Questions Remain on Gulf Branding Deal With PWI

Source of supply uncertain

Carole Donoghue, Petroleum Editor

FRAMINGHAM, Mass. -- The announcement that Gulf Oil LP has signed a branding deal with large Houston-based marketer Petroleum Wholesale Inc. (PWI) has left marketers with more questions than answers.

Under the deal announced Tuesday (see Related Content below for previous coverage), PWI will convert 50 of its existing stations to the Gulf flag and add another 15 Gulf locations annually for the next 10 years.

But what is not clear is whether Framingham, Mass.-based Gulf has arranged for its own supply down in Houston or whether PWI will be pulling product from wherever it can get it.

Gulf has been out touting for jobber business in the Houston area for a year or so. At that time, the company was offering a trademark arrangement only. Under the deal, it would make its brand available to the marketer and process credit-card transactions at his sites if he would pay Gulf a one-cent-per-gallon royalty fee. The marketer had to supply his own gasoline, however.

"They said they couldn't supply the gas, but were working on trying to get an agreement with someone," said one wholesaler. "We decided to pass on it."

Gulf still does not have its own dedicated supply in Houston, according to one insider. Instead, PWI is expected to supply the 50 stations with product that it runs through an old Mobil terminal that it acquired from ExxonMobil in 1993, CSP Daily News sources said. The terminal is on a small pipeline that is fed by a number of refiners.

A deal between Gulf and PWI has been under discussion since ExxonMobil told PWI earlier this year that it would no longer allow PWI to fly its flag, as exclusively reported by CSP Daily News (see Related Content below) in March. ExxonMobil had a 10-year supply agreement with PWI that ended in late 2010 and had been voluntarily extending it. Some 60 stations were affected by the Exxon decision.

ExxonMobil gave no reason for its decision to end its relationship with PWI. The company was the last of ExxonMobil's national accounts, which meant it received special treatment from the refiner.

Since then, PWI has been hunting for a new flag to fly at the stations, and had managed to get some of its ExxonMobil sites approved for rebranding to the Chevron-owned Texaco flag, PWI officials told CSP Daily News at that time. In the past, PWI has sought exclusive deals that would give it the sole right to fly a major's flag in the Houston market, much like the arrangement it had with Exxon. It was turned down by at least one company, ConocoPhillips, sources said.

Whether PWI now has an exclusive on the Houston market with Gulf is not clear.

Officials with Gulf did not respond to questions from CSP Daily News by email or telephone. According to the company's outside PR agency, "Between travel and meetings, they are all incommunicado."

Some marketers were surprised by Gulf's decision to sign up PWI in view of the company's recent problems.

PWI markets in 10 southwestern states. It has had a number of recent run-ins with Texas enforcement officials over its marketing practices that have led to extensive negative publicity. It is currently being sued by the state for allegedly cheating customers on octane. The state claims that PWI's gasoline did not contain promised octane content on more than 1,000 occasions. The company regularly cross-dumped fuel, the state said, dropping more than 500,000 gallons of regular into premium and midgrade tanks. PWI has called the charges "a vindictive prosecution of a responsible and respected family-owned company."

 PWI was previously accused of miscalibrating 985 dispensers in order to shortchange customers but the trial judge threw out a $30 million damages verdict in 2010 when it was discovered that the jury had examined documents that had not been entered into evidence. Prior to that, PWI paid $100,000 to settle a 2009 case brought by the state over the way it disposed of credit card records.

Part of CSP's 2014 Convenience Top 101 retailers