Implications of ExxonMobil Dumping Gas Stations (XOM, COP, CVX, VLO)

Reuters is reporting that ExxonMobil Corp. (NYSE:XOM) plans to sell the 1,400 retail outlets it owns and the 820 it operates over the next several years. The company doesn’t want to fool around any more with this low-margin business. One analyst quoted in the Reuters story estimated that Exxon’s profit margin from retail was 10%-15%, about a third of the company’s margin from its production business.

In December 2006, ConocoPhillips (NYSE:COP) announced that it planned to divest 830 retail outlets it owned and operated. Since 2003, Chevron Corp. (NYSE:CVX) has sold about 3,300 retail outlets, mostly in Europe and Asia. The company still controls more than 15,000 outlets outside the US. Chevron owns/operates about 550 gas stations in the US.  Interestingly enough, this also comes at a time where Valero Energy Corp. (NYSE: VLO) has been acquiring more units and increasing its retail gas station footprint.

The point is that Exxon’s announcement isn’t particularly big news and will have virtually no impact on the company’s continuing operations or cash flow. In fact, as Big Oil dumps retail operations, the companies further position themselves to put the squeeze on the hapless station owners because the oil companies do retain their wholesale distribution business. The wholesalers’ interest in keeping gasoline prices affordable for consumers doesn’t exist. That’s no longer their problem.

And remember, retail sales of gasoline continue to fall as consumers drive less and hybrid and other technologies begin to gain traction in the market. The major oil companies want little part of the pressure that exists where the rubber meets the road.

Paul Ausick
June 13, 2008