8-K/A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): March 5, 2004

VALERO ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction
of incorporation) 1-13175
(Commission File Number) 74-1828067
(IRS Employer
Identification No.)

One Valero Place
San Antonio, Texas
(Address of principal executive offices) 78212
(Zip Code)

Registrant’s telephone number, including area code: (210) 370-2000

TABLE OF CONTENTS

	Item 7. Financial Statements and Exhibits.
SIGNATURE
EXHIBIT INDEX
Consent of PricewaterhouseCoopers LLP
Financial Statements of Business Acquired
Pro Forma Financial Information

Explanatory Note

This Form 8-K/A amends the Form 8-K of Valero Energy Corporation dated March 5, 2004 and filed with the Securities and Exchange Commission on March 9, 2004. That Form 8-K reported under Item 2 the acquisition of the Aruba refinery and related marine, bunkering and marketing operations. This report provides the financial statements and the pro forma financial information as required under Item 7.

Item 7. Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired.

El Paso Aruba Refining Business
	Report of Independent Auditors
	Combined Balance Sheets as of December 31, 2003 and 2002
	Combined Statements of Income and Owner’s Net Investment for the Years Ended December 31, 2003, 2002 and 2001
	Combined Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001
	Notes to Combined Financial Statements

(b) Pro Forma Financial Information.

Unaudited Pro Forma Combined Balance Sheet as of December 31, 2003

Unaudited Pro Forma Combined Statement of Income for the Year Ended December 31, 2003

Notes to Unaudited Pro Forma Combined Financial Statements

(c) Exhibits.

Exhibit No.	Description
23.1	Consent of PricewaterhouseCoopers LLP
99.1	Financial statements of business acquired
99.2	Pro forma financial information

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Current Report on Form 8-K/A to be signed on its behalf by the undersigned hereunto duly authorized.

VALERO ENERGY CORPORATION
By:	/s/ JAY D. BROWNING
	Jay D. Browning Vice President and Corporate Secretary

Dated: May 10, 2004

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EXHIBIT INDEX

Valero Energy Corporation

Exhibit No.

23.1	Consent of PricewaterhouseCoopers LLP
99.1	Financial Statements of Business Acquired

El Paso Aruba Refining Business
	Report of Independent Auditors
	Combined Balance Sheets as of December 31, 2003 and 2002
	Combined Statements of Income and Owner’s Net Investment for the Years Ended December 31, 2003, 2002 and 2001
	Combined Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001
	Notes to Combined Financial Statements

99.2 Pro Forma Financial Information

Unaudited Pro Forma Combined Balance Sheet as of December 31, 2003

Unaudited Pro Forma Combined Statement of Income for the Year Ended December 31, 2003

Notes to Unaudited Pro Forma Combined Financial Statements

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EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements, as amended, on Form S-3 (Registration Nos. 333-33846, 333-84820 and 333-106949) and Form S-8 (Registration Nos. 333-31709, 333-31721, 333-31723, 333-31727, 333-81844, 333-81858 and 333-106620) of Valero Energy Corporation, of our report dated May 5, 2004 relating to the combined financial statements of the El Paso Aruba Refining Business, which appears in the Current Report on Form 8-K/A of Valero Energy Corporation dated May 10, 2004.

PricewaterhouseCoopers LLP

Houston, Texas
May 10, 2004

EX-99.1

EXHIBIT 99.1

FINANCIAL STATEMENTS OF BUSINESS ACQUIRED

EL PASO ARUBA REFINING BUSINESS
	Report of Independent Auditors
	Combined Balance Sheets as of December 31, 2003 and 2002
	Combined Statements of Income and Owner’s Net Investment for the Years Ended December 31, 2003, 2002 and 2001
	Combined Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001
	Notes to Combined Financial Statements

Report of Independent Auditors

To the Owners of the El Paso Aruba Refining Business:

In our opinion, the accompanying combined balance sheets and the related combined statements of income and owner’s net investment, and cash flows present fairly, in all material respects, the financial position of the El Paso Aruba Refining Business of El Paso Merchant Energy Petroleum Company (collectively, the “Business”) at December 31, 2003 and 2002, and the results of their combined operations and their combined cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Business’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2 to the combined financial statements, in 2002 the Business adopted EITF Issue No. 02-3, Accounting for Contracts Involved in Energy Trading and Risk Management Activities, Consensus 1 and 2.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

May 5, 2004

1

El Paso Aruba Refining Business
Combined Balance Sheets
December 31, 2003 and 2002

(in thousands of dollars)	2003		2002
Assets
Current assets
Cash and cash equivalents	$	14,957	$	6,646
Restricted cash		40,000		—
Accounts receivable
Trade, net of allowance of $164 in 2003 and $285 in 2002		67,307		38,597
Affiliates		25,580		107,092
Notes receivable from affiliates		2,511		13,875
Inventory		156,757		248,466
Insurance receivable		66,503		—
Other current assets		1,633		4,795
Total current assets		375,248		419,471
Property, plant and equipment, net		1,343,715		910,592
Insurance receivable		—		48,898
Deferred major maintenance		116,993		75,002
Other noncurrent assets		9,555		—
Total assets	$	1,845,511	$	1,453,963
Liabilities and Owner’s Net Investment
Current liabilities
Accounts payable
Trade	$	148,455	$	74,342
Affiliates		105,771		77,219
Liabilities from price risk management activities — affiliates		4,386		2,222
Notes payable to affiliates		661,823		94,895
Accrued legal liabilities		8,738		9,075
Other current liabilities		13,603		4,070
Total current liabilities		942,776		261,823
Other liabilities		6,152		—
Notes payable to affiliates		—		512,923
Long-term financing obligations		373,629		—
Commitments and contingencies
Owner’s net investment		522,954		679,217
Total liabilities and owner’s net investment	$	1,845,511	$	1,453,963

The accompanying notes are an integral part of these combined financial statements.

