William E. Greehey
 
                       EMPLOYMENT AGREEMENT
 
 
     This Employment Agreement ("Agreement") is between Valero Refining and
Marketing Company, a Delaware corporation ("Valero"), and William E. Greehey,
a resident of San Antonio, Texas, ("Greehey").  This Agreement is effective on
the day that all of the capital stock of Valero is distributed by Valero
Energy Corporation ("VEC") to its stockholders ("Effective Date").  Valero and
Greehey are sometimes referred to herein individually as a "Party", and
collectively as the "Parties".  The Parties hereby agree as follows:
 
     1.   Employment.  Valero hereby employs Greehey, and Greehey hereby
accepts employment with Valero, subject to the terms and conditions set forth
in this Agreement.
 
     2.   Term.   Subject to the provisions for termination of employment as
provided in Section 9(a), this Agreement shall be in effect for a period of
two years beginning on the Effective Date and ending on the second anniversary
of the Effective Date ("Initial Period").  If Greehey notifies Valero at least
ninety (90) days prior to the end of the Initial Period of his intention to
extend this Agreement, then this Agreement shall be extended on a
month-to-month basis ("Extension Period").  Greehey may terminate this
Agreement within the Extension Period by giving Valero ninety (90) calendar
days written notice of termination.
 
     3.   Compensation.  Greehey's compensation during his employment under
the terms of this Agreement and prior to his retirement shall be as follows:
 
          (a)  Base Salary.  Valero shall pay to Greehey a base salary (the
"Base Salary") of Nine Hundred Thousand Dollars ($900,000) per year.  In
addition, the Board of Directors of Valero shall in good faith consider
granting annual increases to the Base Salary based upon such factors as
Greehey's performance and the growth and profitability of Valero, but it shall
have no obligation to grant any such increases in compensation.  Any such
increase to the Base Salary shall be deemed thereafter to be the Base Salary;
provided, however, based upon the same such factors, the Board of Directors of
Valero may thereafter reduce the Base Salary to an amount that is not below
the amount first set forth above in this Paragraph 3(a).  The Base Salary
shall be payable in equal, semi-monthly installments on the 15th day and last
day of each month or at such other times and in such installments as may be
agreed between Valero and Greehey.  All payments shall be subject to the
deduction of payroll taxes, income tax withholdings, and similar deductions
and withholdings as required by law.
 
          (b)  Bonus.  In addition to the Base Salary, Greehey shall be
eligible to receive bonus compensation in such amounts and at such times as
the Board of Directors of Valero shall from time to time determine.  In the
year of his retirement, Greehey shall receive a pro-rata share of bonus
compensation in such amount as the Board of Directors of Valero shall
determine at the customary time annual bonuses are determined and paid to
executive officers of Valero.
 
          (c)  Stock Option Grant.  Greehey shall receive a nonqualified stock
option grant to purchase 290,000 shares of Valero Energy Corporation common
stock, granted on the fifth (5th) business day following approval of said
grant by the Board of Directors of Valero Energy Corporation ("Grant Date")
with an exercise price per share equal to the fair market value of Valero
Energy Corporation common stock on the Grant Date.  These options shall vest
at the rate of 50% on the first anniversary of the Grant Date and the
remaining 50% on the second anniversary of the Grant Date, and shall have a
total term of ten years from the Grant Date.  These vesting periods shall not
be modified by the accelerated vesting provisions set forth in Paragraph 7(f).
 
     4.   Expenses and Benefits.  During his employment, Greehey is authorized
to incur reasonable expenses in connection with the business of Valero,
including expenses for entertainment, travel and similar matters.  Valero will
reimburse Greehey for such expenses upon presentation by Greehey of such
accounts and records as Valero may from time to time reasonably require. 
Valero also agrees to provide Greehey with the following benefits during
employment:
 
          (a)  Insurance.  Permanent life insurance in addition to any life
insurance under Valero's normal benefit plans in accordance with Paragraph
7(g).
 
