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Tags: ConocoPhillips

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

By , Money Morning • August 27, 2008

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By Jennifer Yousfi
Managing Editor

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 is expected to close today (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 (ADR: 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.

News and Related Story Links:

  • Reuters:
    ConocoPhillips to sell gas stations for $800 million
  • The Wall Street Journal:
    Conoco Plans Deal to Sell Rest of Its Gas Stations
  • MarketWatch:
    PetroSun to Acquire ConocoPhillips U.S. Retail Marketing Assets
  • Money Morning:
    Exxon Plans to Sell 2,220 Profit-Squeezed Gas Stations

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