Tesoro to Replace Dealers at 240 West Coast Stations

Switching to its own operators, rebranding to USA from ARCO, Thrifty

Published in CSP Daily News

By  Carole Donoghue, Petroleum Editor

SAN ANTONIO -- Tesoro Corp. plans to rebrand 241 stations in southern California to its USA flag and will replace the dealers currently leasing the outlets with its own commission operators, CSP Daily News has learned.

The stations are owned by long-time chain marketer Thrifty Oil but had been leased to BP for the last 20 years or so, sources said. BP's base lease on approximately 190 of the sites expires this year, with the lease on the remainder coming to an end in 2014.

Tesoro announced in September that it would sign an initial 10-year leasing agreement with Thrifty for the sites, which it said have total fuels sales of 25,000 to 30,000 barrels per day. Tesoro promised to invest $28 million in branding capital for the outlets, but did not name the brand it planned to use.

The stations currently fly the ARCO or Thrifty flags. Tesoro has opted to switch them over to the USA banner, a Tesoro spokesperson confirmed by email to CSP Daily News. The company may also raise the Shell flag at some of the outlets, according to marketer sources.

Dealers were told of Tesoro's plan to replace them with commission operators in a February 8 letter from Robert Motley, BP's vice president of franchise operations for the ARCO am/pm c-store brand on the West Coast.

"It has just been communicated to BP from Tesoro and Thrifty that it is Tesoro's decision and intention for the majority of the Thrifty leased sites to be operated by Tesoro's existing network of multi-site operators after the current base lease expiration," Motley said in a letter to ARCO and Thrifty-branded dealers obtained by CSP Daily News.

"This is a disaster for us and most of the 200 families involved in these stations," said Sara Mirzaian, whose family is about lose the station in the San Fernando Valley that they have operated for the past 12 years.

"This is our only source of income, it provides the bread-and-butter so that my brother can send his children to college. This is so awful, I can barely talk about it," an obviously emotional Mirzaian told CSP Daily News.

She knew that the lease on her family's 220,000 gallons per month station in Pacoima, Calif., would expire in 2012, but believed that they and the other retailers would be offered an extension, she said.

"We thought they would give us the opportunity to negotiate a new agreement, but they haven't," she said. "Four months ago, ARCO told us all that they would probably extend the lease, and then this happens. We are desperate, we don't know where to turn to next."

Mirzaian's brother, Ardash "Art" Mirzaian operates the station. Sarah said he will now probably have to take his children out of college. "You'd think they would have some compassion for the families," she added.

The retailers are unlikely to get any relief under the Petroleum Marketing Practices Act, either, since BP has the right to terminate their franchises upon 90 days' notice because it is losing its underlying lease on the sites, albeit because it decided not to renew the agreement with Thrifty, sources said. They will not even be able to claim any compensation for the goodwill they have built up at the stations over the years, said one industry lawyer.

"ARCO has been trying to unload these Thrifty sites for years. When BP decided that it no longer wanted the outlets, Thrifty offered the leases to several other companies, including Chevron and 7-Eleven, but got no takers," said one Los Angeles marketer.

Tesoro confirmed that it plans to convert the stores to multi-site operator (MSO) units that will mainly fly the USA flag.

Under Tesoro's MSO agreements, retailers do not receive any commission on fuel sales, but rather are required to deposit all pump revenues into a special Tesoro bank account. They are allowed to keep the proceeds from sales of c-store or snack merchandise, and pay a low premises rent, sources say.

Tesoro did not answer questions about the future of the dealers currently leasing the outlets.

"All questions related to the expiration of the BP leases should be directed to BP or Thrifty," a spokesperson said in an email to CSP Daily News.

Barry Berkett, a senior official with privately owned Thrifty Oil, declined to comment. "We are the landlord. How Tesoro operates the stations is a decision to be made by Tesoro," he said.

B.V. Castillo, BP's director of West Coast Community Affairs, did not return calls seeking comment.

Tesoro acquired the rights to the USA name when it purchased 138 stations from veteran marketer John Moller's USA Petroleum in May 2007. It is also using the brand at some of the 51 Albertson's Fuel Express stations in Washington, Oregon, California, Nevada, Idaho, Utah and Wyoming that it acquired from Supervalu Inc. for $34 million last year, sources said.

The combined purchase of the Albertson's stores and the Thrifty lease deal "strengthens our refining and marketing integration by about 12%," Tesoro president and CEO Greg Goff said at the time.

In the same month that it bought the USA outlets, Tesoro signed a deal to purchase Shell's 100,000-bpd Los Angeles refinery, its Wilmington, Calif., terminal and 278 Shell stations. The company now supplies a network of more than 1,175 stations and company-operates about 380 of those under the Tesoro, Shell and USA brands. It has seven refineries in all, with a total capacity of 600,000 bpd. In January, the company that it planned to sell one of the seven facilities--the 94,000-bpd Kapolei refinery and associated 32 stations in Hawaii--in order to concentrate on its U.S. mainland operations, which stretch across 18 states in the West and Midwest.