2

El Paso Aruba Refining Business
Combined Statements of Income and Owner’s Net Investment
Years Ended December 31, 2003, 2002 and 2001

(in thousands of dollars)	2003			2002			2001
Operating revenues	$	1,983,862		$	1,430,844		$	1,689,550
Business interruption insurance income		46,000			—			57,000
Cost of products sold		1,774,357			1,331,576			1,483,678
Operation and maintenance		297,109			228,154			180,767
Depreciation expense		28,427			24,922			25,036
Impairment charge		52,725			—			—
Net gain on involuntary conversion of damaged property		—			(46,061	)		(39,500	)
Operating income (loss)		(122,756	)		(107,747	)		96,569
Other (expense) income
Interest expense
Affiliates		(17,294	)		(14,092	)		(18,193	)
Nonaffiliates		(13,342	)		—			—
Interest income
Affiliates		201			359			464
Nonaffiliates		300			15			63
Other		(2,068	)		656			516
Income (loss) before income taxes		(154,959	)		(120,809	)		79,419
Income taxes		1,304			2,858			2,371
Net income (loss)		(156,263	)		(123,667	)		77,048
Owner’s net investment — beginning of year		679,217			802,884			725,836
Owner’s net investment — end of year	$	522,954		$	679,217		$	802,884

The accompanying notes are an integral part of these combined financial statements.

3

El Paso Aruba Refining Business
Combined Statements of Cash Flows
Years Ended December 31, 2003, 2002 and 2001

(in thousands of dollars)	2003			2002			2001
Cash flows from operating activities
Net income (loss)	$	(156,263	)	$	(123,667	)	$	77,048
Adjustments to reconcile net income (loss) to net cash from operations
Depreciation expense		28,427			24,922			25,036
Impairment charge		52,725			—			—
Business interruption insurance income		(46,000	)		—			—
Net gain on involuntary conversion of damaged property		—			(46,061	)		(39,500	)
Asset and liability changes, net of noncash transactions
Accounts receivable		(28,710	)		(26,899	)		34,117
Accounts receivable from affiliates		81,512			63,595			94,248
Inventory		91,709			(45,219	)		30,564
Deferred major maintenance		(41,991	)		(24,140	)		(244	)
Other current assets		3,162			13,213			(323	)
Other noncurrent assets		(9,555	)		—			—
Accounts payable		74,113			24,174			(48,372	)
Accounts payable to affiliates		28,552			31,010			(99,943	)
Price risk management activities		2,164			2,222			25,163
Accrued legal liabilities		(337	)		9,075			—
Other current liabilities		9,533			(5,121	)		(1,294	)
Other noncurrent liabilities		6,152			—			—
Net cash provided by (used in) operating activities		95,193			(102,896	)		96,500
Cash flows from investing activities
Capital expenditures, net of property insurance proceeds		(112,251	)		(165,935	)		(120,398	)
Net change in notes receivable		11,364			(8,906	)		1,266
Deposits into restricted cash		(40,000	)		—			—
Net cash used in investing activities		(140,887	)		(174,841	)		(119,132	)
Cash flows from financing activities
Net change in notes payable to affiliates		54,005			270,196			26,780
Net cash provided by financing activities		54,005			270,196			26,780
Increase (decrease) in cash and cash equivalents		8,311			(7,541	)		4,148
Cash and cash equivalents
Beginning of period		6,646			14,187			10,039
End of period	$	14,957		$	6,646		$	14,187

The accompanying notes are an integral part of these combined financial statements.

4

El Paso Aruba Refining Business
Notes to Combined Financial Statements
December 31, 2003 and 2002

