Big Oil Continues to Refine Focus

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Big Oil Continues to Refine Focus

By Don Longo

Last year, the cover story of Convenience Store News' Jesse Neal award-winning October issue focused on the changes in the petroleum side of the business -- particularly the Big Oil companies' efforts to concentrate on exploration, production and refining rather than marketing and retail operations. In the year since, that trend has accelerated. The cover story package also included profiles on three petroleum marketers -- Crown Central, Chevron and Cenex -- that were making different choices in how they go to market.

In the year since CSNews' cover story, Big Oil companies have continued to exit the retail convenience store business in order to focus on their core competencies in exploration, drilling or refining.

Last month, ConocoPhillips sold its last 600 company-owned gasoline stations to PetroSun West LLC for $800 million. In addition to these gas stations, the Houston-based oil company has been shedding its convenience stores for several years. According to the CSNews Top 100, ConocoPhillips in 2004 operated 382 of its total of 1,350 branded c-stores. That figure of corporately run convenience stores fell to just 103 in 2008.

ConocoPhillips, like other oil companies that are fleeing the low-margin U.S. retail-gasoline sales business, will continue to refine oil and sell fuel as a wholesaler to gas stations. The Conoco, 76 and Phillips 66 brands will continue to fly over gas stations.

PetroSun West, based in Seattle, plans to upgrade the properties by adding fresh sandwiches, financial services such as bill-paying, and dry cleaning, according to its CEO Sam Hirbod. The acquired stations lie mostly in urban, high-traffic locations along the West Coast, from Seattle to Los Angeles. The deal is expected to close by the end of the year.

Earlier this year, ExxonMobil said it will sell its company-owned gas stations within the next few years -- citing profitability issues with the stations. On the c-store front, ExxonMobil reduced its number of corporately owned stores from 901 in 2004 to 799 this year. BP, the largest Big Oil c-store operator, also put more than 480 stores throughout the U.S. (including locations in Arizona, California, Georgia, Illinois, Ohio and Washington) up for sale as part of its previously announced plan to sell all of its stores by the end of 2009. Most of the stores were expected to be sold to franchisees, and the remaining to dealers and large distributors.

Another company that epitomizes these changes is Alon USA Energy Inc. CEO Jeff Morris told CSNews last year that oil companies are wise to focus on their areas of expertise and to leave refining or retailing to others who are better at it. Alon USA, a Dallas-based independent refiner and petroleum marketer that also owns Southwest Convenience Stores, now plans to spin off the 300-plus store division, which is 7-Eleven's largest franchisee, in an initial public offering, said Morris. In May, Kyle McKeen rejoined the company as president and CEO of Alon's branded marketing and retail operations.

At its biannual marketing meeting last year in Denver, Chevron Corp. made a number of announcements about its dual Chevron/Texaco brand strategy, its image refresh program, its ExtraMile franchise program and adjustments to its proprietary credit card business.

In August, Chevron reported second quarter net income grew to $6 billion, from $5.4 billion in the same period last year. Chairman and CEO Dave O'Reilly credited higher prices for crude oil and natural gas for contributing to a doubling of upstream profits from last year's second quarter. However, rising crude oil prices had the opposite effect on the company's sales of gasoline and other refined products, contributing to a second quarter loss in downstream operations.

In other recent Chevron news, the company launched a new Chevron and Texaco Visa credit card program administered by GE Money that offered U.S. customers new rewards when they use the card at affiliated stations. During the promotional period in August and September, new card customers received an introductory 30-cents per gallon statement credit for the first 60 days of use.

Chevron will also end its sponsorship deal with NASCAR following the 2008 racing season. The company said it wants to concentrate on new regional marketing strategies in support of its Texaco and Havoline brands.

A year ago, a company once given up for dead -- Baltimore-based Crown Central Petroleum Corp. -- avoided Chapter 11 by separating its retail stores from its refinery and terminal business, and reemerged as a regional brand with more than 80 Crown locations in the South and Mid-Atlantic regions.

"We are continuing to expand the brand, and at the same time we have opened the doors to our electronic payment processing to our licensees' unbranded accounts," Bob Fritz, general manager, recently told CSNews. "Additionally, we have signed a definitive agreement with an exporter of motor oils to develop the Crown brand of motor oils in South and Central America.Eventually we hope to launch the motor oil brand in the U.S.Crown started as a lube oil manufacturer almost 90 years ago and this takes us back to our historical roots."

Fritz also said Dan Tush joined Crown as its brand development manager late last year, having previously worked for ARCO, Crown and Southern Maryland Oil.Tush's responsibility is to expand the Crown brand. In the past few months, the company added five new licensees and expects to have several more coming on in the very near term.

CSNews reported last October that CHS Inc., parent company to 1,600 Cenex-branded convenience stores, was undergoing a makeover of its outdated image and planned to grow by more than 500 locations over the next four years by taking over operations from major oil companies, such as BP and ConocoPhillips. A new retail look, including redesigned canopies, a new logo, brighter colors, new lighting and digital signage, debuted in September 2007. As of mid-February, 160 sites were reimaged. The goal is to have all of its Cenex locations sporting the new appearance by June 2010.

Many major oil companies have determined that direct operations no longer fit their business model. Some are embracing franchising or complete withdrawal from any connection to direct retail.