Exhibit 10.01

Notice of Grant of Stock Option Valero Energy Corporation and Option Agreement
ID: 74-1828067   P. O. Box 696000   San Antonio, TX 78269-6000  Gregory C. King
     

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Effective October 21, 2004, you have been granted an option to buy 38,000 shares
of the common stock of Valero Energy Corporation (the “Company”) at $42.71 per
share.

Your Options will vest on the dates shown below.

Shares

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Grant Date

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Full Vest

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Expiration

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7,600 10/21/04 10/21/05 10/21/14 7,600 10/21/04 10/21/06 10/21/14 7,600 10/21/04
10/21/07 10/21/14 7,600 10/21/04 10/21/08 10/21/14 7,600 10/21/04 10/21/09
10/21/14  

By your signature and the Company’s signature below, you and the Company agree
that the Option referenced above is granted under and governed by the terms and
conditions of the Company’s 2001 Executive Stock Incentive Plan and the Option
Agreement attached hereto, all of which are made a part of this agreement.

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    VALERO ENERGY CORPORATION                 By: /s/ Mike
Crownover                           Oct. 21, 2004                         
      Mike Crownover Date       Director - Human Resources        
           /s/ Gregory C. King                           Oct. 21,
2004                                Gregory C. King Date       Employee  

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OPTION AGREEMENT
Valero Energy Corporation 2001 Executive Stock Incentive Plan

        This Option Agreement (“Agreement”) is entered into between Valero
Energy Corporation, a Delaware corporation (“Valero”), and Employee pursuant to
the terms of the Valero Energy Corporation 2001 Executive Stock Incentive Plan
(“Plan”). As used herein, Employee means Gregory C. King. Capitalized terms used
in this Agreement but not otherwise defined in this Agreement have the meanings
set forth in the Plan.

    1.        Grant of Option. Valero grants to Employee the option (“Option”)
to purchase up to 38,000 shares of Common Stock of Valero, $.01 par value per
share (“Shares”), in accordance with the terms of this Agreement and the Plan.
The Shares, when issued to Employee upon the exercise of the Option, will be
fully paid and non-assessable.

    2.        Purchase Price. The purchase price of the Shares will be $42.71
per Share.

    3.        Exercise of Option. The period during which the Option is in
effect (“Option Period”) will commence on October 21, 2004. The Option Period
will terminate on October 21, 2014. No portion of the Option may be exercised
prior to October 21, 2005. Subject to the provisions of the Plan relating to
suspension or termination from the Plan, the Option will be available for
exercise in the following increments: 7,600 shares on 10/21/05; 7,600 shares on
10/21/06; 7,600 shares on 10/21/07; 7,600 shares on 10/21/08; and 7,600 shares
on 10/21/09.

        If the Employee desires to exercise the Option, Employee must deliver
written notice to Stock Plan Administration of Valero substantially in the form
of the attached Form A (“Exercise Notice”). The Option must be exercised in
accordance with one of the methods for exercise set forth in the attached form
of Exercise Notice. The date on which the Exercise Notice is received by Valero
will be the “Exercise Date.” The completed Exercise Notice must include the
number of Shares with respect to which the Option is being exercised. Payment
for the Shares will be made at Valero’s San Antonio offices.

        If any law or regulation requires Valero to take any action with respect
to the Shares specified in the Exercise Notice, then the date of delivery of the
Shares against payment will be extended for the period necessary to take such
action. In the event of any failure by Employee to pay for the number of Shares
specified in the Exercise Notice on the Settlement Date, as the same may be
extended as provided above, the exercise of the Option with respect to such
number of Shares will be treated as if it had never been made.

    4.        Plan Incorporated by Reference. The Plan is incorporated herein,
and by this reference, is made a part hereof for all purposes.

    5.        Limitation of Rights of Employee. Employee will have no rights
with respect to any Shares not expressly conferred by the Plan or this
Agreement.

    6.        No Assignment. This Agreement and the Option granted hereunder are
of a personal nature and Employee’s rights with respect hereto and thereto may
not be sold, mortgaged, pledged, assigned, transferred, conveyed or disposed of
in any manner by Employee, and may not be exercised by any person, other than
Employee, except as expressly permitted under the Plan. Any such attempted sale,
mortgage, pledge, assignment, transfer, conveyance, disposition or exercise will
be void, and Valero will not be bound thereby.

    7.        Successors. This Agreement is binding upon any successors of
Valero and the heirs, successors and legal representatives of Employee.

    8.        Direct Registration. Employee agrees that in lieu of stock
certificates, any Shares issuable in connection with the exercise of the Options
may be issued in uncertificated form pursuant to the Direct Registration Service
of Valero’s stock transfer agent.