1.	Organization and Nature of Business
	These financial statements present the combined financial statements of the El Paso Aruba Refining Company, Coastal Aruba Fuels Company, Coastal Aruba Maintenance/Operations Company, Coastal Coker Corporation Aruba, Bonaire Fuels Company and the 1994 Aruba Coker Trust, which are limited liability companies incorporated in Aruba. The combined financial statements exclude the accounts of certain subsidiaries and equity investments of El Paso Aruba Refining Company that do not relate to the Aruba refinery operations. The combined entities are referred to as the “Business.” As of December 31, 2003, these entities were wholly owned by El Paso CGP Company (“ECGP”), which is a wholly owned subsidiary of the El Paso Corporation (“El Paso”). In March 2004, the Business was sold to Valero Energy Corporation.
	The Business owns a refinery in Aruba with an estimated production capacity of 280,000 barrels of refined products per day. The refinery was constructed on land that is leased from the government of Aruba under a long-term contract (the “Aruba Refining Agreement”). This plant is engaged in the refining of crude oil into naphtha, jet fuel, diesel and vacuum gas oil and the marketing of those refined products. Prior to 2003, the customers of the Business consisted primarily of subsidiaries of El Paso that marketed the refined products to end users and customers. In 2003, the Business entered into a product offtake agreement with a third party customer (Note 2).
2.	Significant Accounting Policies
	Basis of Presentation
	The accompanying financial statements have been prepared from the historical accounting records of the combined companies and present the historical operations applicable to the Business. In this context, no direct owner relationship existed among all of these businesses. Accordingly, the net investment in these businesses (owner’s net investment) is shown in lieu of owner’s equity in the financial statements.
	The financial statements are prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. All significant intercompany accounts and transactions within the combined companies have been eliminated. Prior periods include reclassifications that were made to conform to the current year presentation. Those reclassifications have no impact on reported net income or owner’s net investment.
	Use of Estimates
	The preparation of these combined financial statements requires the use of estimates and assumptions that affect the amounts the Business reports as assets, liabilities, revenues and expenses and the disclosures in these combined financial statements. While management believes these estimates are appropriate, actual results can, and often do, differ from those estimates.
	These combined financial statements include costs for facilities, functions, and services used by the Business, including those performed by centralized organizations of El Paso and directly charged to the Business based on formulas (see Note 10 for discussion of the amounts and manner of allocation). All of the allocations and estimates in these combined financial statements are based on assumptions that management believes are reasonable under the circumstances. However, these allocations and estimates are not necessarily indicative of the costs and expenses that would have resulted if the Business had been operated as a separate entity.

5

El Paso Aruba Refining Business
Notes to Combined Financial Statements
December 31, 2003 and 2002

Cash and Cash Equivalents

The Business considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Restricted Cash

At December 31, 2003, the Business held restricted cash, which was comprised of deposits required under a credit facility that provides letters of credit. The letters of credit are used in connection with the purchase of crude inventory.

Allowance for Doubtful Accounts

The Business establishes provisions for losses on accounts receivable if it determines that it will not collect all or part of the outstanding balance. The Business regularly reviews its receivables and adjusts its allowance, as necessary, using the specific identification method.

Concentration of Credit Risk

In April of 2003, the Business entered into a product offtake agreement with Vitol S.A., Inc. (“Vitol”) for the sale of a number of the products produced at the Aruba refinery. As a result of the contract, Vitol became the single largest customer of the Aruba refinery, purchasing approximately 75% of the products produced at that plant. The agreement was for one year with two one-year extensions at Vitol’s option. The Business terminated the agreement when the refinery was sold in March 2004.

Inventory

Inventory consists of refined products, crude oil and materials and supplies. The Business uses the average cost method to account for inventory. Inventory is stated at the lower of its cost or market value.

Property, Plant and Equipment

The Business records its property, plant and equipment at its original cost of construction or upon acquisition at the fair value of the assets acquired. The Business capitalizes direct costs, such as labor and materials, and indirect costs attributable to the asset construction, such as overhead and interest. The Business capitalizes major units of property replacements or improvements and expenses minor items. Depreciation of property, plant and equipment is recorded on a straight-line basis over the estimated useful lives of the properties, which range from 5 to 30 years with an estimated 10% salvage value.

Planned Major Maintenance

Repair and maintenance costs are generally expensed as incurred, unless they are associated with planned major maintenance activities or they improve the operating efficiency or extend the useful life of an asset. The costs for planned major maintenance activities are deferred at the time maintenance occurs and amortized to operation and maintenance expense in a systematic and rational manner over the estimated period extending to the next planned major maintenance activity. At December 31, 2003 and 2002, deferred costs associated with major maintenance activities were $117.0 million and $75.0 million, respectively.

6

El Paso Aruba Refining Business
Notes to Combined Financial Statements
December 31, 2003 and 2002

Revenue Recognition

The Business primarily derives revenues from the physical sales of refined products. Revenues, including affiliate sales, are recognized based on the volumes delivered and the contracted or market price and are recognized at the time the product is delivered to the delivery point specified by the contract.

Price Risk Management Activities

The Business buys crude oil and sells refined products as part of its operations and uses derivative instruments to mitigate refined products and crude oil price fluctuations. The Business’s trading activities are managed by El Paso Merchant Energy (“EPME”), a wholly owned subsidiary of El Paso. EPME serves as the counterparty for derivative transactions. The derivative instruments used are normally for a short duration and are accounted for at their fair value under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The best indication of fair value is quoted market prices. These derivatives are reflected in the balance sheet as assets or liabilities from price risk management activities – affiliates. Changes in fair value of the derivatives and the income or loss recognized upon settlement of the derivatives are reported in income.

During 2002, the Business implemented the provisions of EITF Issue No. 02-3, Issues Related to Accounting for Contracts Involved in Energy Trading and Risk Management Activities. As a result of the adoption of EITF Issue No. 02-3, revenues and costs associated with price risk management activities are shown net in the income statement whether or not they are physically settled.