          (b)  Employee Benefit Plans.  Participation in any employee benefit
plans now existing or hereafter adopted by Valero for its executives or other
officers and employees.
 
          (c)  Club Memberships.  Valero shall reimburse Greehey for all
monthly dues and fees for Greehey's present country club memberships and for
any expenses incurred by Greehey in connection with such club memberships in
representing Valero's interests.
 
          (d)  Vacations.  Greehey shall be entitled (in addition to the usual
Valero holidays) to a paid vacation for a period in each calendar year not
exceeding five weeks.
 
          (e)  Working Facilities.  Greehey shall be furnished by Valero with
an office, secretarial help and other facilities and services, including but
not limited to full use of Valero's mail and communication facilities and
services reasonably suitable to his position and reasonably necessary for the
performance of his duties under this Agreement.
 
          (f)  Tax Planning.  Greehey will be furnished tax planning services
by an independent certified public accounting firm of the type furnished to
executive officers of Valero.
 
          (g)  Other.  Such other items as Valero shall from time to time
consider necessary or appropriate to assist Greehey in or to provide
incentives or compensation for the performance of his duties under this
Agreement.
 
     5.   Positions and Duties.  Greehey is employed as Chief Executive
Officer of Valero and for no additional compensation shall, subject to his
being elected or re-elected as a director by Valero's stockholders, serve at
the discretion of the Board as its Chairman of the Board.  In addition, if
requested to do so, Greehey shall serve as the chief executive officer or as a
member of the Board of Directors, or both, of any subsidiary or affiliate of
Valero.  Such duties shall be performed at Valero's principal place of
business in San Antonio, Texas.
 
     6.   Extent of Service.  Greehey shall, during his employment under the
terms of this Agreement, devote substantially all of his working time,
attention, energies and business efforts to his duties as an employee of
Valero and to the business of Valero generally, and shall not, during the term
of this Agreement, engage in any other business activity whatsoever, whether
or not such business activity is pursued for gain, profit or other pecuniary
advantage; however, this Paragraph 6 shall not be construed to prevent Greehey
from serving as a member of the board of directors of other companies, or from
investing his personal, private assets as a passive investor in such form or
manner as will not require any active services on the part of Greehey in the
management or operation of the affairs of the companies, partnerships, or
other business entities in which any such passive investments are made.
 
     7.   Retirement.  Notwithstanding the term and notice provisions of
Paragraph 2, Greehey may retire at any time as Chief Executive Officer of
Valero under the terms of this Agreement by giving Valero written notice of
his intention to retire 90 days in advance of the designated retirement date. 
Upon retirement, and provided that Valero has not terminated Greehey for cause
pursuant to Paragraph 9(a), Greehey shall no longer be employed by Valero, but
he shall have the following rights and obligations:
 
          (a)  Continuation as Chairman.  Greehey agrees to continue serving
at the discretion of the Board as Chairman of the Board of Valero for two
years following his effective date of retirement;
 
          (b)  Duties.  As Chairman of the Board of Valero, Greehey shall
perform such duties as are reasonably required by a person holding such
position.  However, it is agreed and understood that Greehey shall not be
obligated to devote any particular amount of time to the affairs of Valero
over and above that which he determines is necessary to perform his duties as
a director, and will be free to pursue other business interests provided the
pursuit thereof does not violate any fiduciary duty owed to Valero in
Greehey's capacity as Chairman of the Board or violate the provisions of
Paragraphs 11 or 12;
 
          (c)  Compensation.  Greehey shall be paid compensation for serving
as  Chairman of the Board equal to one half of the Base Salary being paid to
Greehey at the time of his retirement.  This payment shall continue for the
two year period Greehey serves as Chairman of the Board (other than as a
result of Greehey's refusal to serve as Chairman of the Board) and shall be
payable in semi-monthly installments;
 
          (d)  Working Facilities.  Valero shall provide Greehey with off-site
office facilities and secretarial and other office services reasonably
commensurate with Greehey's position as retired Chief Executive Officer of
Valero.  The office facilities and secretarial and other services to be
provided to Greehey following his retirement shall continue until December 31,
2005.
 
