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ConocoPhillips Is Latest Oil Major to Exit Low-Margin Retail Gas Stations

by: Money Morning August 28, 2008 | about stocks: BJ / BP / COP / KR / WMT / XOM    

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by Jennifer Yousfi

ConocoPhillips (COP) is selling its remaining company-owned gas stations in the latest example of the changing face of the retail gas station business.

According to unnamed sources, ConocoPhillips, the third-largest U.S. oil company and second largest U.S. refiner, plans to sell 600 company-owned gas stations to PetroSun West LLC for $800 million. The deal was expected to close Wednesday.

"This transaction is designed to strengthen our branded wholesale business model and grow market share," said Clayton Reasor, President, U.S. Marketing of ConocoPhillips, MarketWatch reported. "We have worked with PetroSun before and believe that they will continue to enhance our brands and provide excellent service to our retail customers."

ConocoPhillips operates domestic gas stations under the Phillips 66, Conoco, and 76 brands in the United States and JET brand in Europe. PetroSun plans to boost gas station profitability by adding higher-margin items for sale including fresh sandwiches, financial services such as bill-paying, and even dry cleaning, says Chief Executive Sam Hirbod, The Wall Street Journal reported.

This latest deal highlights the changing retail gas industry as oil majors and refiners exit the low-margin business while discount retailers increasingly enter it in a bid to lure customers.

As oil prices have increased, profits at the pump have been squeezed as consumers balk at buying gas above the $4 per gallon threshold. Even with record-high gas prices, retail stations are one of the least profitable business units for oil majors.

In June, Exxon Mobil Corp. (XOM) announced it was selling 2,200 company-owned gas stations as it exited the retail business. BP PLC (BP) is making a similar move.

But regional companies such as Wawa Inc., Sheetz Inc. and QuikTrip Corp. have already expanded on the traditional gas-station model by adding additional products and services such as groceries and car washes. By adding these more profitable goods and services in addition to gas sales, these companies have been able to boost sales and profit margins.

At the same time, retailers such as grocery-store chain The Kroger Co. (KR), discount retailers Wal-Mart Stores Inc. (WMT) and warehouse store BJ’s Wholesale Club Inc. (BJ) are selling discount gas to draw customer traffic and boost sales in other departments.

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This article has 6 comments:

  •  
    Aug 28 09:56 AM
    As you say, American oil majors are wise to exit the retail gasoline business. Too much effort for too little margin. Other reasons are the majors see a future in which gasoline prices will rise dramatically. The political and financial pressure on retail gasoline sales will be tremendous. Longer term, if the US does not adopt an energy policy:

    thefitzman.blogspot.co...

    it is quite possible the government/military will take control of gasoline distribution and rationing. this is the reality of a peak oil future where worldwide oil supply wont keep up with worldwide oil demand. for a country that uses 25% of worldwide oil production, has on 3% of worldwide oil reserves, imports 70% of its oil, and is fighting wars to get access to future oil, this is a very likely outcome. the ONLY solution is a comprehensive, long-term, strategic energy policy like the one outlined above. don't hold your breath.
    Reply
  •  
    Aug 29 09:34 AM
    The possibility of government control of gasoline is frightful...and I fear not too far of a leap should the Chose One be elected. McCain would make the odds a bit longer, but still a possibility that would have to be discussed. Just wish we had a true conservative in power the next few years but alas, our choices do not include one! Its either a Hugo Chavez wanna-be or a chameleon that you never know what he'll do to make a compromise. Given the choice, best to prepare for the worse. Probably take the chameleon...at least there's a chance he won't drive toward socialism. O-Chavez will definetly take us there in a really fast bus!

    Getting to a sane energy policy is not in the cards...Democrats in Congress don't want to consider anything...period...Re... won't allow anything that doesn't include more drilling (which I firmly and financially support!!)...and neither candidate will make a difference there. They are both completely awash in indecision there. The Fitz Plan has some good ideas...I say "do it all...and do it quickly". First step...disable the greenie weenies and the NIMBY's. Then let the country's best get to work. As much as I hate to say it, use tax incentives to conserve vis-a-vis credits for fuel effecient vehicles, tax incentives for domestic drilling and production, more nukes and aggressive coal-to-liquids. And then more long term research and development on the next fuel source.
    Reply
  •  
    Aug 29 09:35 AM
    Sorry, mispell...should be "the Chosen One"
    Reply
  •  
    Aug 29 02:59 PM
    We can not drill our way out of this energy predicament. The sum total of all untapped North American oil on and off shore if delivered will power our present oil consumption for just months, not years. Ultimately oil will be gone or too expensive to retrieve so the sooner we wake up to the necessity for a renewable energy future the better we will all be. Big oil is getting out of retail gasoline distribution because they see that it is a fading industry. Service stations make more money on soda's than gas. Oil will be too valuable to burn on a trip to the store.

    The future for personal transportation is anything but gasoline powered. Smart people may someday plug their vehicles into a home solar charger and fuel up while they sleep from the days solar electrical storage. Or we may be walking again if we blow this opportunity to restructure into sustainable and renewable means for energy production.
    Reply
  •  
    Aug 29 03:52 PM
    Get real. The sum of all the untapped reserves in North America are huge, including Canadian Oil Sands and the Oil Shales in Utah/Colorado not to mention the oil deposits potentially off the coasts and in ANWR. Just the Oil Shales alone are enough for decades. REad the USGS reports.

    Now, long long term, I agree we must get off of gasoline but we are a long way away from Solar as our primary, let alone, only source. Natural Gas is a good transition fuel and will be needed for electricity generation as well as cars/trucks/buses.


    On Aug 29 02:59 PM Itsonlymoney wrote:

    > We can not drill our way out of this energy predicament. The sum
    > total of all untapped North American oil on and off shore if delivered
    > will power our present oil consumption for just months, not years.
    > Ultimately oil will be gone or too expensive to retrieve so the sooner
    > we wake up to the necessity for a renewable energy future the better
    > we will all be. Big oil is getting out of retail gasoline distribution
    > because they see that it is a fading industry. Service stations make
    > more money on soda's than gas. Oil will be too valuable to burn on
    > a trip to the store.
    >
    > The future for personal transportation is anything but gasoline powered.
    > Smart people may someday plug their vehicles into a home solar charger
    > and fuel up while they sleep from the days solar electrical storage.
    > Or we may be walking again if we blow this opportunity to restructure
    > into sustainable and renewable means for energy production.
    Reply
  •  
    Aug 31 06:21 AM
    Mmarrkk, I don't think we should book Canadian tar sands as reserves. Too much input energy and capital required to recover and improve. And it seems implausible to me that Americans will accept responsibility for their own folly. For instance, global warming/cooling is a function of solar radiation and ocean chemistry. Staying on topic, the plan for Iraq was to double US reserves. I expect the trend to continue, no matter how wacky or dangerous such a strategy may be.
    Reply
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