets; however, it might face severe issues like currency fluctuation and isolationism trends, which need to cater to before. Valero is recommended to make two significant changes expand in the Asia Pacific region and merge with small industrial companies.
Valero Energy Corp
Introduction
The report provided a great opportunity to analyze the key industry trends businesses could focus on improving their competitive position and go with the industry flow. Valero took over the refining and marketing assets of the original company and soon became the largest independent petroleum refiner and marketer in the world (Valero, 2022a). The report caters to Valero’s strengths, weaknesses, opportunities, and threats and discusses relevant strategies and plans for the business based on which the recommendations are proposed to the company’s CEO. The industry’s trends were beneficial in assisting the business in analyzing opportunities and threats to Valero. It further has elaborated the business’s strategic intent and financial objectives, based on which recommendations are provided to the CEO.
Industry’s Trends
There is robust growth in the oil & gas industry globally throughout 2021 and 2022. This rebound has been driven by many factors, including strong global economic growth, increased demand from China, and production cuts from major oil-producing countries. These factors have contributed to tightening the global oil market, which has helped push prices. The oil and gas industry is expected to continue to benefit from strong global economic growth and increased demand from China. These trends are expected to help keep oil prices elevated soon (Maloney, 2021). However, several risks could undermine these positive trends, including a potential global economic growth slowdown, renewed US oil production increases, or price drops in other key markets.
Three oil & gas industry trends are high oil prices which have boosted the energy transition plans where prices are $98.04/bbl after a decline in July 2022 (Market Watch, 2022). The second trend is mergers & acquisitions, which follow oil prices below pre-pandemic levels. The companies with net-zero goals acquire low-carbon intensity barrels to support ESG goals. The third trend is that business models are shifted to enable a new energy era in shifting the scale of O&G revenues and spending. Hence, businesses have opportunities to lead the way for customers in oilfield services and industries. The sector needs to be lean and green (Deloitte, 2022).
Company’s Strategic Intent
In January 2017, Valero agreed to pay a $2 billion penalty for violating US sanctions against Iran between November 2011 and January 2016. Today, the company has 15 refineries in the USA, Canada, and the UK, with a capacity of 3.2 million barrels per day (Valero, 2022b). The pipeline would allow Valero to bring crude in from other parts of the country, where the oil is cheaper than in California. The company has applied for a permit to build a crude-by-rail terminal at the refinery, but the state’s environmental review process could take years. Valero has said it will shutter the refinery if the pipeline is not built, blaming high transportation costs and low crude prices. The company is also exploring other options for its San Antonio plant, including converting it to a biofuel refinery or investing in renewable fuel sources like solar and wind power (Valero Annual Report, 2021).
Company’s Financial Objectives
The company wants to grow its share price, and the business has recently earned $1009 million at $2.46 per share. The company also reduced its long-term debt by $693 million in the 4th quarter of 2021. The adjustments earn release tables compared to the adjusted net loss of $429 in the 4th quarter of 2020. The business has continuously improved margins due to strong product demand. The company is optimistic about improving its profit margin with solid demand and global supply tightness with more comprehensive sour crude oil (Investo Valero, 2022). Figure 1 shows the company’s performance based on operating cash flow, expenditures, dividend payment, and dividend coverage. The analysis shows that the company’s performance is relatively better than the previous year (Trade Today, 2022).
Figure 1L Valero Energy Cash Flows
(Source: Trade Today, 2022)
Synthesis of SWOT Analysis (Objective 1)
The SWOT analysis is based on the business’s strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are the internal analysis of the business, whereas opportunities and weaknesses are linked with the industrial trends and threats.
Strengths
The company has automation of activities which is beneficial for the business to be consistent in quality, enabling the business to adjust the demands depending on market conditions and trends. The company has a strong distribution network, allowing it to have reliable strategies to reach the potential market (Valero, 2022a). Furthermore, the business has built a strong culture among distributors to promote the business products and invest in training for the sales team so maximum benefits can be reaped from products.
Valero’s strong brand portfolio helps the business expand its roots into new product categories. The business has a highly skilled workforce that can be used in training and learning programs (Valero Annual Report, 2021). It results in high customer satisfaction as the company believes in good brand equity through product innovation.
Weaknesses
Weaknesses are the areas where the business needs to work upon. First, the company needs to invest more in new technologies. The company needs to integrate the process with the right technologies with the strong vision of the business. Another weakness is that the company needs limited success in other segments, which limits the business to core business. Besides, the company is not efficient enough in forecasting the demand and dealing with missed opportunities compared to industrial rivals (Nehal, 2022). There are gaps in a product range that allow new competitors to enter the market.
The business is not efficient enough in integrating different departments and companies because the business has a share of failure to merge organizations with different work cultures. The company’s hierarchical business structure limits the business from expanding adjacent product segments (Valero Annual Report, 2021).
Opportunities
One of the significant opportunities for the business is to introduce environmental policies to advance modern technologies, which will allow the business to have a substantial market share in a specific category. The business needs to expand its roots in Asian and European markets, increasing business competitiveness (Maloney, 2021). Further, the business needs to decrease the cost of production to boost profitability.
There is a growing trend of mergers & acquisitions in the industry which can provide enormous benefits for the business to increase its investment. Mergers & acquisitio...