          (e)  Annual Physical Examination.  Valero shall pay for an annual
physical examination for Greehey for the remainder of his life.
 
          (f)  Vesting and Option Exercise Periods.  Upon retirement,
Greehey's stock options, stock appreciation rights, restricted stock grants,
performance share awards, and any other similar stock or long-term incentive
rights or benefits previously granted to Greehey, which have not fully vested,
shall immediately fully vest, except for any unvested stock options granted to
Greehey pursuant to Paragraph 3(c).  Greehey shall have the right to exercise
any vested stock options, stock appreciation rights, restricted stock grants,
performance share awards, and other similar stock or long-term incentive
rights or benefits for the full remaining term thereof.  Any outstanding
performance share award shall be deemed to have been earned at the target
level for the full term.
 
          (g)  Retirement Benefits and Supplemental Retirement Benefits. 
Greehey shall be entitled to all retirement benefits provided under the Valero
Energy Corporation Pension Plan ("Pension Plan") and Supplemental Executive
Retirement Plan (SERP), with the following supplemental benefits:
 
               (i)  retiree medical coverage consistent with coverage amount
and/or deductibles and costs as provided to Valero retirees;
 
               (ii) paid up permanent life insurance, in addition to life
insurance included in Valero's normal retirement benefit plans, with cash
value of at least $300,000;
 
               (iii)     a total of eight "points" under the SERP to be added
to his years of credited service, or his age, or divided between both in such
proportion that total eight, as he elects at time of retirement.  The amount
per month equal to the difference between Greehey's normal monthly retirement
benefit under the Pension Plan and the SERP with the eight added points shall
constitute a supplemental monthly retirement payment, payable at the time each
payment is made under the Pension Plan.  For purposes of calculating Greehey's
monthly retirement benefits, service shall be deemed continuous from August
19, 1963 through the date of retirement pursuant to this Agreement.  
 
          Greehey shall not be entitled to participate in nor receive the
benefits of any special "window" retirement or early retirement program, if
any, that may be offered to other employees of Valero or subsidiaries at or
about the time of Greehey's giving notice of retirement or actual retirement;
and
 
               (iv) payments under any other employee benefit plan(s), which
are due as a result of separation of service.
 
     8.   Death and Disability.
 
          (a)  Death.  If during the term of Greehey's employment under this
Agreement and prior to the date of retirement Greehey dies, then in addition
to all other employee benefits to which Greehey's estate, spouse or other
beneficiaries may be entitled, Valero shall pay in equal semi-monthly
installments to the beneficiary designated by Greehey, or his estate if no
such beneficiary has been designated in writing to Valero, the Base Salary
which Greehey would have received if he had remained employed to the end of
the Initial Period or if his employment has been extended pursuant to
Paragraph 2, to the end of the Extension Period.
 
          (b)  Disability.
 
               (i)  If during the term of Greehey's employment under this
Agreement Greehey becomes unable to perform his duties as Chief Executive
Officer as a result of illness or physical injury as defined in Valero's Long
Term Disability Plan, Greehey shall be deemed to have retired and be entitled
to the benefits described in Paragraph 7(d), (e), (f) and (g).
 
               (ii) If following his retirement as Chief Executive Officer,
Greehey becomes unable to perform his duties as Chairman of the Board, as
determined by a majority of the other Directors, Greehey's benefits under
Paragraph 7(a) and (b) shall cease; however, Greehey shall be entitled to the
balance of the remaining two years' compensation for serving as Chairman of
the Board, as defined in Paragraph 7 (c), payable in semi-monthly
installments.
 
