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    Valero to Open Retail Distribution Center

    Core-Mark to manage operation, supply network.

    SAN ANTONIO -- Valero Energy Corp. will develop its own distribution center in the San Antonio area to supply the majority of its U.S.-based convenience stores with retail merchandise. As part of this initiative, Valero will enter into a multi-year logistics agreement with Core-Mark International Inc. to manage the center and supply its network.

    Valero is in final negotiations to lease a 130,000-square-foot distribution warehouse in the northeast San Antonio area and is planning to invest more than $7 million in the facility. The distribution center is expected to generate 200 new jobs, the majority of which will be located in the San Antonio area. Core-Mark, which will employ the vast majority of the workforce, estimates that the payroll will be in excess of $6 million annually. The distribution center is expected to be completed and operational in April 2005.

    Mike Walsh, Core-Mark president and CEO, said, "We are very excited to enter into this partnership with Valero. We see Valero as a leading retailer who will help define the U.S. convenience retail landscape in the years to come. Moreover, reaching this agreement with a company like Valero further validates Core-Mark's unique ability to meet the specific needs of our customers by defining and delivering innovative supply models."

    The center will supply approximately 650 of Valero's Diamond Shamrock Corner Stores in Texas with the majority of their retail products. The company's remaining 400 Diamond Shamrock Corner Stores and Valero Food and Snack Shops located outside the distribution center's geographic reach will be supplied directly through Core-Mark's existing distribution network.

    In other company news, Valero, Kaneb Services LLC and Kaneb Pipe Line Partners LP executed definitive agreements to merge Valero and Kaneb Partners to become the largest terminal operator and second-largest petroleum liquids pipeline operator in the United States. As part of the transaction, Valero will also acquire all of Kaneb Services' equity securities for cash. The general partner of the combined partnership will continue to be owned by affiliates of Valero Energy Corp. Kaneb Services and Kaneb Partners will become wholly owned subsidiaries of Valero.

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