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Thursday, August 3, 2000

Oahu’s Arco
operator files
for bankruptcy

B.C. Oil's woes include
$6.9 million in state tax liens

By Rob Perez

The company that oversees Oahu's Arco gas stations has filed for bankruptcy protection, adding another blemish to its turbulent tenure in Hawaii.

Art Southern California-based B.C. Oil Ventures, which has been plagued with financial problems since entering the Oahu market last year, filed for Chapter 11 bankruptcy reorganization this week in a California court.

B.C. Oil leases 26 stations and a fuel storage terminal on Oahu from U.S. Restaurant Properties Inc., a Dallas-based real estate investment trust that acquired the sites last year. B.C. Oil, in turn, subleases several of the stations to dealers but operates the others.

The company's financial woes include a multimillion-dollar delinquent tax bill with the state of Hawaii.

The Department of Taxation has filed liens totaling $6.9 million against B.C. Oil, according to Marie Okamura, the agency's deputy director. That amount covers delinquent fuel and general excise taxes dating to June 1999, plus interest and penalties, Okamura said.

She said the company has been making partial payments since September. The state plans to file a claim in the bankruptcy case for the debt still owed.

Dealers were surprised by B.C. Oil's Monday filing but were unsure how it might affect them. "We're waiting to see what's going to happen," said Andy Pung, who operates a station near Diamond Head.

B.C. Oil officials did not return telephone calls seeking comment.

The bankruptcy filing came several months after U.S. Restaurant Properties said it planned to replace B.C. Oil with an unidentified "credit quality" tenant. It had said previously that the California company, one of its largest tenants, was having cash flow problems.

Analysts in March said B.C. Oil also was in default on a loan and leases it had with U.S. Restaurant Properties. Partly because of the Hawaii problems, U.S. Restaurant Properties took a $12 million charge against earnings.

In addition to the Oahu sites, B.C. Oil leases 11 California gas stations from U.S. Restaurant, along with one station in Texas.

U.S. Restaurant officials declined comment today. But the company said in a statement that it would closely monitor B.C. Oil during the bankruptcy restructuring. U.S. Restaurant Properties also said it had set aside reserves for money owed by B.C. Oil.

The Dallas company acquired the Oahu stations from Equilon Enterprises LLC, a joint venture of Texaco Inc. and Shell Oil Co., in March 1999. Analysts said U.S. Restaurant Properties paid $32 million for the Oahu assets and issued B.C. Oil $9 million in notes as part of the deal. Before the sale, the stations were owned by Texaco. After the sale, they were converted to Arco stations.

Tim Hamilton, a mainland petroleum consultant who assisted the former Texaco dealers in the transition, said he suspects B.C. Oil's current problems stem from the high price paid for the assets.

"We had a grave concern B.C. Oil wouldn't make it," he said.

The deals between U.S. Restaurant Properties and B.C. Oil, like the purchase price to Equilon, likely were based on the expectation that the Hawaii market would continue to generate extraordinary profits, as it had done for years, Hamilton said. But profit margins have fallen substantially since the state in late 1998 filed a $2 billion antitrust lawsuit against Hawaii's major oil companies, analysts said.

The lawsuit alleges that the companies conspired to keep wholesale gas prices artificially high in the islands -- a charge denied by the industry.

A Chapter 11 bankruptcy filing enables a company to restructure its finances while keeping creditors at bay.

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