     9.   Termination by Valero.  Valero shall have the right to terminate
Greehey's employment as hereinafter provided.
 
          (a)  Termination for Cause.  Valero shall have the right to
terminate Greehey's employment under this Agreement for cause.  As used
herein, "cause" shall mean and be strictly limited to:
 
               (i)  Greehey's conviction of a crime constituting a felony
under federal or state law or involving moral turpitude;
 
               (ii) an illegal act or acts that were intended to and did
defraud Valero; or
 
               (iii)     the willful refusal by Greehey to fulfill
responsibilities under this Agreement after written notice of such willful
refusal from the Board and the failure to correct such refusal within 30 days
from the date such notice is given.  If Valero terminates this Agreement
pursuant to the provisions of this Paragraph 9(a):  (i) all compensation or
other benefits due Greehey pursuant to Paragraphs 3 and 4 hereto shall be paid
by Valero to Greehey to the date of such termination; and (ii) all
supplemental and additional benefits and rights granted to Greehey at
retirement by Paragraph 7 are revoked and become null and void; and, upon such
payment by Valero, all obligations of Valero to Greehey hereunder shall be
totally and completely satisfied, and Valero shall have no further obligations
of any type to Greehey pursuant to this Agreement.
 
          (b)  Termination other than for Cause.  Valero shall have the right
to terminate Greehey's employment as Chief Executive Officer under this
Agreement without cause, and Greehey's employment under this Agreement shall
be deemed terminated upon the giving of 90 days written notice to such effect
by Valero to Greehey.  A termination of employment other than as a result of
death, retirement, disability, or in accordance with Paragraph 9(a) shall be
deemed a termination without cause.  In the event of termination without
cause:
 
               (i)  Valero shall pay Greehey in cash a lump sum amount equal
to the product of Greehey's semi-monthly Base Salary being paid to Greehey at
the date of such termination multiplied by the number of semi-monthly pay
periods remaining to the end of the Initial Period (or successive period if
employment has been extended pursuant to Paragraph 2), plus an amount equal to
the highest annual bonus paid to Greehey during the five years preceding the
time of such termination.  Such amount shall be paid within five days of
termination;
 
               (ii) Greehey shall receive all the payments and benefits to
which he is entitled pursuant to Paragraph 7(f) and (g); but shall not be
entitled to receive any further payments or benefits under Paragraph 7 after
the date of such termination, including any payment under 7 (c).
 
          (c)  Termination as Chairman of the Board.  If for any reason
Greehey is removed by a majority of the other Directors as Chairman of the
Board after his retirement as Chief Executive Officer, other than as a result
of death or disability, he shall receive the balance of the remaining two
years' compensation for serving as Chairman of the Board as defined in
Paragraph 7(c), payable in semi-monthly installments.
 
     10.  Executive Severance Agreement.  In the event Greehey receives any
cash payments under that certain Executive Severance Agreement dated December
15, 1982 between Valero and Greehey, Valero shall be entitled to credit any
cash payments that are made to Greehey pursuant to his Executive Severance
Agreement against any cash payments that it is obligated to make under this
Agreement.  Valero agrees that if remuneration or benefits of any form paid to
Greehey by Valero during or after his employment with Valero are excess
parachute payments as defined in Section 280G of the Internal Revenue Code of
1986, as amended ("Code"), and are subject to the 20% excise tax imposed by
Section 4999 of the Code, Valero shall pay Greehey a bonus no later than seven
days prior to the earliest of the due date for the excise tax return or
initial estimated payment, in an amount equal to the excise tax payable as a
result of the excess parachute payment and any additional federal income taxes
(including any additional excise taxes) payable by him as a result of the
bonus, assuming that he will be subject to federal income taxes at the highest
individual marginal rate.  It is the intention of the Parties that the bonus
be "grossed up" so that the bonus contains sufficient funds to pay the excise
and all additional federal income taxes due as a result of the bonus payment
so that Greehey will suffer no detriment from the excise tax payable as a
result of the excess golden parachute payments.
 
