Preserving Texas In the News

The current presidential campaign has reignited the political debate over drilling for oil off the coast of the United States.

For San Antonio, that debate is of crucial importance to two local
companies that play leading roles in the nation's oil industry.
San Antonio is home to two major petroleum refiners, Valero Energy Corp. and Tesoro Corp. Both companies have refineries located across the nation and both operate retail fueling stations as well.

Bill Day, spokesman for Valero, says it is clear that the worldwide
supplies of oil are not keeping up with the increased demand.

"Any new supply would help bring that back into balance," he says. "Valero has the flexibility to purchase crude oil from wherever we can find the lowest costs, so we would be interested in new supplies coming available."

Valero, Day says, does not have its own oil reserves and must purchase its crude from all around the globe. In 2007, about 45 percent of Valero's crude oil supply came from North America, about 20 percent from the Middle East, 15 percent from Africa and 9 percent each from Europe and South America. The remaining two percent, Day says, comes from other various locations around the world.

Rayola Dougher, senior economic advisor with the American Petroleum Institute (API), says the API believes increasing exploration activities domestically could be critical to the
United States' economic future.

"It's going to matter dearly to us and to the rest of the world," she says. "I can't see a good reason not to go after it. It is absolutely necessary and it could make a big difference to all of
us."

API is a national trade association that represents all aspects of America's oil and natural gas industry. The organization has over 400 corporate members, ranging from major oil companies to small independently owned companies -- including producers, refiners, suppliers, pipeline operators and marine transporters, as well as service and supply companies that support all segments of the industry.

Tesoro (NYSE: TSO) also is a major independent refiner and marketer of petroleum products. Through its subsidiaries, Tesoro operates seven refineries in the western United States with a
combined capacity of approximately 660,000 barrels per day.
Sarah Simpson, spokeswoman for Tesoro Corp., says her company would welcome additional crude oil production in the U.S. She adds that while the U.S. may have to continue to import crude, producing more in the U.S. would make good business sense.

"It's important to understand that it is a global marketplace," she says. "However, having access to ratable domestic crude provides source stability and is good for the U.S. economy."
The company runs crudes from the U.S., Canada, Southeast Asia, the Middle East, South America and Africa.

Tesoro's retail-marketing system includes more than 900 branded retail stations, of which more than 445 are company owned under the Tesoro, Shell, Mirastar and USA Gasoline
brands.

Diversifying
Valero (NYSE: VLO) owns and operates 17 refineries throughout the United States, Canada and the Caribbean with a combined throughput capacity of 3.1 million barrels of oil per day. The company also is one of the nation's largest gasoline operations, with 5,800 wholesale and retail outlets under the Valero, Diamond Shamrock, Shamrock, Ultramar and Beacon brands.
Day says that Valero tries to diversify its supply by purchasing crude from different sources, including U.S. based companies, to help manage costs. As of press time, crude oil prices hovered at $140 per barrel.

Valero is also refining more tar sand oil, or heavy sour crude, as a way to help manage costs, Day adds. While the tar sands oil is very thick and takes more effort to refine, Day says many of
Valero's refineries have the capability to process the heavy crude.

"Heavy sour crudes trade at significantly lower prices. ... The more flexibility refiners have to process different grade of crude, the more ability they have to seek out lower prices."

Days says the oil that is expected to be removed from any new drilling locations off the coast of the United States will likely be the heavy sour varieties. Simpson says Tesoro also has the capability to refine heavier crude.

"Both of Tesoro's California refineries were configured to run heavy crude," she says. "We also improved logistics at our refineries so that more varieties of crude can be processed."

The future

Day says there are mixed messages coming from Washington.
"Elected officials say they'd like to make the country more energy-independent, yet they prohibit exploration and drilling in areas where the industry knows oil deposits are likely," Day
says.

As much as 85 percent of the outer continental shelf (OCS) is off limits to oil production. The continental shelf is the undersea plain between the continent and the deep ocean. America's OCS has been divided into four regions: the Gulf of Mexico ; Atlantic; Pacific; and Alaska OCS regions.

Luke Metzger, director of Austin-based Environment Texas, says more offshore drilling is not the answer to energy independence for America. Environment Texas is a nonprofit citizens group that advocates at the state and federal level for clean air, clean water and open spaces.

"If you compare Texas beaches to the pristine Florida beaches, there's your answer," Metzger says. "Drilling has had a serious impact on beach quality and water quality. Increasing drilling
will only exacerbate that."

Metzger says the key to helping the U.S. be more dependent on itself for energy is to look at alternatives such as Congress raising fuel mileage standards for vehicles, hybrid technologies
for vehicles and alternative fuels like ethanol.

"We are never going to drill our way to energy independence," he says. "If we are going to be serious about solving our energy problems, we need to invest in those alternatives."

According to the API, though, America needs a balanced energy policy that promotes energy efficiency and conservation and greater supplies of all forms of energy, including domestic oil
and natural gas.

"As a nation, we can have more control over our energy destiny by supplying more of the oil and natural gas we'll be consuming from resources here at home," stated Red Cavaney, president and CEO of the API, in a letter to Congress dated June 26.

"Government policy now stands in the way of that. Polls show that a rising majority of Americans want expansion of access to federal oil and gas resources now off limits to development to enhance our nation's energy security."

Dougher says that with technology today, drilling off the U.S. coastline can be done safely. "We have (oil) here and its precious," she says. "It doesn't make sense any longer not to
develop these areas."