O&A Masthead

December 1999 Issue Highlights

For more complete coverage, send us an e-mail to
request a back issue.

Exxon Mobil Merge, Must Sell Some California Assets
Frontier Oil Buys Equiva Refinery
California Stations Must Offer Free Air, Water
Chevron Shutting Down Hawaii Dealer
Foodini's C-store to be Phased Out


IRVING, TX. — Amid speculation about the effects on petroleum marketing in the West, Exxon Corporation and Mobil Corporation have combined into a new company: ExxonMobil. This deal combines the two largest oil companies in the United States; ExxonMobil is expected to have a 13% share of the United States market.

The major oils received approval for Exxon to purchase Mobil in December from the Federal Trade Commission (FTC), the final hurdle left for the two companies to merge into one mega-oil company. The deal was valued at $81.4 billion.

Exxon and Mobil had announced that they were looking to merge their companies at the beginning of the year and have been working to get government approval for the deal for the last 11 months. Both companies will have to divest assets, but the vast majority of the changes will occur outside the 13 western states.

In the West, Exxon must sell its refinery in Benicia, CA. There has been great speculation over the last few months as to who might buy the Benicia refinery; most major oils marketing in the West already operate a refinery in the Bay Area. It is believed that this may be an opportunity for a new company to enter the California and western marketplace. Exxon must also withdraw from retail fuels marketing in four areas of Northern California: Oakland, San Francisco, San Jose and Santa Rosa. This means Exxon must sell its company-operated service stations in these four markets and find new suppliers for its contracted dealers and distributors. Dealers will have the option of retaining the Mobil or Exxon brand for up to 10 years, but their supply must come from another source. ExxonMobil Corporation will have nine months to satisfy most of the FTC’s conditions everywhere except California, where it will have twelve months to sell the Benicia Refinery and the California marketing assets. "We remain committed to our customers, dealers and distributors in the U.S.," said Exxon Chairman Lee Raymond. "We are pleased that ExxonMobil may allow those who acquire our service stations and supply relationships in most of the areas affected by the FTC ruling the opportunity to retain the existing Exxon or Mobil brands for at least 10 years or longer, thereby benefiting consumers, dealers and distributors."

Raymond added that the Exxon and Mobil brands "will remain, even in those areas where we are required to sell service stations or assign contracts." Exxon’s and Mobil’s refining business in the Rocky Mountain territory and their service stations in that area and the Southwest are not affected by the FTC’s consent order.

In addition to selling assets, ExxonMobil is reportedly planning staff cuts to eliminate redundancies from the combined companies. Approximately 9,000 jobs are expected to be eliminated due to the merger, approximately 7% of the combined company’s staff.

ExxonMobil’s assets in the East are primarily affected by the FTC’s terms. Exxon must sell both its company-operated and dealer service stations in the territory of New York to Maine and re-assign its contracts with all dealers and distributors in those areas to a new supplier. Mobil must take the same action for its service stations from New Jersey through Virginia as well as 10 stations in the Dallas/Fort Worth area. It must also reassign a supplier for distributors in five areas in Texas: Dallas, Austin, San Antonio, Houston and Bryan-College Station.

Mobil must sell its East Boston, MA., and Manassas, VA., terminals and its interest in TETCO, a Texas motor fuel distributor. It must also amend its base oil contract with Valero in New Jersey. Exxon must divest its interest in 12 service stations and a product terminal in Guam. The oil company must also divest its worldwide jet turbine lubricating oil business.

ExxonMobil Corporation also must sell either Exxon’s 48.8 percent interest in the Plantation pipeline or Mobil’s 11.49 percent interest in the Colonial pipeline, and Mobil's 3.08 percent interest in the Trans-Alaska Pipeline System (TAPS).

Outside of the United States, ExxonMobil has been forced to divest a number of its assets as well, including 30% of their gasoline marketing assets in the European community and dissolving a lubricants marketing partnership with BPAmoco.

Exxon’s Raymond said, "The FTC’s decision, coupled with the European Commission’s approval gained earlier, cleared the way for the merger to proceed. Exxon and Mobil moved quickly to close the transaction and to launch the world's premier petroleum and petrochemical company. The merger will allow ExxonMobil to compete more effectively with the recently combined multinational oil companies and the large state-owned oil companies that are rapidly expanding outside their home areas," Raymond added.