     11.  Disclosure of Confidential Information.  Except to the extent
absolutely required in the performance of his duties and obligations to Valero
as expressly authorized herein, or by prior written consent of a duly
authorized officer or director of Valero, Greehey will not, directly or
indirectly, at any time during his employment with Valero, or at any time
subsequent to the termination thereof, for any reason whatsoever, with or
without cause, breach the confidence reposed in him by Valero by using,
disseminating, disclosing, divulging or in any manner whatsoever disclosing or
permitting to be divulged or disclosed in any manner to any person, firm,
corporation, association or other business entity, trade secrets, secret
methods or "Confidential Information" of Valero, nor will Greehey lecture on
or publish articles concerning any trade secrets, secret methods or
"Confidential Information" of Valero.  As used herein, the term "Confidential
Information" means any and all information concerning Valero's products,
processes, sources of supply, and services, including information relating to
research, development, inventions, manufacture, purchasing, accounting,
engineering, marketing, merchandising, or the selling of any product or
products to any customers of Valero, disclosed to Greehey or known by Greehey
as a consequence of or through his employment by Valero (or any parent,
subsidiary or affiliated corporations of Valero) including, but not
necessarily limited to, any person, firm, corporation, association or other
business entity with which Valero has any type of agency agreement, or any
shareholders, directors, or officers of any such person, firm, corporation,
association or other business entity, if such information is not generally
known in any industry in which Valero is or may become engaged during the term
of this Agreement.  On termination of employment with Valero, all documents,
records, notebooks, or similar repositories of or containing Confidential
Information, including all copies of any documents, records, notebooks, or
similar repositories of or containing Confidential Information, then in
Greehey's possession or in the possession of any third party under the control
of Greehey or pursuant to any agreement with Greehey, whether prepared by
Greehey or any other person, firm, corporation, association or other business
entity, will be delivered to Valero by Greehey.
 
     12.  Noncompetition.  Greehey recognizes and understands that in
performing the responsibilities of his employment, he will occupy a position
of fiduciary trust and confidence, pursuant to which he will develop and
acquire experience and knowledge with respect to Valero's business.  It is the
expressed intent and agreement of Greehey and Valero that such knowledge and
experience shall be used exclusively in the furtherance of the interests of
Valero and not in any manner which would be detrimental to Valero's interests. 
Greehey further understands and agrees that Valero conducts its business
within a specialized market segment throughout the United States, and that it
would be detrimental to the interests of Valero if Greehey used the knowledge
and experience which he currently possesses or which he acquires pursuant to
his employment hereunder for the purpose of directly or indirectly competing
with Valero or for the purpose of aiding other persons or entities in so
competing with Valero.  In consideration for the benefits herein, Greehey
therefore agrees that so long as he is employed by Valero and for a period of
the greater of (i) two years after termination of Greehey's employment, or
(ii) as long as he is receiving any payments under paragraph 7(c), unless he
first secures the written consent of Valero, Greehey will not directly or
indirectly invest, engage or participate in any entity in direct or indirect
competition with Valero's business or contract to do so, other than
investments in amounts aggregating less than 1% in any securities of any
company that is obligated under the 1934 Act to file periodic reports pursuant
to Section 13 thereunder.  In the event that the provisions of this Paragraph
12 should ever be deemed to exceed the time or geographic limitations
permitted by applicable laws, then such provisions shall be reformed to the
maximum time or geographic limitations permitted by applicable law.
 
     13.  Insurance.  Valero may, in its sole and absolute discretion, at any
time after the Effective Date, apply for and procure, as owner and for its own
benefit, insurance on the life of Greehey, in such amounts and in such forms
as Valero may choose.  Unless otherwise agreed by Valero, Greehey shall have
no interest whatsoever in any such policy or policies, but Greehey shall, at
Valero's request, submit to such medical examinations, supply such
information, and execute and deliver such documents as may be required by the
insurance company or companies to which Valero has applied for such insurance.
 
     14.  Acknowledgment of Greehey.  Greehey hereby acknowledges that his
execution of this Agreement is given in consideration of the following, any of
which Greehey acknowledges is adequate consideration:
 
          (i)  Valero's employment of Greehey under the terms and conditions
contained herein; and
 
          (ii) The termination by Valero of any previous employment agreement
between Valero and Greehey.
 
