Here Comes the PetroSun

Little-known retailer takes over ConocoPhillips' 600 remaining c-store sites

SEATTLE -- Nearly two years after announcing its plans to exit retailing, ConocoPhillips sealed the deal yesterday with the signing of a definitive agreement to sell its remaining almost 600 retail sites to not one of the major retailers rumored to be interest—Canada's Alimentation Couche-Tard topped the list of those expected to bid on the sites—but rather to an operator little-known outside of the Northwest.

Pacific Convenience & Fuel LLC, a newly formed affiliate of independent petroleum-retail and convenience-store operator PetroSun Fuel, acquired the remaining U.S. [image-nocss] c-store retail assets of ConocoPhillips for an estimated $800 million, as reported in a CSP Daily News Flash yesterday.

The transaction, which is subject to regulatory approvals, effectively signals ConocoPhillips' exit from hands-on retailing in the United States, having sold its remaining U.S. company-owned and company-operated petroleum and convenience-store retail outlets, and its U.S. company-owned and dealer-operated retail outlets.

"This transaction is designed to strengthen our branded wholesale business model and grow market share," said Clayton Reasor, president of U.S. marketing for ConocoPhillips, Houston. "We have worked with PetroSun before and believe that they will continue to enhance our brands and provide excellent service to our retail customers."

Pacific Convenience & Fuel will enter into long-term supply agreements with ConocoPhillips and continue to use the Conoco, Phillips 66 and 76 retail brands at its stations.

"We are excited that this transaction allows us to continue our successful relationship with ConocoPhillips, building on several prior transactions and many years of working together," said Sam Hirbod, chairman and CEO of PetroSun and Pacific Convenience. "This acquisition will give Pacific Convenience & Fuel a geographic footprint throughout 10 states, with annual petroleum sales in excess of 1 billion gallons.

"We have an extraordinary opportunity with this transaction to extend our retail presence to prime sites in downtown Los Angeles, downtown San Francisco and other locations that no one else can easily replicate today. That real estate, combined with our marketing, operational and retail expertise, offers tremendous growth opportunities over the next several years for Pacific Convenience."

As part of the transaction, PetroSun West intends to contribute about 75 of its existing 120 petroleum and convenience stores in Washington and California to the new venture, increasing the gasoline volume PetroSun West will purchase through ConocoPhillips. Hirbod said he believes that was a major factor in ConocoPhillips' selection of PetroSun West's bid.

"We committed 75 of our sites on the West Coast to the brand to show the volumes that we're willing to commit moving forward," he told CSP Daily News. "We analyzed—very granular—the things that are important to ConocoPhillips, and we put a very robust package together and went after it."

Hirbod said "hundreds" of bids were submitted for all or part of the retail sites, which were put out for bid in May, and "dozens" bid on the entire portfolio of stores. "We studied very hard the things that are important to ConocoPhillips, and we made sure that we met all of those needs. I think that's probably where we were different than any other bidder," he said. "So we're very fortunate to be in the spot that we're in today."

After the transaction is completed, Pacific Convenience & Fuel will own, manage or operate more than 600 sites in the western United States. While a majority of the sites will be branded with ConocoPhillips' gasolines, Hirbod said he has yet to choose a brand name for the stores themselves, noting that he's open to partnering on the effort.

"That's very possible," he said. "The store brand still remains to be seen and is in the works. We will be looking at all options."

So how does a company that operates 120 stores—the bulk of them purchased from Time Oil Co. just last year—prepare to multiply that scale by more than five times?

"Well, of that 700 [stores], there's 320 or so that were company-owned and –operated [by ConocoPhillips]; the rest of those are dealer ops, and we will be supplying the dealers," Hirbod said. "Only the company-operated stores will be in our actual network. We have a very robust infrastructure currently, and we anticipated this happening so we were building up as it relates to IT, backoffice, card processing, POS systems, etc., as well as people."

Regarding people, Hirbod said he does expect some management from ConocoPhillips to join Pacific Convenience & Fuel, although he couldn't offer any names yet.

One ConocoPhillips employee said yesterday's announcement was not a surprise, since it was well-known that the stores were eventually going to be sold. He did, however, confess to having little knowledge about PetroSun West.

"From all indications, my management is very happy with the selection and are looking forward to Pacific Convenience and Fuel to become a valuable business partner for our branded fuels as we go forward," said the employee, who requested anonymity. "My understanding is that we have a solid supply agreement for both the company-operated sites and the dealer network that are part of the sale. The buyer is purported to be financially solid and well-positioned to run a first-class convenience chain."

And while Hirbod said the first order of business will be integrating the new stores into PetroSun West's systems, he's ready to grow some more with the next 12 months.

"We've got two portfolios in our pipeline right now that we're looking to bring on in 2009 to the tune of about 150 new units on the West Coast," he said. "In the meantime, we need to align ourselves with the right partner for the c-store and then focus on a culture that represent performance and brings an added value to the brand."

Hirbod brings more than 10 years of industry experience to the venture, having operated and managed branded and unbranded petroleum retail and convenience stores throughout northern California and Washington.

David Delrahim, a co-founder of PetroSun, has actively owned and operated gas stations, convenience stores and car washes throughout Southern California for over 25 years. "I look forward to continuing my passion of developing these brands across the West Coast after we complete this transaction," Delrahim said.

Related to the ConocoPhillips deal, Tower Energy Group, the nation's largest independent petroleum wholesaler, has also entered into an arrangement with Pacific Convenience & Fuel to supply fuel to dealer sites in California.

"This transaction further strengthens our already strong relationship with ConocoPhillips and PetroSun, and we look forward to working closely together as we move forward," said Tim Rogers, chairman and CEO of Tower Energy.

Rodman & Renshaw has acted as financial advisor for PetroSun and its affiliates, and Goodwin Procter LLP has acted as legal counsel.

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