"We regret the uncertainties these divestments may cause to customers and employees. We are convinced, however, that the incentives for this merger remain strong," Raymond said. "We have known for some time that the regulatory approval process would take a good part of this calendar year. We used this time as best we could to prepare for the actual integration of the two companies. We are ready to move ahead quickly. We are confident and determined to make ExxonMobil Corporation a reality that will quickly bring significant benefits to its customers, its employees and its shareholders." As part of the announcement of the merger, Exxon Mobil Corporation launched a global advertising campaign. According to the company, "The campaign communicates ExxonMobil's readiness to take its place as an industry leader in almost every aspect of the worldwide petroleum and petrochemicals business. "

"While this advertising campaign emphasizes more than 200 years of ExxonMobil experience," said Ken Cohen, vice president of ExxonMobil Public Affairs, "we also want our customers, shareholders, business partners and host governments to know that we’re ready to begin a new era that capitalizes on the combined talents and assets which make this a vital new company."


CHEYENNE, WY. — Frontier Oil Company, based here, has agreed to buy Equilon’s El Dorado Refinery in Kansas for $170 million.

Located just outside of El Dorado and approximately 21 miles northeast of Wichita, the refinery has a crude oil processing capacity of 110,000 barrels per day. Approximately 400 people work at the site.

As part of the deal, Frontier has agreed to supply Equiva Trading Company with gasoline, diesel and jet fuel from the refinery at market prices. A crude oil supply agreement was also part of the transaction.

The output is expected to supply Frontier Oil Company’s existing customer base in the Rocky Mountain area and the Midwest as well as Equilon’s customers in the territory.

Equilon had announced in June that they were looking to sell the refinery.


SACRAMENTO, CA. — Despite official word from lawmakers that they will be phasing in the requirement for all gasoline stations in California to offer free air and water, enforcement of the law began immediately in the state. Under the terms of AB 531 (Soto), signed into law in California in December, all gasoline stations in the state must provide free air and water, effective as of January 1, 2000.

California’s Division of Measurement Standards (DMS) reportedly convinced lawmakers that their timetable was impossible to meet. DMS officials met with Soto, the author of the bill, to explain that there was no way every station in the state could convert their equipment to allow free access by January 1. In addition, the hundreds of stations that did not offer air or water would not be able to add the equipment in less than a month.

Although industry leaders and associations had been making the same arguments for many months, Soto understood the DMS’ arguments and agreed to a phase-in of the law.

In addition, to converting and installing new equipment, the new law requires that all stations post a sign advising customers of the law and listing a toll-free number to report to the DMS if that station is not offering free air and water.

The DMS officials reportedly told Soto that the signs could not be produced, shipped, and installed by January 1, 2000 since the agency had only obtained the toll-free number to print on the signs on December 13. In response to these problems, the DMS says they will phase-in their enforcement of the new law. However, service station owners say this is not the case.

Inspectors reportedly were handing out violation notices as of January 3, the first work day for government employees following enactment of the law.

In Los Angeles County, in fact, several of the inspectors were handing out tickets based on an inaccurate reading of the law. The inspectors were claiming that air and water had to be free to anyone arriving at the station — which is untrue. Air and water must be free to customers. However, the station owners who were offering free air and water to customers only were receiving tickets saying they were in violation.

Sue Claypoole of Mass Air reports that as of February, "everybody we have is set up to give air and water free to gas customers. They all gave free and water with tokens as of Jan. 1, but the signs just weren’t available to install. Probably 80% of our stations are in complete compliance — we just haven’t been able to get out to everyone to put up the signs yet."

Claypoole and Mass Air were part of a legal action to have an injunction placed against the law at the end of December which was denied by the court. The presiding judge ruled that service stations should simply raise the cost of gasoline to the public to cover the cost of the free air and gasoline. "It’s an air/water hoax," said Claypoole, "that fools the public into thinking they’re getting something for nothing." She cited the example of the toll-free number, mandated to be posted on every station by the state if the air or water equipment is not working.

"When you call the number, you reach a recording that asks you to leave your name, address, and phone number and they will send you a complaint form and it will come in 7-10 days.