The Business reflects its open derivative positions net in the balance sheet, due to the fact that its price risk management activities are with one counterparty and the Business has the right of offset on these positions. The open derivative positions at December 31, 2003, consisted of forward sales of approximately 105,000 barrels of crude oil, 125,000 barrels of heating oil and 150,000 barrels of gasoline. All of the open positions expired in February 2004.

Income Taxes

Income taxes are based on the Business’s taxable income along with a provision for deferred income taxes. Deferred income taxes reflect the estimated future tax consequences of differences between the financial statement and tax bases of assets and liabilities and carryovers at each year end. Tax credits are accounted for under the flow-through method, which reduces the provision for income taxes in the year the tax credits first become available. Deferred tax assets are reduced by a valuation allowance when, based on management’s estimates, it is more likely than not that a portion of those assets will not be realized in a future period. The estimates utilized in the recognition of deferred tax assets are subject to revision, either up or down, in future periods based on new facts or circumstances.

The Business is incorporated in Aruba and is not subject to United States income taxes. Accordingly, the Business has not reflected any taxes that would have been recorded by El Paso on its consolidated United States income tax return.

7

El Paso Aruba Refining Business
Notes to Combined Financial Statements
December 31, 2003 and 2002

	Environmental Costs and Other Contingencies
	The Business records liabilities when its environmental assessments indicate that remediation efforts are probable, and the costs can be reasonably estimated. The Business recognizes a current period expense for the liability when clean-up efforts do not benefit future periods. The Business capitalizes costs that benefit more than one accounting period. Estimates of the Business’s liabilities are based on currently available facts, existing technology and presently enacted laws and regulations taking into consideration the likely effects of inflation and other societal and economic factors, and include estimates of associated legal costs. The amounts also consider prior experience in remediating contaminated sites, other companies’ clean-up experience and data released by the EPA or other organizations. The estimates are subject to revision in future periods based on actual costs or new circumstances. The Business evaluates recoveries from insurance coverage or government sponsored programs separately from its liability and when recovery is assured, the Business records and reports an asset separately from the associated liability in these combined financial statements.
	The Business recognizes liabilities for other contingencies when the Business has exposure that, when fully analyzed, indicates it is both probable that an asset has been impaired or that a liability has been incurred and the amount of impairment or loss can be reasonably estimated. Funds spent to remedy these contingencies are charged against the accrued liability, if one exists, or expensed if no liability was previously established. When a range of probable loss can be estimated, the Business accrues the most likely amount or at least the minimum within the range of probable losses.
3.	Inventory
	Inventory consisted of the following at December 31:

(in thousands of dollars)	2003		2002
Refined products, crude oil and chemicals	$	128,994	$	223,505
Materials and supplies		27,763		24,961
	$	156,757	$	248,466

In 2003, $3.0 million of material and supplies inventory was determined to be obsolete and written off. The expense is included in operation and maintenance in the combined statement of income.

8

El Paso Aruba Refining Business
Notes to Combined Financial Statements
December 31, 2003 and 2002

4.	Property, Plant and Equipment
	The following reflects the carrying value of property, plant and equipment as of December 31:

(in thousands of dollars)	2003		2002
Refinery facilities and equipment	$	1,125,559	$	744,750
Construction in progress		468,735		335,269
		1,594,294		1,080,019
Less: Accumulated depreciation		250,579		169,427
	$	1,343,715	$	910,592

5.	Net Gain on Involuntary Conversion of Damaged Property and Business Interruption Insurance
	In 2001, the Aruba refinery suffered fire damage on its visbreaker unit. The Business maintains business interruption and property damage insurance related to the facility. In 2001, the Business recorded income of $57.0 million related to business interruption insurance and recorded an additional recovery of $46.0 million in 2003. The Business received the $46.0 million business interruption insurance proceeds in February 2004. In 2002, the Business also reported a gain based on the involuntary conversion of damaged property of $46.1 million, and in 2001 reported a gain of $39.5 million (net of an approximate $37.0 million from the write-off of the damaged property).
6.	Financial Instruments
	The following table presents the carrying amounts and estimated fair values of the Business’s financial instruments as of December 31:

	2003				2002
	Carrying		Fair		Carrying		Fair
(in thousands of dollars)	Amount		Value		Amount		Value
Long-term financing obligations	$	373,629	$	373,629	$	—	$	—
Notes payable to affiliates		661,823		661,823		607,818		607,818
Liabilities from price risk management activities with affiliates		4,386		4,386		2,222		2,222

As of December 31, 2003 and 2002, the carrying amounts of cash and cash equivalents and trade receivables and payables represent fair value because of the short-term nature of these instruments. The fair value of long-term financing obligations and notes payable to affiliates with variable interest rates approximates its carrying value because of the market-based nature of the interest rate. See Note 2 for a discussion of the Business’s methodology of determining the fair value of the derivative instruments used in the Business’s price risk management activities.

