SECURITIES AND EXCHANGE COMMISSION

                     Washington, D.C.  20549

                       ____________________

                             FORM 8-K

                          CURRENT REPORT

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

Date of Report (date of earliest event reported):
                          May 1, 1997

                    VALERO ENERGY CORPORATION
      (Exact name of registrant as specified in its charter)

     Delaware                 1-4718                  74-1244795
(State of incorporation)   Commission File          (I.R.S. Employer
     jurisdiction              Number              Identification No.)
   of incorporation

530 McCullough Avenue, San Antonio, Texas             78215
(Address of principal executive offices)            (Zip Code)

                           (210) 246-2000
       (Registrant's telephone number, including area code)

                          Not applicable
      (Former name or address, if changed since last report)

<PAGE>

Item 2.  Acquisition or Disposition of Assets

Acquisition of Basis Petroleum, Inc.

     On May 1, 1997, Valero Energy Corporation ("Valero") acquired the
outstanding common stock of Basis Petroleum, Inc. ("Basis") from Salomon
Inc ("Salomon") pursuant to a stock purchase agreement among Valero,
Basis, Salomon and Valero Refining and Marketing Company ("VRMC").  VRMC
is a wholly owned subsidiary of Valero.  The primary assets of Basis
include three refineries in the U.S. Gulf Coast area and an extensive
wholesale marketing business.  The acquisition is being accounted for
using the purchase method of accounting.  Therefore, the results of
operations of Basis will be included in Valero's consolidated financial
statements beginning on May 1, 1997.

     Valero acquired the stock of Basis for $285 million, plus $200
million representing the estimated value of inventories and other working
capital acquired in the transaction.  The final working capital amount is
currently being determined.  The purchase price was paid, in part, with
3,429,796 shares of Valero common stock having a fair market value of $120
million, with the remainder paid in cash from borrowings under Valero's
bank credit facilities.  In addition, Salomon will be entitled to receive
payments in any of the next 10 years if the average refining margin during
any of such years improves above a specified level.  These annual earn-out
payments would be based on the difference between a stated base refining
"crack spread" and the theoretical spread computed using actual average
quoted prices, and calculated using a nominal average annual throughput of
100 million barrels.  Any payments under this earn-out arrangement are
limited to $35 million in any year and $200 million in the aggregate and
will be accounted for by Valero as an additional cost of the acquisition
and depreciated over the remaining lives of the assets to which the
additional cost is allocated.

     As a result of the Basis acquisition, Valero owns and operates four
refineries.  Valero's other refining facility is located in Corpus
Christi, Texas.  The three Basis refineries are comprised of a 160,000
barrels per day ("BPD") facility in Texas City, Texas; an 85,000 BPD
facility in Houston, Texas; and a 65,000 BPD facility in Krotz Springs,
Louisiana.  The three refineries are projected to produce approximately
330,000 BPD of refined products, including about 130,000 BPD of gasoline,
about 130,000 BPD of distillates and jet fuel, and about 20,000 BPD of
chemical grade propylene and liquefied petroleum gases.

     The Texas City and Houston refineries are fully integrated merchant
refining facilities capable of receiving feedstocks and shipping refined
products via ocean-going tankers.  In addition to crude oil and vacuum
units, the Texas City facility includes, among other processing units, a
48,000 BPD fluid catalytic cracking unit ("FCC Unit") (which further
processes gas oil feedstock from the crude and vacuum units), a 22,000 BPD
naphtha reformer ("Reformer") (which produces reformate, a low vapor
pressure high-octane gasoline blendstock from naphtha streams), a 40,000
BPD solvent deasphalter ("ROSE Unit") (which recovers deasphalted oil for
feed to the FCC Unit from vacuum tower bottoms) and a 75,000 BPD resid
hydrodesulfurization unit ("Residfiner") (which improves the cracking
characteristics of the residual oil feed for the FCC Unit).  The Texas
City refinery was upgraded in the third quarter of 1996 through the
addition of the Residfiner and ROSE Units, as well as sour crude oil
conversion capacity, tankage and various other improvements.  The Houston
facility includes a 61,000 BPD FCC Unit and a 17,000 BPD ROSE Unit.  The
Krotz Springs facility includes a 30,000 BPD FCC Unit and a 12,000 BPD
Reformer. The Krotz Springs facility has access to the Colonial Pipeline,
a major interstate refined product pipeline.  Basis is a merchant refiner
and markets refined products in approximately 155 markets in 36 states.

