In a $214-million (Canadian) deal that closed January 31, Parkland added the 645-million-liter-per-year volume of Dartmouth, Nova [image-nocss] Scotia-based Bluewave Energy to its own 2.7-billion-liter 2009 volume to take the title of biggest independent fuel distributor in Canada. (Click here for previous CSP Daily News coverage.)
Chorlton said the Bluewave deal adds to Parkland's geographic and product mix without much overlap, although synergies are expected to result in savings of $2 million this year and $5 million in 2011.
Bluewave is primarily involved in bulk fuel and heating fuel deliveries in British Columbia, Alberta, Ontario and the Maritimes. It is the largest branded distributor of Shell products in Canadaa key addition for Parkland, which is the Esso retail branded distributor in Alberta, Saskatchewan and part of British Columbia.
"There are very few places where we're selling to the same people and not many places where we're selling the same products," Chorlton told the newspaper. "Now that we have a base in the Maritimes, we have an opportunity to build the retail business in the East."
Parkland supplies 622 gas stations and convenience stores from British Columbia to Ontario, including about 150 it owns, said the report, with brands including Fas Gas Plus, Fas Gas, Race Trac Fuels and Short Stop Food Stores. It supplies Esso independent dealers at more than 200 locations in Western Canada and Ontario, and in 2008 added Sunoco brand dealers in the Toronto area through the $8.5-million purchase of NOCO Energy Canada. (Click here for previous coverage.)
Parkland also transports fuel and other products through its distribution division. It supplies propane, bulk fuel, heating oil, lubricants, industrial fluids, agricultural inputs and associated services to commercial and industrial customers in Alberta, British Columbia and the Yukon Territory under the Neufeld, United Petroleum, Columbia Fuels and Great Northern Oil brands. Also, Parkland operates the Bowden refinery near Red Deer as a storage and contract processing site.
Michael Ervin, the founder of downstream petroleum consultancy MJ Ervin & Associates, said Parkland may be Canada's largest non-refining distributor, but is small compared with its integrated rivals. Imperial Oil's Esso brand is the largest gasoline retailer in Canada, selling about 7.5 billion liters per year, followed by Petro-Canada (now owned by Suncor Energy) at 6.5 billion and Shell at 5.5 billion.
Wholesale volumes are harder to estimate, but are typically about twice the retailShell's total volume, for instance, is about 15 billion liters per year, he said.
Ervin said there are both opportunities and challenges for Parkland in the East. "The actual rack-to-retail margin has been very stagnant over the past 20 years," he told the paper. "Esso, for example, has really made an exit from markets outside of the major centers. This has been and will be an opportunity for players that can operate on thinner margins, companies like Parkland that don't have the same corporate overhead costs like the big players do."
But overall demand for gasoline is starting to fall in Canada, the report said, as ethanol is mandated by several provinces and consumers turn away from larger vehicles in favor of those with better fuel economy. "There is, if anything, a decline in the number of gasoline stations, not growth. To build a new station, most of the attractive locations are already occupied," said Ervin.
Chorlton agreed with that assessment, noting Parkland regularly closes its stations that do not perform, replacing the revenue by buying existing stations that will add to the bottom line.
Analyst Jason Zandberg of Vancouver's PI Financial Corp., told the Herald that Parkland has "a pretty strong track record of acquisitions and successfully integrating them and adding value for shareholders. So I've got pretty good expectations for this latest acquisition."
He added the market has welcomed Parkland's announcement that it will convert from a trust to a dividend-paying corporation at the end of the year ahead of federal tax changes.
Parkland has a 15-year fuel supply contract signed in 1998 with Petro-Canada that allows it to share in its Edmonton refinery profit margin. That resulted in windfall profits in 2007, when margins were high, but is far less significant now, Chorlton said.
As a retailer, Chorlton might be expected to want more upgrading in the province, but he said the current environment is working well. "We buy from all of the refineries, so we tend to get a very competitive price. As long as there's not a shortage, you don't get hurt."
Chorlton insisted that there is no conspiracy to set retail gasoline prices, despite what some federal politicians have said. He added that although fuels carry lower profit margins per volume than muffins, they still pay the way at Parkland. "The majority of our profits come from fuels, but you need both. The coffee and other convenience store items draw customers in."
With that in mind, Parkland continuously upgrades its stores to keep the customers happy, said the report.
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