9

El Paso Aruba Refining Business
Notes to Combined Financial Statements
December 31, 2003 and 2002

7.	Consolidation of the Coker Unit
	In 1998, the Business entered into a lease arrangement related to its coker unit at the refinery (“the Coker Lease”). Under the Coker Lease, the Business provided residual value guarantees to the lessor. Under these guarantees, the Business could either choose to purchase the asset at the end of the lease term for $370.0 million or the Business could choose to assist in the sale of the leased asset to a third party and make up any shortfall under the residual value guarantees. The residual value guarantee associated with the Coker Lease was approximately $330.0 million (89.9% of the original cost of the leased assets).
	In 2003, El Paso amended the Coker Lease to provide a full guarantee to the parties who invested in the lessor and to allow a third party and certain lenders to share in the collateral package that was provided to the banks under El Paso’s revolving credit facility. This guarantee reduced the investors’ risk of loss of their investments, and therefore resulted in the Business controlling the lessor. As a result, the Business consolidated the lessor during 2003, increasing property, plant and equipment by $370.0 million (prior to an impairment charge that was recorded on these assets of $52.7 million at the time of consolidation) and long-term financing obligations by $370 million. Concurrently, the business recognized a loss on impairment of the Coker unit and reduced its reported value by $52.7 million.
	In connection with the sale of the Business in 2004, El Paso paid the long-term financing obligation. The payment has been treated as a capital contribution in 2004.
8.	Income Taxes
	The Aruba Refining Agreement provides the Business a tax holiday in which the Business is not required to pay tax on any of its activities through 2011. Coastal Aruba Fuels Company is excluded from the tax holiday and is subject to income tax expense. Primarily as a result of the tax holiday, no provisions for deferred income taxes have been reflected in these combined financial statements.
	The following table reflects the components of income tax expense included in income for the three years ended December 31:

(in thousands of dollars)	2003		2002		2001
Foreign	$	1,304	$	2,858	$	2,371

10

El Paso Aruba Refining Business
Notes to Combined Financial Statements
December 31, 2003 and 2002

The Business’s tax expense differs from the amount computed by applying the Aruban statutory income tax rate of 39% for the following reasons for the three years ended December 31:

(in thousands of dollars)	2003			2002			2001
Tax expense (benefit) at the statutory rate of 39%	$	(60,434	)	$	(47,116	)	$	30,973
Increase (decrease)
Income (loss) not subject to taxes		61,299			49,453			(28,983	)
Other		439			521			381
Income tax expense	$	1,304		$	2,858		$	2,371
Effective tax rate		(1	)%		(2	)%		3	%

9.	Credit Facility
	In 2003, the Business entered into a $100 million credit facility that provides letters of credit for crude oil shipments. The letter of credit fees, as stated in the agreement, are based on a per barrel charge ranging from $0.06 — $0.12 per barrel shipped determined by the crude acquisition price. As of December 31, 2003, there were $97 million of letters of credit issued under the facility.
	The availability of the letters of credit is subject to conditions that include compliance with the financial covenants and ratios required by those agreements, absence of default under the agreements, and continued accuracy of the representations and warranties contained in the agreements. The Business was in compliance with all covenants as of December 31, 2003. The credit facility was terminated when the Business was sold in March 2004.
10.	Related Party Transactions
	General and Administrative
	Shared service costs for services performed by centralized El Paso functions (such as legal, treasury, employee benefits and environmental services) and general corporate expenses have been allocated to the Business based on headcount, property costs, or some combination thereof. Allocated corporate general and administrative costs in 2003, 2002 and 2001 were $29.0 million, $26.0 million and $25.0 million, respectively. El Paso, through Coastal Aruba Refining Company, maintains a retirement savings and pension plan covering employees of the Business. Participants in the retirement savings plan receive matching contributions in an amount equal to the employee’s contribution up to a maximum of 8%. There is also a pension arrangement for employees through a group annuity contract with a third party insurance provider. Payment of the required contributions are made through regular payroll deductions while the Business makes a premium contribution on behalf of the participant as well. Since the arrangement is insured there is not a pension liability recorded. In addition to providing retirement savings and pension benefits, the Business also provides certain health care benefits to eligible employees and their eligible dependents. During 2003, 2002 and 2001, the costs allocated to the Business for retirement savings, pension and other health benefits were approximately $3.9 million, $1.4 million and $8.0 million. Employer matching contributions under the plan totaled approximately $0.9 million, $0.7 million and $0.6 million for the years ended December 31, 2003, 2002 and 2001. Allocated corporate general and administrative costs, including costs allocated for pension, savings

11

El Paso Aruba Refining Business
Notes to Combined Financial Statements
December 31, 2003 and 2002

	contributions and other health benefits, are reflected in operation and maintenance expense on the combined income statement.
	Revenue and Cost of Products Sold
	During 2003, 2002 and 2001, sales to El Paso affiliates were $253 million, $1,087 million and $1,276 million, respectively. During 2003, 2002 and 2001, purchases from El Paso affiliates were $255 million, $1,116 million and $1,332 million, respectively. Sales of refined products to and crude oil purchases from El Paso affiliates are transacted at market prices.
	Price Risk Management Activities
	The Business’ trading activities are managed by EPME which serves as the counterparty for the Business’ derivative transactions.
	Interest Income and Expense
	The Business participates in El Paso’s cash management program, which balances short-term cash surplus and need requirements of its participating affiliates. Activity under this program is reflected as notes receivable from and notes payable to affiliates. The affiliate interest expense of $17.3 million, $14.1 million and $18.2 million in 2003, 2002 and 2001, respectively, was based on average interest rates of 2.4%, 2.8% and 4.5%, respectively. The interest income of $0.2 million, $0.4 million and $0.5 million in 2003, 2002 and 2001, respectively, was based on average interest rates of 1.8%, 2.5% and 4.2%, respectively. The interest rate used is an intercorporate borrowing rate based upon a federal funds rate. Upon completion of the sale of the Business to Valero Energy Corporation, El Paso converted the affiliate accounts receivable and payable and the affiliate notes receivable and payable balances to equity.
11.	Supplemental Cash Flow Information
	The following table sets forth noncash financing and investing activities and other cash flow information for the years ended December 31:

