Petro-Can Brand to Survive

Sunoco brand to exit Ontario; more downstream details on Suncor deal

Published in CSP Daily News

CALGARY, Alberta -- Like the red uniforms of the Mounties, Petro-Canada is one of Canada's most recognizable brands. As if trying to reassure consumers that this brand is not about to vanish, Petro-Canada CEO Ron Brenneman and Suncor CEO Rick George both decided to wear red ties to a press conference Monday at which they announced the merger of their companies. Although the new company will operate under the name Suncor, it will keep the Petro-Canada brand, complete with the familiar maple-leaf logo and red color scheme, in the retail wing of its business, said The Calgary [image-nocss] Sun.

That includes more than 1,300 gas stations in all provinces except Newfoundland and Labrador, as well as sales of lubricants and home heating oil. Suncor operated 430 gas stations as of the end of 2008, according to the report.

"We know that this brand is very valued by Canadians," Petro-Canada spokesperson Jamie McNaul told the newspaper. "By retaining both brands, they complement each other very nicely."

McNaul also said that although the Suncor brand is not as readily recognized among consumers of petroleum products, it is an established name in the investment and energy community.

Brenneman, during a conference call, called Petro-Canda Canada's "No. 1 recognized brand," as well as "Canada's gas station."

But Sunoco stations will disappear in Ontario should the merger go through, added a report by The National Post. The Sunoco stations, owned by Suncor, will be rebranded Petro-Canada logo, and some of the approximately 280 Sunoco stations in Ontario will likely be sold as the merged company works to satisfy competition concerns.

"The Sunoco brand will not be present [in Ontario]," said George. The shift will not be immediate, and will be subject to discussions with the Competition Bureau, he noted. "There will be a divestment," he said in an editorial board meeting with the Post.

"We will not necessarily be able to keep all of the market share of both companies in individual neighborhoods. If we have a station right across the street from one another, that doesn't seem logical that the rebrand would have two Petro-Canada stations on two corners. So [we're] going to have to go through that process."

Brenneman also pointed out Suncor's "excellent reputation in the investment community."

But Ontario drivers face the threat of higher gasoline prices if federal regulators approve Suncor Energy's $19.12 billion (Canadian, $15.5 billion U.S.) bid for Petro-Canada, industry watchers warn, according to a Toronto Star report. The proposed deal, the largest in the history of Canada's oil sector, would put more refineries under the control of fewer companies, Jane Savage, president of the Canadian Independent Petroleum Marketers Association (CIPMA) told the newspaper.

That shrinking group of refiners, she said, will have more influence in Ontario over wholesale gasoline prices, which to a large degree determine the retail prices that drivers see at the pumps. "Fewer participants means more concentration and less competition, and possibly higher prices," said Savage.

The Suncor deal with Petro-Canada, unveiled Monday, will create a "made-in-Canada" petroleum giant valued at about $45 billion and capable of producing the equivalent of 683,000 barrels of oil per day (bpd), the report said. ( Click here for previous CSP Daily News coverage.)

It will blend Suncor's strength in the Alberta oil sands with Petro-Canada's conventional oil and gas assets, giving the new company, which will keep the Suncor name, the scale it needs to compete against multinational players Exxon Mobil Corp. and Royal Dutch Shell Plc.

The new Suncor would be capable of refining 433,000 bpd into products such as gasoline, diesel and petrochemicals out of facilities in Sarnia, Edmonton, Montreal and Denver.

Petro-Canada's Montreal refinery and Suncor's Sarnia facility serve Ontario, which also gets gasoline from a Shell refinery in Sarnia and Imperial Oil refineries in Sarnia and Nanticoke. The merger would reduce the number of refiners serving Ontario from four to three.

Savage called on the federal Competition Bureau to shed light on the blockbuster deal: "From our perspective, the bureau needs to take a hard look at this." The competition watchdog confirmed it plans to review the proposed merger to determine its impact on competition, said the report.

Spencer Knipping, a petroleum analyst at Ontario's Ministry of Energy, said a refiner could only increase prices in a city, town or rural area where there is little competition. "In a remote, smaller market where there's less competition, it could happen, but not in Toronto," he told the paper. "Not in southern Ontario."

The Competition Bureau might also question Suncor's concentration in the retail market under a merger, the report said. In Ontario, there are 444 stations carrying the Petro-Canada brand and 285 associated with Suncor through the Sunoco brand, according to the Star, citing a 2006 survey from Calgary-based MJ Ervin & Associates.

Together, the new Suncor would have 729 gasoline retailers in Ontario, putting it ahead of Esso, at 649 and Shell at 554. That would concentrate more than half of Ontario's 3,800 retailers in the hands of three oil companies.

Suncor chief executive Rick George acknowledged yesterday the merged company's retail presence in Ontario could pose problems under the Competition Act. He called it his "primary focus" on the regulatory front.

"It's potentially an issue," petroleum analyst Michael Ervin told the paper. "A dozen or so years ago, Petro-Canada and Ultramar tried to merge and that got shot down by the competition tribunal. It does raise the specter that they may deem this as giving them too much concentration of market share."

But Ervin and other analysts say it would not be an issue in large markets, such as Toronto, where it's a short drive to the competition. "We've proven time and time again this is a fairly competitive marketplace," Tony Macerollo of the Canadian Petroleum Products Institute (CPPI), an industry lobby group in Ottawa, told the paper. "Canadians will drive over concrete dividers to get gas that's 2 cents cheaper."

Anindya Sen, an associate professor of economics in the University of Waterloo's department of economics, said the Competition Bureau determines if a market is competitive enough based on the number of rivals in a given postal code or certain distance, such as a radius of three kilometers. "At the wholesale level, they define markets at the city level, but at the retail level, it's much smaller," Sen, who previously worked at the regulator as an economic, told the paper. "I'll be surprised if there's any concern in the cities."

In rural areas, where Petro-Canada and Sunoco may be the only game in town, the company will likely just close one of the stations to streamline costs, speculated Ervin.