Arco begins
conversions at
isle stations
The new owners are
By Rob Perez
vowing to offer the lowest
gas prices among major
companies in the state
Star-BulletinRed, white and blue Arco signs are scheduled to go up at the first of 27 Oahu gas stations tomorrow, with the new owners promising to offer the lowest pump prices among the major oil companies in Hawaii.
The sale of the Texaco Inc. stations and partial ownership in an Oahu terminal to U.S. Restaurant Properties Inc. is scheduled to be completed over the next several days, with as many as eight stations being converted tomorrow, executives involved with the deal said yesterday.
The remaining stations are supposed to be switched over by March 16.
Officials with B.C. Oil Ventures, the company that will oversee the stations, wouldn't disclose what pump prices the 17 company-operated stations will charge. But they said the prices -- even after paying Arco for use of its name -- will be below those of the major companies here.
"There's no question about that," said Hani Baskaron, president of B.C. Oil.
He also said the 10 dealer-run stations, which set their own prices, likely will be just as competitive, partly because the dealers will be buying gas from B.C. Oil at wholesale prices below what competing dealers pay their suppliers.
Company officials originally expected the deal to close in October, but it stalled because of opposition from the Texaco dealers. In November the dealers filed a lawsuit alleging that Texaco was not meeting federal requirements that give dealers certain rights when their supplier leaves a market.
Beverly Harbin, a dealer representative, said yesterday the dealers' concerns were resolved through mediation with Texaco and through leases vastly improved over what B.C. Oil originally offered.
"If they get the lower wholesale prices, which is what we're anticipating, they'll be able to better compete at the retail level," Harbin said.
With regular unleaded retail prices around $1.45 to $1.55 a gallon on Oahu, and even more on the neighbor islands, Hawaii easily has the highest gas prices in the country. That's largely due to wholesale levels the state claims are excessive. In its $500 million-plus antitrust lawsuit against the major oil companies, the state alleges they have conspired to keep prices artificially high -- a charge denied by the companies.
State officials are hoping the Arco deal will shake up competition and bring lower prices to the islands.
"The attorney general looks forward to B.C. Oil marketing gasoline at highly competitive rates," said Ted Clause, the deputy attorney general who reviewed the deal for the state.
Don Davis, B.C. Oil's vice president of operations, said a major reason his company will be able to offer lower wholesale prices is because it has the flexibility to import fuel, thanks to the interest B.C. Oil will have in a Barbers Point storage terminal. Aloha Petroleum, the only Hawaii gas supplier currently importing fuel, also is part-owner of the terminal.
B.C. Oil has a contract to purchase gas from Chevron Corp. locally but is not precluded from dealing with other suppliers as well, according to company officials.
"If we can't get a competitive price from a manufacturer on the island, we can go off island," Davis said.
The company is hoping low pump prices will help recoup business Texaco has lost, especially since Texaco announced last year it was leaving the market. Its market share, which held steady at about 13 percent the past several years, has fallen to about 9.6 percent. Texaco agreed to leave the market to win state approval for a national marketing and refining merger between Texaco and Shell Oil Co.
Some industry observers are skeptical B.C. Oil will be able to win back that market share while trying to earn high enough profits to pay the returns typically sought by real estate investment trusts. U.S. Restaurant is Dallas-based REIT.
They say B.C. Oil would have to undercut competitors by at least 5 cents a gallon to get substantial numbers of people to switch to a brand unfamiliar to many here.
But if B.C. Oil starts taking away business from Chevron, the state's market leader, Chevron likely will aggressively fight back and lower its prices, industry observers say.
If that happens, it could trigger other competitors to cut their prices -- the precise scenario the state is hoping for.
As a result of the Texaco deal, B.C. Oil, which also runs stations in California and Washington state, is moving its corporate headquarters from Southern California to Hawaii, according to Baskaron. The move should result in about a dozen new jobs here, he said.