(in thousands of dollars)	2003		2002		2001
Estimated fair value of property, plant and equipment consolidated	$	369,965	$	—	$	—
Notes payable assumed		369,965		—		—
Acquisition of property and equipment utilizing capitalized leases		3,664		—		—
Interest paid (net of amount capitalized)		30,636		14,092		18,196
Income taxes paid		2,731		2,209		2,984

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El Paso Aruba Refining Business
Notes to Combined Financial Statements
December 31, 2003 and 2002

12.	Commitments and Contingencies
	Operating Leases
	At December 31, 2003, the Business had operating leases in effect for the land under the Aruba Refining Agreement. The future minimum lease payments under the Aruba Refining Agreement are as follows:

(in thousands of dollars)
2004	$	954
2005		954
2006		1,104
2007		1,104
2008		1,104
Thereafter		38,368
	$	43,588

Under the Aruba Refining Agreement, the Business is discharged from all environmental liability on the refinery through the establishment of an environmental trust (“the Trust”). The government of Aruba has indemnified the Business for all environmental liabilities prior to 1990. The Business is required to make contributions through 2010 or make cessation payments if the refinery operations are permanently terminated prior to 2010. If the refinery is still in operation after 2010 the contribution cycle is repeated. The remaining contribution cycle is $350,000 per year for 2004 – 2005 and $500,000 per year for 2006 – 2010. The Trust is separate from the Business and not included in these combined financial statements since all amounts in the Trust accrue to the Aruban government. The environmental payments required through the term of the lease are included in the future minimum lease payments above.

Legal Proceedings

In March 2004, an arbitrator ruled on a dispute between the Business and the Aruban government related to the elimination of a “35% rule”. The 35% rule had provided for a 35% reduction in computing taxes on temporary expatriates’ salaries and wages. The arbitration agreement concluded that the 35% rule applied to both expatriate employees of the Business and expatriate employees of subcontractors through December 31, 2001, and was not available after that date. Based on the arbitration agreement, the Business estimated its obligation with respect to its expatriate employees. The Aruban government is beginning its process of evaluating which subcontractors also elected the 35% exclusion after 2001. In certain cases, the Business may have provided indemnification of these amounts to these subcontractors. The amounts, if any, the Business could be required to pay would be based on the Aruban government successfully recovering the amounts from the subcontractors and then these subcontractors seeking and obtaining reimbursement of such amounts from the Business. At December 31, 2003, the Business has accrued a liability totaling $7.9 million related to its expatriate employees and related to its potential obligation to expatriate employees of its subcontractors. Of this amount, $3.9 million is classified as a noncurrent liability.

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El Paso Aruba Refining Business
Notes to Combined Financial Statements
December 31, 2003 and 2002

The Business is in a dispute regarding classification of certain goods and equipment that it believes are exempt from import duties under an agreement and related legislation. The Government of Aruba has filed for arbitration attempting to recover customs duties plus costs, fees and expenses of the proceeding, including attorneys’ fees. At December 31, 2003, the Business has accrued a liability of $4.7 million related to its estimated obligations.

The Business is a defendant or otherwise involved in a number of other lawsuits in the ordinary course of business. The ultimate liability with respect to these pending lawsuits is not expected to have a significant or material adverse effect on the Business’s combined financial position, results of operations or cash flows.

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EX-99.2

EXHIBIT 99.2

PRO FORMA FINANCIAL INFORMATION

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

  Unaudited Pro Forma Combined Balance Sheet as of December 31, 2003

  Unaudited Pro Forma Combined Statement of Income for the Year Ended December 31, 2003

  Notes to Unaudited Pro Forma Combined Financial Statements

VALERO ENERGY CORPORATION

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma combined financial statements give effect to the Aruba acquisition as described in Valero’s Form 8-K filed on March 9, 2004. Certain historical balance sheet and income statement amounts of Aruba have been reclassified to conform to the financial statement presentation of Valero. Valero’s historical income statement for the year ended December 31, 2003 has been adjusted on a pro forma basis to reflect the Orion acquisition and related financing, which were completed on July 1, 2003, as if they had occurred on January 1, 2003. For additional information on this transaction, see Valero’s Current Report on Form 8-K/A filed on September 18, 2003 and Valero’s Annual Report on Form 10-K for the year ended December 31, 2003. The unaudited pro forma combined balance sheet as of December 31, 2003 is presented as if the Aruba acquisition had occurred on that date. The unaudited pro forma combined statement of income for the year ended December 31, 2003 assumes that the Aruba acquisition occurred on January 1, 2003. The purchase price for the Aruba acquisition has been allocated to the assets acquired and liabilities assumed based on estimated fair values, pending the completion of an independent appraisal and other evaluations. The purchase price related to working capital which is reflected in the pro forma combined balance sheet is based on Aruba working capital amounts, excluding affiliate balances, as of December 31, 2003.

