More closures likely as petrol margin slumps

By CHRIS DANIELS

Oil companies are losing big money in New Zealand and more station closures are inevitable if margins stay low, says a senior Caltex executive.

Marketing general manager Mike McMenamin said New Zealand was overpumped, with too many service stations pumping low volumes of petrol.

"There is very little margin in the business. That drives a lot of these sites over the edge."

His comments were backed by BP managing director Peter Griffiths, who said that the viability of many small stations would be threatened once any substantial new investment was needed.

An insight into the tough life of a petrol retailer was given this week when Shell announced that up to 50 of its petrol stations would close over the next five years.

Shell has not said which of its sites it wants to close, but its retail operations manager, Steve Foster, said many of the sites were owned or head-leased by Shell, and those closing would not necessarily be small service stations.

Some of the big stations were sitting on expensive property and were not returning enough when alternative use of the site was considered.

Shell also revealed that petrol retailers' margins had been falling by about 2.5c a litre since 1996. But the stations had still managed to contribute $62.4 million to a Shell group after-tax profit of $178.3 million.

Mr McMenamin said the drop in margins shown by Shell was a characteristic of a mature market.

"We lost $40 million in the year to June, before interest and tax. So it's a shocking year again. And that's going to look similar to Mobil and BP."

Mr McMenamin said the market had stopped growing and become highly competitive.

"We are fighting to keep our market shares and keep customers going through our locations. It happens everywhere in the world when the markets mature. We've seen it in Europe and the United States ...

"We've had a very difficult couple of years business-wise. Other companies have lost money - Shell hasn't, it appears.

"If you go to the companies office, you will see that BP, Mobil and Caltex all lost money last year. It's a very difficult business to be in."

Margins were critical, said Mr McMenamin. "If the margin in our business isn't there, then a lot of sites that are viable on better margins wouldn't be viable. It all depends on your assumption about margins."

Mr Griffiths said the company had invested just under $40 million on its stations this year.

The investment was aimed at making them more profitable by selling items other than petrol - such as groceries and food.

Of the 405 BP stations in New Zealand, about 100 were owned by the oil company. The rest were owner-operated.

He agreed that New Zealand had more petrol stations than it needed. BP was trying to improve turnover at the sites it already had, not necessarily by selling more petrol.

"Things are very hard. That's why we are busy investing in other activities where there is business to be done.

"I think that will continue."

The trend will be for fewer, bigger petrol stations, particularly in metropolitan areas, said Mr Griffiths, but this might not hold true for smaller towns.

He said a station that sold 1 million litres of fuel a year - and plenty sold less - would make $40,000 to $50,000 a year, before wages or costs were taken into account.

Unless the station was making money selling goods other than petrol, it was barely economical. Such a station could go to the wall when a major investment was needed, such as a new tank that could cost upwards of $100,000.

Mr McMenamin said the average throughput of a New Zealand Caltex station was probably less that 200,000 litres a month.

In the United States, a viable site was one that pumped at least 500,000 litres a month.