Energy firms shed ‘retail’ trade to focus on oil and gas business

Bloomberg

After years of building networks of gas stations that sell drinks, snacks and other impulse buys, US energy companies are unloading them to focus on their main business. Sunoco LP became the latest to pull back, and was rewarded with the biggest gain for its shares in almost three years. The Houston-based company agreed to sell about 1,100 of its stations to Seven & i Holdings Co., owner of the 7-Eleven convenience store chain, for $3.3 billion.
The sale is emblematic of a broader recent shift, about a decade after the major US oil producers sold off most of their retail businesses, as smaller companies forgo a segment that increasingly requires retail expertise. Marathon Petroleum Corp., pressured by an activist investor, is considering the spin off of more than 2,700 gasoline stations. Hess Corp. and Valero Energy Corp. sold off theirs in the past four years.
Energy companies are sticking to their main business of producing, transporting and refining oil and gas, said Brian Kessens, a managing director and portfolio manager at Tortoise Capital Advisors LLC. Most station operators make more money off the snacks than the gasoline. “As an oil company, that’s not really the business you want to be in,” Kessens said.
Convenience stores sell about 80 percent of fuels purchased in the US, according to NACS, the industry group formerly known as the National Association of Convenience Stores. While people associate energy producers like Exxon Mobil Corp. and Chevron Corp. with the stations that bear their names, most of those are franchises. Oil majors owned less than 1 percent of US gasoline stations as of June 2016, according to NACS.

‘BURNT RUBBER’
Sunoco’s retail efforts included creating its own taco restaurants for some
of the stores and, in a tongue-in-cheek nod to its role as Nascar’s official
fuel, releasing a cologne called Burnt Rubbér (tag line “The Essence of Racing”). The company said it plans to find a buyer for 200 more stores and fuel outlets by the summer, keeping a few stations in Hawaii.
Sale of the stations is “pivotal” to Sunoco becoming “a premier nationwide fuel supplier with a lean, concentrated and simplified business model,” Chief Executive Officer Robert Owens said in a conference call Thursday. “We’ll look to continue to grow our existing wholesale channels.”
Investors rewarded the deal as shares rose as much as 4.4 percent to $29.95 on Friday. Sunoco was also upgraded to an overweight rating with a price target of $35, up from $26, by Barclays Plc analyst Richard Gross.

SPEEDWAY SPINOFF?
The deal may bode well for Marathon, which is weighing a spinoff of its Speedway business, Brad Heffern, an analyst at RBC Capital Markets LLC, said in a research note. Marathon, with a push from billionaire Paul Singer’s Elliott Management Corp. hedge fund, formed a special committee to review Speedway and is expected to provide an update by midyear. The Sunoco deal implies a valuation of $9.6 billion to $11.3 billion for Speedway, Heffern said.
Marathon had bulked up the Speedway unit in 2014, adding about 1,200 stations that were sold by former rival Hess — another energy company that shed assets to please Elliott. Valero, an independent refiner, spun off its retail business CST Brands Inc. in 2013. Exxon announced in 2008 it would sell most of its gasoline stations in the US, citing tight margins.