HOUSTON -- CITGO's pullout from 10 states and the scheduled debranding of 1,800 stations over the next year is raising concerns about the oil company's long-term stake in the United States. According to Thursday's CSP Daily News poll, two-thirds of thenearly 250respondents, when asked about CITGO's U.S. future, thought the brand was shrinking in value and would only grow through new leadership (see poll results, below).
Indeed, with the planned 14% reduction in branded locationsincluding that of its largest retailers, 7-Eleven, which is piloting a private-label [image-nocss] gasolineCITGO officials acknowledged in an interview with CSP Daily News Thursday that the company faces several obstacles to recapture the stellar reputation it enjoyed a few years ago. At the same time, it's this very divestment that company officials believe will reinvigorate CITGO's stake in the United States.
True, CITGO will be smaller, its portfolio eventually downsized to 9,200 sites and its refining capacity curbed with the planned sale of the 270,000-barrel-per-day Lyondell-CITGO refinery it operates with the Lyondell Chemical Co. in Houston.
But by pulling out of states nourished by third-party product acquired by CITGO, the company believes it will improve total performance as a supplier partner in the remaining core markets, notably the South, Northeast, Mid-Atlantic and the city of Chicago, company executives said.
Putting all these plans in place is a real challenge, said Bill Hatch, CITGO's vice president of supply and marketing. We're going to make it worth their while to fly the CITGO flagto restore the pride and pizzazz.
What has also made CITGO unique in the industry is it is 100% jobber distributed. CITGO owns no gas stations or convenience stores nor does it handle its own distribution an approach that has long made it the darling of fuel jobbers.
That reputation has been tarnished as CITGOa Venezuelan-controlled oil concern with U.S. headquarters in Houstonhas taken a beating from the perceived growing hand of Hugo Chevez, Venezuela's anti-America president.
Acknowledging setbacks in public perception, Alan Flagg, CITGO's general manager of light fuels, said he hopes the scaleback in markets will enable CITGO to better focus on its core markets. They are our core customer, our core distribution, he said, adding that he believes CITGO remains the best-in-class supplier to jobbers.
What has left some analysts and observers puzzled is CITGO's decision to halt third-party purchases to supplement its own refining capacity. Such a decision not only forces a deep drawdown on its retail network, but also comes at a time of high refining margins. Last year, for example, ExxonMobil bought half the volume it sold on a daily basisa move that yielded historic profits.
That's a very good question, Hatch said, who then elaborated that last fall's harsh hurricane season and increasing volatility was becoming increasingly difficult for CITGO to cope with from a cost management perspective.
He explained that buying on the daily Platt's prices and reselling on the rack has become noticeably more expensive and that the amount of barrels purchased daily would bubble up from 130,000 barrels to 250,000 once the Lyondell-CITGO refinery is sold.
In the end, said Hatch, supply has to equal demand. We saw the [third-party imports] becoming a trouble spot in the U.S.
Now the challenge is for CITGO to make good on its word to be a top-flight supplier for a diminished retail pool.
Kraft/CSP Daily News Poll (Thursday, July 13, 2006)
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