"We called and got one of those forms," she continued, "and it came. When you get the form, you have to fill it out — and you have to spend 33 cents to mail it. You have to fill out a form and spend 33 cents — 34 cents next year — to complain that you had to spend a damn quarter." The majority of service station owners who already had air and water equipment are coming into compliance by offering free tokens to their customers. However, many stations did not have the equipment installed and are having difficulties getting the equipment and contractors to do the work because of the demand.

There are also reports of increased vandalism of the air and water equipment at service stations. As one dealer explained, "anything for free will be vandalized. That’s just the way it is."

The air/water companies are continuing to fight the law in court, seeking a Trial by Declaration. Unlike their earlier action, this process will allow them to bring facts before the judge in written form and making an argument about the legality and impact of the legislation.


KAKAAKO, OAHU, HI. — Chevron has come under fire for trying to shut down one of its best dealers in the Hawaiian islands.

Frank Young, the dealer at K&Y Chevron on South Street here, has increased his gasoline sales by 92% for the first nine months of the year, making him the front-runner in a state-wide promotion.

At the same time, Chevron has filed suit against Young, claiming that he has ignored the terms of his lease by not operating during specified hours. The major oil company is looking for unspecified damages and a court order to have Young vacate the station by mid-January 2000. Chevron owns the service station and property but it has been operated by the Young family since 1953 when Jimmy Young, Frank’s father, took over as dealer at the site.

Chevron had issued four warnings against Young prior to the lawsuit, claiming that he was violating his lease agreement because the station was closed when it should have been open. Young’s lease requires the service station to be open from 6:00 a.m. to 10:00 p.m. Monday through Friday and from 7:00 a.m. to 10:00 p.m. on weekends and holidays.

Young’s supporters look to his huge increase in sales at the station and argue that he understands his customer base and is running the business effectively.

The situation is more controversial than a lease disagreement, however, because Young has been a vocal opponent of Chevron’s pricing policies in Hawaii. Several fellow dealers believe that Chevron has pursued Young in an effort to get him out of the business.

"You know they’re after him," Birch Akina, a retired Chevron retail representative told local reporters. "There’s no question this is retaliation."

Brant Fish, Chevron marketing manager in Hawaii, denied the allegations, claiming that Young is being removed from his station because of the lease violations. He acknowledges that the dealer has done a good job at the station but he could have been even more successful if he had kept the station open for the prescribed hours.

"That’s just what retailing is all about," said Fish, "being there when the customer needs you." He added that Young "just put us in a situation where we had no choice."


SAN RAMON, CA. — A year and a half after launching its new prototype for convenience stores, Chevron has announced it will not expand Foodini's Fresh Meal Markets.

"Foodini’s has received good reviews for the innovative concept, quality of food, atmosphere of the stores and guest service," said John Cooper, general manager of Foodini’s.

"However, we've found that this retailing concept needs a significantly higher scale — and therefore investment — to support the business for the long term."

Chevron will "reformat" the three Foodini’s c-stores currently operating — in San Ramon and Modesto, California and Phoenix, Arizona — into its traditional Food Mart image.

Foodini’s had opened in August 1998 with great fanfare for the innovative look and offerings it made available to customers. The Foodini’s c-stores had an upscale appearance with elements like tile floors, wooden display cases, and muted colors for its paint and graphics. The interiors of the stores were dedicated to food offerings including a full-service counter, a soup and salad bar, a fresh bakery, coffee bar, and a "Grab N Go" section for pre-packaged meals. Chevron officials targeted the upscale c-store to consumers who were "out of ideas and short on time," and reinforced it with their motto "Escape From Cooking." Because the stores were looking to attract upscale customers, prices were often higher than found at traditional convenience stores. Many traditional offerings were absent from the stores as Foodini’s used their square footage to offer items like wine, microbrews, and fresh bread. Chevron officials said they were looking to duplicate the margins available from restaurants which are substantially higher than those found in gasoline stations.

"We will look at several options, including continuing the Foodini’s brand," added Cooper, "but rather than expanding the store base, we believe it’s a better use of Chevron resources to finance other growth opportunities." The company did not disclose how much it has invested in the home-meal replacement concept or how many employees would be affected by the ending of the prototype phase.

Originally published in the December 1999 issue of O&A Marketing News.
Copyright 1999 by KAL Publications Inc.

Serving the 13 Western States, the World's Largest Gasoline, Oil, Fuel, TBA and Automotive Service Market