     After the acquisition, Valero contributed the stock of Basis to a
wholly owned subsidiary of VRMC.  The acquisition of Basis is not expected
to affect the timing of the proposed restructuring of Valero.  Pursuant to
agreements executed in January 1997 among Valero, VRMC, PG&E Corporation
("PG&E"), and PG&E Acquisition Corporation ("PG&E Sub"), the capital stock
of VRMC will be distributed to the stockholders of Valero immediately
prior to the merger of Valero with PG&E Sub.  These restructuring
transactions are expected to be completed in the third quarter of 1997. 
As a result of these transactions, Valero will become a subsidiary of
PG&E, and VRMC will be an independent, publicly traded corporation (which
plans to adopt the name "Valero Energy Corporation" immediately after the
restructuring).  Basis will remain a subsidiary of VRMC.  For the period
after the restructuring, VRMC and its subsidiaries are referred to herein
as "New Valero."

Forward-Looking Statements

     The following discussion contains certain estimates, predictions,
projections, assumptions and other "forward-looking statements" (within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934) that involve various risks and
uncertainties.  While these forward-looking statements, and any
assumptions upon which they are based, are made in good faith and reflect
Valero's current judgment regarding the direction of its businesses,
actual results will almost always vary, sometimes materially, from any
estimates, predictions, projections, assumptions, or other future
performance suggested herein.  Some important factors (but not necessarily
all factors) that could affect the sales volumes, growth strategies,
future profitability and operating results of Valero and New Valero, or
that otherwise could cause actual results to differ materially from those
expressed in any forward-looking statement include the following:

     -general economic conditions in the geographic areas served by
      Valero and New Valero,
     -changes in commodity pricing and demand,
     -renewal or satisfactory replacement of feedstock arrangements
      as well as market, political or other forces generally affecting
      the pricing and availability of refinery feedstocks and refined
      products,
     -changes in the cost or availability of third-party vessels,
      pipelines and other means of transporting feedstocks and products,
     -implementation of certain cost reductions and operational
      changes and realization of certain assumptions discussed in this
      report,
     -execution of planned capital projects,
     -accidents or other unscheduled shutdowns affecting the pipelines,
      plants, machinery or equipment of Valero, New Valero, or their
      suppliers or customers,
     -excess industry capacity,
     -competition from products and services offered by other energy
      enterprises,
     -weather conditions affecting Valero's or New Valero's operations
      or the geographic areas in which their products are marketed,
     -state and federal environmental, economic, safety and other
      legislation, policies and regulations, any changes therein,
      and any legal or regulatory delays beyond Valero's or New Valero's
      control,
     -rulings, judgments, or settlements in litigation or other legal
      matters, including unexpected environmental remediation costs in
      excess of any reserves,
     -changes in the credit ratings assigned to the debt securities
      and trade credit of Valero or New Valero, and the ability of
      Valero or New Valero to obtain financing and credit arrangements.

Neither Valero nor New Valero undertakes any obligation to publicly
release the result of any revisions to any such forward-looking statements
that may be made to reflect events or circumstances after the date hereof
or to reflect the occurrence of unanticipated events.

Selected Pro Forma Projected Financial Information

     The following table shows certain selected pro forma projected income
statement, balance sheet and cash flow information for New Valero, Basis,
and New Valero and Basis combined for the years ended December 31, 1997
and 1998.  Such selected pro forma projected financial information (i)
assumes the completion of certain Basis refinery turnarounds, (ii)
reflects cash proceeds of approximately $150 million from an inventory
purchase agreement currently being negotiated, (iii) excludes certain
marketing operations of Basis which are expected to be discontinued, and
(iv) includes a preliminary allocation of the purchase price of Basis to
the assets acquired and liabilities assumed.  The 1998 cash flow of Basis
and New Valero and Basis combined was reduced by $3.2 million representing
a projected earn-out payment for the period from May 1, 1997 through April
30, 1998.  Operating income and net income for 1998 were each reduced by
approximately $.1 million representing the effect of increased
depreciation expense resulting from the treatment of the earn-out payment
as an additional cost of the acquisition.  The purchase accounting
adjustments necessary to allocate the purchase price of Basis remain
subject to change and the depreciation and amortization expense ultimately
reflected in New Valero's financial statements may vary, perhaps
significantly, from the information presented herein.

