Conoco (COP) Exits Gas Station Business: A Lost Opportunity

Conoco (COP) is selling its gas stations, following Exxon (XOM) out the exit door. Perhaps there is a greater fool; a company that thinks it can make money on a business that Conoco believes is dying.

According to The Wall Street Journal, “ConocoPhillips is expected to sell the remainder of its 600 company-owned gasoline stations to closely held PetroSun West LLC for $800 million.”

Refining and selling gas and diesel has become the ugly end of the oil business. Crude comes off the ships and through the pipes at $120 a barrel. The refined products are so expensive that consumers and businesses cannot afford them. Gas at $4 may seem high, but it is not profitable for Big Oil.

The answer to the problem is to pawn off the gas station business to the buffoons who think they can still make money.

Conoco is probably making falling prey to an error in judgment. If oil continues to come down and gas prices deflate, the profitability of the old line service station will probably return to what it was three or four years ago. The business runs in a cycle, but in the best years it throws off mighty profits.

Conoco may reason that owning stations is simply too tiny a business to be worthwhile. Under the sales agreement its brand name will still be on the front door, it will lose control over the level of service at those retail outlets. That, in essence, is what drives its reputation with customers. Giving it up for a modest amount of money is a mistake.

Douglas A. McIntyre