How are Fuel Retailers in the Oil Patch?
By Samantha Oller on Aug. 05, 2016CHICAGO -- “It doesn’t appear to be getting any better but it doesn’t appear to be getting any worse.”
That was the consensus from Sunoco LP CEO Bob Owens in the company’s latest earnings call on conditions in Texas’ Permian and Eagle Ford Basins, where about 10% of the company’s retail locations reside.
As the price of crude continues to toy with the $40 mark, fuel retailers in oil patch regions continue to deal with poor business conditions. Oil experts suggest that oil needs to stay consistently above $50 per barrel for rigs to go back online and, ultimately, jobs and business conditions to pick up in these markets.
But leaders at many of the publically traded operators sound cautiously optimistic, despite a lingering oil and gasoline supply overhang that has weighed on crude. Here are some of the latest reports from the government and retailers on the state of the oil patch.
According to a study by the Federal Reserve Bank of Kansas City, shutting down one active rig eliminates 28 jobs in the first month of nonoperation, 82 jobs after the first six months and 171 jobs long term.
The latest figures from the Energy Information Administration and Baker Hughes show that the total rig count has fallen from almost 1,800 in fall 2014 to just above 400 rigs as of May 2016. Meanwhile, oil and natural gas production employment has dropped 26% in that time period—or more than 142,000 jobs.
Sunoco LP, Newtown Square, Pa., has approximately 140 Stripes sites in the Permian and Eagle Ford regions of Texas. In its second-quarter 2016 earnings report, the company announced that its same-store gallons fell 2.8% and same-store merchandise sales dropped 1.8%, which Owens tied specifically to the poor Texas oil-patch conditions.
In fact, take out the oil-patch sites, and same-store fuel gallons were off just 1%, while merchandise sales were down less than 1%. To counter the downward drag, Sunoco has been diversifying through acquisitions and growth in other markets, including Hawaii with its Aloha Petroleum buy.
“Unfortunately in the oil patch, we have had not only the impact of reduced sales but a competitive environment where people have been reluctant to raise prices as we’re all kind of fighting over a smaller pie than we used to,” said Owens. “So as a consequence, what I would point you to is again the benefits of diversification.”
Alon Brands’ more than 300 sites include many in the Permian Basin, where fuel sales have fallen off by double-digit percentages in second-quarter 2016. This helped pull the Dallas-based refiner/marketer’s overall same-store fuel sales volume down 9.6% compared to second-quarter 2015. Merchandise sales at Permian Basin sites fell 12%, compared to a 2% increase at Alon’s other stores. Two markets near the oil patch—Lubbock and Abilene, Texas—also have suffered declines.
“It’s really all about the Permian,” said Paul Eisman, president and CEO of parent company Alon USA, during the company’s second-quarter 2016 earnings call. While citing deteriorating business conditions in the first and second quarters, Eisman did strike a somewhat optimistic note, however, about the longer-term outlook for the region.
“I don’t know if we have seen the bottom at this point, but they are starting to increase rigs,” said Eisman. “I know that’s somewhat in doubt with the reduction in crude prices that we have seen over the last week or so, but it appears it’s at least trending towards stabilization.”
Kyle McKeen, president and CEO of Alon Brands, agreed. “We are not calling the bottom,” he said during the call, “but we are cautiously optimistic in what we are seeing today out in the Permian.”
CST Brands, San Antonio, which has one-half of its stores in Texas, is seeing “some softness” in conditions at Corner Store locations in the Eagle Ford Shale, although executives say they are performing better than some competitors.
“We’re able to pivot our promotions around and really target areas that we’re seeing a little bit of softness to try to improve the number of customers coming in those doors,” said president, CEO and chairman Kim Lubel during the company’s second-quarter 2016 earnings call.
Remove CST’s sites in the Houston and Eagle Ford areas and the company is seeing “low single-digit” same-store revenue growth, and same-store gross-profit growth of 2.4%.