     The information presented in the following table revises similar
information presented in Valero's Current Report on Form 8-K dated March
13, 1997, and should be read in conjunction with that report.

                        New Valero and Basis Combined
            Selected Pro Forma Projected Financial Information
              Dollars in Millions, Except per Share Amounts)
<TABLE>
<CAPTION>
                                                              As of or for the Year Ended December 31,
                                                           1997                                       1998
                                            New Valero     Basis       Combined        New Valero     Basis       Combined
<S>                                         <C>            <C>         <C>             <C>            <C>         <C>
Income statement information:
 Operating income. . . . . . . . .          $   133        $    47     $   180         $   138        $    88     $   226
 Interest expense, net . . . . . .               13             11          24               8             15          23
 Income taxes. . . . . . . . . . .               42             13          55              47             25          72
 Income from continuing operations . . .         78             24         102              86             47         133
 Earnings per share of common stock
   from continuing operations. . . . . .       1.53             -         1.90            1.69             -         2.44

Balance sheet information:
 Working capital . . . . . . . . .              149             50         199             149             50         199
 Property, plant and equipment, net. . . .    1,259            300       1,559           1,343            327       1,670
 Deferred charges and other assets . . . .      113             27         140             117             29         146
 Long-term debt. . . . . . . . . .              251            229         480             245            197         442
 Deferred income taxes and other deferred
   credits and other liabilities . . . . .      276              5         281             293             20         313
 Stockholders' equity. . . . . . .              994            143       1,137           1,070            190       1,260

Cash flow information:
 Depreciation expense. . . . . . .               56              9          65              56             17          73
 Amortization expense. . . . . . .               36              3          39              30             13          43
 Capital expenditures. . . . . . .               85             36         121              60             80         140
 Deferred turnaround and catalyst costs. . .     18             12          30              29             16          45

</TABLE>

Contingent Liabilities

     Basis is a party to a substantial number of claims and legal
proceedings arising in the ordinary course of business, many of
which allege injuries resulting from exposures to asbestos,
benzene and other allegedly toxic and/or carcinogenic
compounds.  The stock purchase agreement provides that Salomon
will indemnify Valero, New Valero and Basis from loss, cost, damage or
expense attributable to all obligations, liabilities and expenses related to
suits, actions, claims and investigations pending as of the closing
date, and for additional indemnification, subject to certain terms,
conditions and limitations, with respect to other matters.  The foregoing
projections assume that all losses, costs, damages and expenses incurred by
New Valero and Basis following the acquisition will not materially exceed
the amount of such indemnification and that all applicable indemnification
will be provided in accordance with such indemnification agreement.  The
foregoing projections also assume that capital expenditures and other costs
of environmental compliance at the Basis refineries will not materially
exceed certain amounts which New Valero has budgeted therefor and which it
has factored into its purchase offer for Basis.

Item 7.  Financial Statements and Exhibits

     (a)  Financial statements of businesses acquired.
     (b)  Pro forma financial information.

   In response to Items 7(a) and 7(b), Valero incorporates by reference
(pursuant to General Instruction F) into this initial report
pages 4 to 11 and pages F-34 to F-50 of the Registration Statement on
Form S-1 (Commission File No. 333-27013, filed May 13, 1997) of Valero
Refining and Marketing Company, which was mailed to the stockholders
of Valero Energy Corporation on May 14, 1997.  Valero will furnish
by amendment any additional information that may be required by not
later than 60 days after the date that this initial report was due.

     (c)  Exhibits.   Filed as part of this Form 8-K are the following
exhibits:

     2.1   --  Stock Purchase Agreement dated as of April 22,
               1997, among Valero Energy Corporation, Valero Refining
               and Marketing Company, Salomon Inc, and Basis Petroleum,
               Inc.

<PAGE>

                            SIGNATURE

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


                             VALERO ENERGY CORPORATION


                             By:  /s/ Edward C. Benninger, Jr.
                                  Edward C. Benninger, Jr.
                                  President and Chief Financial Officer


Dated:  May 16, 1997