Debate on BP Plans

February/03/2011 16:46PM
2 interesting comments, join the discussion
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Here’s a comment from a reader about the BP announcement that they will divest of some US assets. He is responding to my recent blog.

Chris Johnson says:
February 2, 2011 at 7:40 pm (Edit)
Wow. Such a crystal ball you have! It must be a smoky one!

First, if BP wants to hit the road, let ‘em. As you yourself said, “BP brought this on themselves with their shoddy safety operations”.

But nobody has run BP out of the country! BP is maintaining the ARCO brand in several US markets, they are investing in their remaining plants in IN and WA and the 1/2 interest in the OH plant. They are maintaining the am/pm brand throughout the country. If BP stations are run by local franchisees, that is a pretty popular business model providing ownership opportunities for local entrepreneurs all over the country.

I love how you have already concluded, on the same day that BP announces that they plan to sell them, that the assets that BP wishes to sell will be purchased by “a company with shallow pockets” who will “milk them until they close them”. Has your blogging given you access to BP’s boardroom? Is that how you can so confidently claim that BP will soon “drop the other shoe”?

You are certainly “Mr. Glass Half Empty” today!

I would suggest that it is just as likely that whomever the buyer turns out to be, they will be buying these assets because they believe it makes good business sense to do so. They will buy them in order to grow their businesses. Perhaps, they will even be bought by an American company! And my political leanings have nothing whatsoever to do with this view.


Well, Chris, here is my “boardroom” expertise. I was in the boardroom making the presentation when Amoco pulled out of 13 states in 1980. I was there again when we pulled out of another group of states.

Without a refinery in California, how does an Arco AM/PM franchisee get gasoline? They may be able to negotiate with the buyer of the California refinery, but it’s not a given. But, to retain the AM/PM franchise, they will need to continue to pay BP the franchise fee. The whole AM/PM business model works because Arco is the low-priced gasoline retailer in their markets. If the franchisee can’t get cheap gasoline, then the AM/PM franchise is worthless. Most AM/PM franchises are in southern California. Not, where the Arco brand will be retained.

The Texas City refinery supplies BP jobbers and franchisees all along the Colonial pipeline as far north as New York. Like the California situation, these retailers will need a supply arrangement. BP has been divesting of retail assets for several years. Selling them to jobbers and franchisees. Now,they pull the supply plug on those investors. By the way, Chris, BP recently sold their majority interest in the Colonial Pipeline.

There is no question in my mind that this is phase two of a BP departure from the United States in downstream operations. Downstream, meaning refining, transportation, and marketing. Why would BP keep a 115 year old refinery in Whiting, Indiana, a Washington state refinery, and a half-interest in a tea kettle refinery in Ohio? BP is testing the water to see the financial and political fallout from this first phase. Jobbers and franchisees are going to raise holy hell. There will be lawsuits.

As to the deeper pockets question. BP, Shell, and Exxon/Mobil are the deepest pockets in the world, except for national oil companies. Perhaps Petrochina will buy the BP assets. Would you like that, Chris? Hugo Chavez already owns Citgo. China tried to buy Unocal a few years ago.

So here’s the lesson. When a President and his fawning media make it impossible for a company to do business here, there are consequences. In this case it will be subtle. Investments won’t be made in these refineries that BP would have made. Retail outlets will be closed for want of low-priced supply. There will be fewer retail outlets and less competition. Integrated refining, transportation, and marketing systems will be broken up resulting in less efficiency.

Remember the once great Arthur Andersen accounting firm? A 100 year old frim destroyed by the Enron fiasco. Brought down by the previous president and the media. Supposedly, because a few people used poor judgment.

BP is in the same boat. Their brand is worthless. The government plans to sue them for billions. The higher their visability here, the more the billions in the suit. Not once has anyone thought that their taxes paid here, their employees employed here, or their assets and their value to the energy business here mean anything. It’s all about making them pay for their mistakes. Why would you stay here?

The only possible pony I see in this whole pile of manure would be the elimination of hundreds of union jobs. Then, and only then, will Obama realize he made a mistake.

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