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Out of Gas:Exxon to Exit Low-Profit Retail Pumps

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Out of Gas:Exxon to Exit Low-Profit Retail Pumps

By RUSSELL GOLD
June 13, 2008; Page B1

Exxon Mobil Corp., purveyor of one of the most recognizable gasoline brands in the world, is getting out of the domestic retail gasoline business. The oil giant said Thursday that over the next few years it will sell the 2,220 gasoline stations it owns in the U.S.

That won’t mean the end of the Exxon Mobil name on gas stations. The company expects to sell most of the stations to distributors that already own and operate about 10,000 other stations that carry Exxon Mobil signs and are supplied on a wholesale basis by Exxon Mobil. And Exxon’s announcement doesn’t affect its overseas stations.

Exxon, which took in $404 billion in revenue last year, is following other oil companies that have been unloading low-profit retail gasoline businesses in recent years. BP PLC says it intends to have sold off all of its company-owned gasoline stations in the U.S. in 2009, and ConocoPhillips owns only a handful. Exxon itself has been slowly shedding its stations: It operates 27.6% fewer gas stations today than in 2003.

The retail gasoline business “continues to be a very challenging market with reduced margins, and there is significant competitor growth,” says Exxon spokeswoman Premlata Nair.

Through the first six months of the year, gas stations have made an 11-cent-a-gallon profit, but half of that has been eaten up by credit-card processing fees, says Tom Kloza, chief oil analyst at Oil Price Information Service in Wall, N.J. Meanwhile, retailers such as Costco Wholesale Corp., Wal-Mart Stores Inc. and even Home Depot Inc. have been building gas stations in their expansive parking lots, and so have grocery stores.

“It is just different business conditions. You have to adapt and move on,” says Ms. Nair.

Retail gasoline marketing profits have been dropping since 1999, and the sale by Exxon, BP and others suggests that some companies believe there won’t be a rebound anytime soon. Still, selling off so many gas stations could provide a nice payday. The stations can fetch anywhere from $500,000 to $2 million per site, depending on location and size, says Garfield Miller, president of Aegis Energy Advisors, an industry consultant.

Even though gas prices rocketed past an average $4 a gallon nationally this week, gasoline makers and sellers have been hurting. While consumers are paying record prices, the increase for gasoline hasn’t kept up with oil prices, which have risen even faster. Those higher oil prices mean higher costs for refiners, which process the crude into gasoline and diesel fuel.

So far, refiners and retailers have been unable to pass on the full increase in oil prices to customers, in part because gasoline demand is weakening as drivers cut back on driving to save money. Refiners reported low profits and some losses in the first quarter, and the economics haven’t improved much since then.

Some gasoline retailers have begun seeking shelter in bankruptcy court. Uni-Marts, with 283 convenience stores and gas stations in Pennsylvania, New York and Ohio, filed for bankruptcy protection in May, citing financial difficulties aggravated by a weak economy and high oil prices.

Selling retail gas outlets won’t lessen the political heat oil companies are feeling as they report soaring profits on the back of rising oil prices. Their corporate names and logos will remain displayed above the gasoline pumps, attracting the wrath of motorists.

Exxon will continue to be involved in the vast majority of the links in the energy chain. It searches for crude oil, drills wells, pumps crude out of the ground, transports it on tankers to refineries and delivers it in big oil trucks to gas stations. In all of these areas, the company is profitable, generating $40.6 billion in net income last year. And Exxon will remain one of the largest global refiners and a major supplier of gasoline to retailers in the U.S.

The Irving, Texas, company will also lose – at least in the U.S. – what has been a nice countercyclical boost. Marketing profit rises when crude oil prices are low. As a result, when crude prices have fallen in the past, hurting Exxon’s primary profit source, the company has gotten a small bump from marketing profits.

Still, most industry analysts agree that the bulk of future profit will come from finding multimillion-barrel oil deposits, not selling a few gallons of gasoline at a time.

“Exxon gets much more excited about finding oil in the nether regions of the world than seeing it sell under the tiger logo,” says Mr. Kloza.

Write to Russell Gold at russell.gold@wsj.com

http://online.wsj.com/article/SB121331453509969925.html

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