The unaudited pro forma combined financial statements should be read in conjunction with (i) the historical consolidated financial statements of Valero included in its Annual Report on Form 10-K for the year ended December 31, 2003 and (ii) the historical combined financial statements of the El Paso Aruba Refining Business included in this Form 8-K/A. The unaudited pro forma combined financial statements are not necessarily indicative of the financial position that would have been obtained or the financial results that would have occurred if the Aruba acquisition had been consummated on the dates indicated, nor are they necessarily indicative of the financial position or financial results in the future. The pro forma adjustments, as described in the Notes to Pro Forma Combined Financial Statements, are based upon available information and certain assumptions that Valero’s management believes are reasonable.

1

VALERO ENERGY CORPORATION
PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 2003
(Millions of Dollars)
(Unaudited)

	Valero			Aruba			Pro Forma					Pro Forma
	Historical			Historical			Adjustments					Combined
ASSETS
Current assets:
Cash and temporary cash investments	$	369.2		$	14.9		$	(14.9	)	(a	)	$	224.1
								54.9		(b	)
								(200.0	)	(b	)
Restricted cash		43.7			40.0			(40.0	)	(a	)		43.7
Receivables, net		1,327.7			133.8			(133.8	)	(a	)		1,461.5
								133.8		(b	)
Receivables from affiliates		—			28.1			(28.1	)	(a	)		—
Inventories		1,913.1			156.8			(156.8	)	(a	)		2,069.9
								156.8		(b	)
Prepaid expenses and other		163.6			1.6			(1.6	)	(a	)		165.2
								1.6		(b	)
Total current assets		3,817.3			375.2			(228.1	)				3,964.4
Property, plant and equipment, at cost		9,748.1			1,594.3			(1,594.3	)	(a	)		10,217.1
								469.0		(b	)
Accumulated depreciation		(1,553.0	)		(250.6	)		250.6		(a	)		(1,553.0	)
Property, plant and equipment, net		8,195.1			1,343.7			(874.7	)				8,664.1
Intangible assets, net		320.2			—			—					320.2
Goodwill		2,401.7			—			—					2,401.7
Investment in Valero L.P.		264.5			—			—					264.5
Deferred charges and other assets, net		665.4			126.6			(126.6	)	(a	)		665.4
Total assets	$	15,664.2		$	1,845.5		$	(1,229.4	)			$	16,280.3
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of capital lease obligations	$	—		$	—		$	0.4		(b	)	$	0.4
Accounts payable		2,288.2			148.5			(148.5	)	(a	)		2,436.7
								148.5		(b	)
Accounts payable and other current liabilities – affiliates		—			110.2			(110.2	)	(a	)		—
Accrued expenses		355.6			22.3			(22.3	)	(a	)		377.9
								22.3		(b	)
Notes payable to affiliates		—			661.8			(661.8	)	(a	)		—
Taxes other than income taxes		364.8			—			—					364.8
Income taxes payable		55.7			—			—					55.7
Total current liabilities		3,064.3			942.8			(771.6	)				3,235.5
Long-term debt, less current portion		4,239.1			373.6			(373.6	)	(a	)		4,274.9
								35.8		(b	)
Capital lease obligations, less current portion		6.0			—			3.2		(b	)		9.2
Deferred income tax liabilities		1,604.6			—			—					1,604.6
Other long-term liabilities		1,015.0			6.2			(6.2	)	(a	)		1,015.0
Stockholders’ equity:
Preferred stock		200.5			—			—					200.5
Common stock		1.2			—			0.1		(b	)		1.3
Additional paid-in capital		3,922.6			—			405.8		(b	)		4,328.4
Treasury stock, at cost		(41.4	)		—			—					(41.4	)
Retained earnings		1,482.7			—			—					1,482.7
Accumulated other comprehensive income		169.6			—			—					169.6
Owner’s net investment		—			522.9			(522.9	)	(a	)		—
Total stockholders’ equity		5,735.2			522.9			(117.0	)				6,141.1
Total liabilities and stockholders’ equity	$	15,664.2		$	1,845.5		$	(1,229.4	)			$	16,280.3

See Notes to Pro Forma Combined Financial Statements.

