Andeavor Zooms In on Retail Business

SAN ANTONIO — Andeavor is putting a definitive stamp on the retail scene.

The company, formerly known as Tesoro Corp., continued to grow its network of branded stores, increasing its store count by 657 — or 27 percent year over year — in the third quarter of 2017 to 3,124 stores primarily driven by its acquisition of Western Refining Inc.

"Our business delivered strong results across our integrated value chain during the quarter. Our marketing business is well positioned for continued growth following the integration of Western Refining's retail business and the recent acquisition of 39 convenience stores in Northern California, both which bring more secure and profitable earnings to the portfolio," Greg Goff, chairman and CEO of Andeavor, said during the company's third-quarter earnings call on Nov. 9.

Nearly five months in from its acquisition of Western Refining, Andeavor continues to make progress on the integration process.

"We continue to have a very successful integration and are rapidly moving forward towards full integration and value capture," Goff said.

In addition, Andeavor is making progress identifying and capturing synergies from the transaction. According to Goff, Andeavor remains committed to delivering an expected $350 million to $425 million in annual run-rate synergies by June 2019, the second year following the close of the transaction.

This includes approximately:

• $120 million to $160 million from value-chain optimization;
• $130 million to $140 million from operational improvements; and,
• $100 million to $125 million from corporate efficiencies.

"By the end of the third quarter 2017, and only four months since close, we estimate we have achieved approximately $110 million in annual run-rate synergies consisting of approximately $85 million of corporate efficiencies and approximately $25 million in value-chain optimization and operational improvements," Goff explained. "We have clear plans to achieve the full run rate."

RETAIL GROWTH

On the retail side, Andeavor "is committed to growing growth and improvement in our marketing business by focusing on placing product into the highest value-branded distribution channels, adding new retail sites to the network, and implementing store improvements to enhance our convenience store position," Goff said.

During the third quarter, Andeavor acquired 39 c-store and gas stations from Flying Energy, which are primarily located in Northern California. The locations changed hands on July 28, as CSNews Online previously reported.

"This acquisition further strengthens our integrated business by expanding our retail presence in Northern California by adding approximately 6,000 barrels a day of branded sales, as well as non-fuel income," the chief executive said.

Andeavor expects the company-operated stores to contribute $10 million of annual net earnings and $25 million of annual EBITDA.

But not all growth is coming from M&A activity. Andeavor's organic growth plan execution has resulted in the addition of 74 net new branded stores, year over year, said Steve Sterin, executive vice president and chief financial officer.

The company also expects the initial conversion of approximately 50 stores to company operated in the fourth quarter.

"This conversion will allow us to begin to capture additional non-fuel margins and enhance overall station profitability," he said.

MOVING SOUTH

In addition to growing its U.S. footprint, Mexico continues to be a focus for the company's marketing business, extending Andeavor's West Coast value chain south to the northwestern part of the country.

According to Goff, "the progress so far is encouraging."

At the beginning of the third quarter, Andeavor announced a terminal and transportation services agreement with Petróleos Mexicanos (Pemex), which allows the potential to supply 30,000 to 40,000 barrels per day of transportation fuels in Sonora and Baja California, Mexico.

Andeavor also signed a wholesale supply agreement to begin wholesale marketing operations, using the ARCO brand in Mexico.

"We officially began operating in Mexico and successfully opened the first ARCO station in Tijuana, Mexico on Aug. 29," Goff noted. "We now have five stores in Mexico as of Nov. 2, and we have seen strong customer acceptance of these ARCO sites with fuel sales up considerably vs. the stores prior to the conversion."

Andeavor is also on track to add stores in the fourth quarter, he added.

"We will continue to grow our integrated footprint and the company expects to increase its marketing presence across the entire northern part of Mexico with an estimated 200 to 300 stores planned in just the next few years," Goff said.

In addition to moves in its marketing segment, Andeavor completed the acquisition of Western Refining Logistics and the IDR buy-in transaction.

"The completion of these two transactions lowers our cost of capital and positions us to capture organic growth opportunities across our geographic footprint," Goff explained. "We are especially excited about our portfolio growth opportunities in the prolific Permian Basin."

San Antonio-based Andeavor is an integrated marketing, logistics and refining company. Andeavor's retail-marketing system includes more than 3,100 stores marketed under multiple fuel brands, including ARCO, SuperAmerica, Shell, Exxon, Mobil, Tesoro, USA Gasoline and Giant. It also has ownership in Andeavor Logistics LP and its non-economic general partner.

Andeavor operates 10 refineries with a combined capacity of approximately 1.2 million barrels per day in the mid-continent and western United States.