Shell Dismantles MSOs

Oil company selling off all retail sites in favor of wholesaler joint ventures

HOUSTON -- Two years after launching a strategy that would put many of its retail sites in wholesalers' hands, Shell Oil Products U.S. is now expanding the policy and will sell off all its retail holdings by 2010.

We are continuing the strategy we launched two years ago to grow through the wholesale class of trade, including wholesaler JVs [joint ventures], Shell spokesperson Anne Peebles told CSP Daily News. We are going to be transitioning more markets from direct-supplied to wholesale- or wholesale/JV-supplied.

Stressing [image-nocss] that the vast majority of these stations will remain Shell-branded, Peebles said the market transition, which involves dissolving its multisite-operator (MSO) partnerships, is a matter of portfolio optimization for the Houston-based Big Oil company.

We're continuing with our strategy because our wholesale-focused strategy and U.S.-portfolio optimization work are delivering results that exceed expectations, she said via e-mail. Our larger joint ventures have proven to be successful and our wholesalers are performing very well. As a result, we have a number of wholesalersboth existing and newwho want to grow with Shell.

In 2005 and 2006, Shell transitioned its direct markets in Cincinnati; Columbus, Ohio; Denver; and Indianapolis. At the same time, brand partner Motiva transitioned Atlanta; Austin, Texas; Baton Rouge, La.; Birmingham, Ala.; Orlando, Tampa and Southwest Florida; Memphis, Tenn.; and some individual sites in Connecticut. This year, the company completed the transition of its sites in Southern California to Tesoro as part of the sale of its refining and terminal assets. It also transitioned direct markets in Kansas City and Hartford/New Haven.

What's new [is] the additions to the list of markets for transition, Peebles said. Markets added to our existing transition/sale list include Chicago, Boston, New York, Southeast Florida, Seattle, San Francisco, Washington, D.C., and the remaining sites in Los Angeles.

Those transitions will take place between now and end of 2009.

The new joint-venture model allows Shell and Motiva the opportunity to participate in the market/site income streams with a more efficient operating structure, according to Peebles. These relationships allow Shell and Motiva to mitigate risk while continuing to influence long-term branding decisions, capital structure, growth, dividend streams and real-estate presence.

Additionally, Peebles said, the entrepreneurial culture of a joint venture fosters growth, facilitates swift decision-making and enables quick execution of projects.

Strategic advantages, according to the company, include:

Participation in a broader set of income streams than just the wholesale fuel margin (direct fuel margin, convenience retailing and real estate).

Greater certainty around future supply commitment.

Additional options to transition sites to other classes of trade in the event of dissolution of the joint venture.

Shell/Motiva is an equity owner in the joint ventures. This means that although Shell/Motiva does not control the JV (i.e., members share joint control), Shell has significant influence over the JV's activities. This influence is exerted through Shell's participation on the JV board. Examples of this influence include setting strategy, monitoring performance, approving JV budgets and approving resource allocation.

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