2

VALERO ENERGY CORPORATION
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2003
(Millions of Dollars, Except Per Share Amounts)
(Unaudited)

	Valero
	Historical
	As			Aruba			Pro Forma					Pro Forma
	Adjusted (h)			Historical			Adjustments					Combined
Operating revenues	$	39,035.3		$	1,983.8		$	—				$	41,019.1
Business interruption insurance income		—			46.0			—					46.0
Total revenues		39,035.3			2,029.8			—					41,065.1
Costs and expenses:
Cost of sales and refining operating expenses		36,361.7			2,071.5			—					38,433.2
Retail selling expenses		693.6			—			—					693.6
Administrative expenses		317.3			—			—					317.3
Depreciation and amortization expense		517.4			28.4			(28.4	)	(c	)		538.5
								21.1		(c	)
Impairment charge		—			52.7			—					52.7
Reorganization expenses		3.3			—			—					3.3
Total costs and expenses		37,893.3			2,152.6			(7.3	)				40,038.6
Operating income (loss)		1,142.0			(122.8	)		7.3					1,026.5
Equity in earnings of Valero L.P.		29.8			—			—					29.8
Other income (expense), net		15.3			(1.6	)		(0.5	)	(d	)		13.2
Interest and debt expense:
Incurred		(287.6	)		(30.6	)		30.6		(d	)		(288.7	)
								(1.1	)	(e	)
Capitalized		26.3			—			—					26.3
Minority interest in net income of Valero L.P.		(2.4	)		—			—					(2.4	)
Distributions on preferred securities of subsidiary trusts		(16.8	)		—			—					(16.8	)
Income (loss) before income tax expense		906.6			(155.0	)		36.3					787.9
Income tax expense		337.1			1.3			—		(f	)		338.4
Net income (loss)		569.5			(156.3	)		36.3					449.5
Preferred stock dividends		10.5			—			—					10.5
Net income applicable to common stock	$	559.0		$	(156.3	)	$	36.3				$	439.0
Earnings per common share	$	4.87										$	3.58
Weighted average common shares outstanding (in millions)		114.9			—			7.8		(g	)		122.7
Earnings per common share – assuming dilution	$	4.57										$	3.39
Weighted average common equivalent shares outstanding (in millions)		124.7			—			7.8		(g	)		132.5
Dividends per common share	$	0.42										$	0.42

See Notes to Pro Forma Combined Financial Statements.

3

VALERO ENERGY CORPORATION
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)

(a)

To reverse the historical cost of the individual assets and liabilities of Aruba, and the offsetting owner’s net investment.

(b)

To reflect the allocation of the purchase price, including $0.4 million of transaction costs incurred in the acquisition, to the assets acquired and liabilities assumed. The purchase of $176.3 million of working capital reflected below is based on the working capital of Aruba, excluding affiliate balances, as of December 31, 2003. The working capital acquired on March 5, 2004 was approximately $162 million based on estimated amounts at closing of the acquisition, subject to adjustment as set out in the purchase agreement. Restricted cash as of December 31, 2003 related to deposits for letters of credit under a credit agreement that was terminated upon the purchase by Valero, and therefore is reflected as unrestricted cash below. Affiliate receivable and payable balances of Aruba, as well as approximately $370 million of Aruba's long-term debt, were settled prior to Valero's acquisition on March 5, 2004, and therefore no value was assigned to such assets and liabilities in the purchase price allocation below. The purchase price allocation shown below is preliminary and is based on estimated fair values, pending the completion of an independent appraisal and other evaluations (in millions):

Cash	$	54.9
Receivables		133.8
Inventories		156.8
Prepaid expenses and other		1.6
Property, plant and equipment		469.0
Current portion of capital lease obligations		(0.4	)
Accounts payable		(148.5	)
Accrued expenses		(22.3	)
Capital lease obligations, less current portion		(3.2	)
Total purchase price		641.7
Less cash acquired		(54.9	)
Total purchase price, net of cash acquired	$	586.8

The total purchase price consisted of: (1) the sale of 7.8 million shares of Valero common stock for net proceeds of $405.9 million, (2) $35.8 million of borrowings under existing bank credit facilities and (3) available cash of $200 million.

Management does not expect to allocate any of the purchase price to identifiable intangible assets. Management believes that customer contracts have limited value since they are generally short-term in nature, while the licenses, intellectual property, etc. that were acquired in connection with the Aruba refinery generally were either legally restricted from sale or transfer or had useful lives similar to the associated assets. The results of the pending appraisal, however, may reflect a value for certain identifiable intangible assets, but if so, such amounts are not expected to be material. Management also does not expect that any goodwill or non-amortizable intangible assets will be recognized.

4

(c)	To adjust historical depreciation expense to reflect depreciation expense using an overall blended estimated life of 20 years, 10% salvage value, based on the portion of the acquisition cost allocated to property, plant and equipment.
(d)	To reverse historical net interest expense incurred as well as historical interest income earned by Aruba.
(e)	To record interest expense on $35.8 million of debt incurred to fund a portion of the Aruba acquisition and interest expense related to a capital lease obligation assumed in the acquisition. A 1% increase in the assumed interest rate would result in a $0.4 million increase in interest expense.
(f)	No pro forma adjustment is reflected for income tax expense since effectively all of the pro forma adjustments relate to the refinery operations, which are non-taxable through December 31, 2011.
(g)	To reflect a public offering of 7.8 million shares of common stock as of January 1, 2003 to fund a significant portion of the Aruba acquisition.
(h)	Valero’s historical statement of income for the year ended December 31, 2003 has been adjusted on a pro forma basis to reflect the Orion acquisition and related financing, which were completed on July 1, 2003, as if they had occurred on January 1, 2003. For additional information on this transaction, see Valero’s Current Report on Form 8-K/A filed on September 18, 2003 and Valero’s Annual Report on Form 10-K for the year ended December 31, 2003.

5