After years of building networks of gas stations that sell drinks, snacks and other impulse buys, U.S. energy companies are unloading them to focus on their main business.
On Thursday, Sunoco LP became the latest to pull back and was rewarded with the biggest gain for its shares in almost three years. The Houston-based company agreed to sell about 1,100 of its stations to Seven & i Holdings Co., owner of the 7-Eleven convenience store chain, for $3.3 billion.
The sale is emblematic of a broader recent shift, about a decade after the major U.S. oil producers sold off most of their retail businesses, as smaller companies forgo a segment that increasingly requires retail expertise. Marathon Petroleum Corp., pressured by an activist investor, is considering the spinoff of more than 2,700 gasoline stations. Hess Corp. and Valero Energy Corp. sold off theirs in the past four years, as did El Dorado-based Murphy Oil Corp., creating a new retail gas station company, Murphy USA.
Energy companies are sticking to their main business of producing, transporting and refining oil and gas, said Brian Kessens, a managing director and portfolio manager at Tortoise Capital Advisors LLC.
Most station operators make more money off the snacks than the gasoline.
"As an oil company, that's not really the business you want to be in," Kessens said.
Convenience stores sell about 80 percent of fuels purchased in the U.S., according to NACS, the industry group formerly known as the National Association of Convenience Stores. While people associate energy producers such as Exxon Mobil Corp. and Chevron Corp. with the stations that bear their names, most of those are franchises. Oil giants owned less than 1 percent of U.S. gasoline stations as of June 2016, according to NACS.
Sunoco's retail efforts included creating its own taco restaurants for some of the stores and, in a tongue-in-cheek nod to its role as Nascar's official fuel, releasing a cologne called Burnt Rubber (tag line "The Essence of Racing"). The company said Thursday that it plans to find a buyer for 200 more stores and fuel outlets by the summer, keeping a few stations in Hawaii.
Sale of the stations is "pivotal" to Sunoco becoming "a premier nationwide fuel supplier with a lean, concentrated and simplified business model," Chief Executive Officer Robert Owens said in a conference call Thursday. "We'll look to continue to grow our existing wholesale channels."
After the deal, investors on Friday pushed the shares up 71 cents, or 2.5 percent, to close at $29.40. Sunoco was also upgraded to an overweight rating with a price target of $35, up from $26, by Barclays PLC analyst Richard Gross.
The deal may bode well for Marathon, which is weighing a spinoff of its Speedway business, Brad Heffern, an analyst at RBC Capital Markets LLC, said in a research note. Marathon, with a push from Paul Singer's Elliott Management Corp. hedge fund, formed a special committee to review Speedway and is expected to provide an update by midyear. The Sunoco deal implies a valuation of $9.6 billion to $11.3 billion for Speedway, Heffern said.
Marathon had bulked up the Speedway unit in 2014, adding about 1,200 stations that were sold by former rival Hess -- another energy company that shed assets to please Elliott. Valero, an independent refiner, spun off its retail business CST Brands Inc. in 2013. Exxon announced in 2008 it would sell most of its gasoline stations in the U.S., citing tight margins.
For Sunoco, investors were looking for the company to reduce debt. S&P Global downgraded the company to BB- from BB in January, citing weaker-than-expected credit measures and questions about its ability to "meaningfully reduce financial leverage." The company, controlled by a general partner owned by Energy Transfer Equity LP, pays out quarterly distributions as a master-limited partnership. Sunoco said a cut in distributions is not on the table after Thursday's deal.
This sale, which will partly fund paying down debt, "cleans up the balance sheet," said Michael Kay, an analyst at Bloomberg Intelligence.
It also allows the company to chase transactions to become a national fuel wholesaler. Proceeds from the sale may be used to fund purchases of fuel and so-called midstream businesses, which are involved in processing and transporting crude and fuels, the company said.
"The 'retail experiment' was highly flawed" because the leverage "was simply too burdensome to overcome," Christopher Sighinolfi, an analyst at Jefferies LLC, said in a research note.
Business on 04/08/2017