     15.  Notice.  Any notice, request, reply, instruction, or other
communication provided or permitted in this Agreement must be given in writing
and may be served by depositing same in the United States mail in certified or
registered form, postage prepaid, addressed to the Party to be notified with
return receipt requested, or by delivering the notice in person to such Party. 
Unless actual receipt is required by any provision of this Agreement, notice
deposited in the United States mail in the manner herein prescribed shall be
effective on dispatch.  For purposes of notice, the address of Greehey, his
spouse, any purported donee or transferee or any administrator, executor or
legal representative of Greehey or his estate, as the case may be, shall be as
follows:
 
                    Mr. William E. Greehey
                    307 Grandview
                    San Antonio, Texas 78209
 
The address of Valero shall be:
 
                    Valero Refining and Marketing Company
                    Post Office Box 500
                    San Antonio, Texas 78292
                    Attention: General Counsel
 
Valero and Greehey shall have the right from time to time and at any time to
change their respective addresses and shall have the right to specify as their
respective addresses any other address by giving at least ten days written
notice to the other Party as provided hereby.
 
     16.  Termination of other Employment Agreements.  On the Effective Date,
all other prior employment agreements between the Parties in effect on the
Effective Date shall terminate and forever be from the date null, void and of
no further force or effect whatsoever, and any and all such agreements shall
be superseded in their entirety by this Agreement.
 
     17.  Litigation.  In the event litigation shall be brought by either
Party to enforce or interpret any provision contained in this Agreement the
following provisions shall apply:
 
          (a)  if Greehey brings such an action, and it is not established by
clear and convincing evidence that Greehey has no meritorious bases for such
action, Valero shall pay all of Greehey's and Valero's legal fees incurred in
connection with such litigation;
 
          (b)  in the event Valero brings such an action, and it is not
established by clear and convincing evidence that Greehey has no meritorious
defenses to such action, Valero shall pay all of Greehey's and Valero's legal
fees incurred in connection with such litigation; and
 
          (c)  any claim by Valero of a right to terminate this Agreement
pursuant to Paragraph 9(a) which is subjected to litigation must be
established by Valero by clear and convincing evidence.
 
     18.  Controlling Law.  The execution, validity, interpretation, and
performance of this Agreement shall be determined and governed by the laws of
the State of Texas.
 
     19.  Additional Instruments.  Valero and Greehey shall execute and
deliver any and all additional instruments and agreements which may be
necessary or proper to carry out this Agreement.
 
     20.  Entire Agreement.  This Agreement contains the entire agreement of
the Parties.  This Agreement may not be changed orally but only by an
agreement in writing signed by the Party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
 
     21.  Separability.  If any provision of the Agreement is rendered or
declared illegal or unenforceable by reason of any existing or subsequently
enacted legislation or by decree of a court of last resort, Valero and Greehey
shall promptly meet and negotiate substitute provisions for those rendered and
declared illegal or unenforceable, and all the remaining provisions of this
Agreement shall remain in full force and effect.
 
     22.  Effect of Agreement.  This Agreement shall be binding upon Greehey
and his heirs, executors, legal representatives, successors and assigns, and
Valero and its legal representatives, successors and assigns.
 
     23.  Execution.  This Agreement may be executed in multiple counterparts
each of which shall be deemed an original and all of which shall constitute
one instrument.
 
     24.  Waiver of Breach.  The waiver by Valero of a breach of any provision
of the Agreement by Greehey shall not operate or be construed as a waiver by
Valero of any subsequent breach by Greehey.  The waiver by Greehey of a breach
of any provision of the Agreement by Valero shall not operate or be construed
as a waiver by Greehey of any subsequent breach by Valero. 
 
     IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date below written.
 
 
 
                              ____________________________________
                              William E. Greehey
 
 
                              Valero Refining and Marketing Company
 
 
                              By:___________________________________
                                Edward C. Benninger
                                President
 
 
                              Date: June 18, 1997