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7-Eleven Dumps Venezuela-Backed Citgo to Pump Own Brand

The convenience store says the split is not over U.S. furor with Hugo Chavez's remarks.

September 28, 2006|Elizabeth Douglass and Marc Lifsher | Times Staff Writers

Venezuelan President Hugo Chavez can pump books but his country's oil company can no longer pump gas for 7-Eleven Inc.

Amid a growing backlash against anti-American comments by Chavez, the Dallas-based convenience store giant said Wednesday that it was dropping Venezuela-backed Citgo Petroleum Corp. as its gasoline supplier so it could launch its own brand.

Torrance-based Tower Energy Group will deliver fuel to most of the 7-Eleven outlets that Citgo is losing.

During a speech last week at the United Nations in New York, Chavez called President Bush "the devil" who left a lingering smell of sulfur at the podium, and he railed against the invasion of Iraq. Chavez also praised a 2003 book by retired MIT linguistics professor Noam Chomsky that was critical of U.S. foreign policy, sparking a dramatic sales increase of the book.

Chavez's slams infuriated some Americans, prompting a smattering of Citgo boycotts and provoking a Boston politician to demand the removal of a large, lighted Citgo sign that is visible from Fenway Park and has stood for decades as both a local landmark and an icon of pop culture.

"Regardless of politics, we sympathize with many Americans' concern over derogatory comments about our country and its leadership recently made by Venezuela's president," 7-Eleven spokeswoman Margaret Chabris said in a statement.

Although 7-Eleven acknowledged that its affiliation with Citgo was becoming uncomfortable, rising tensions between the two countries weren't the driving force behind the end of the 20-year fuel supply deal, 7-Eleven and Citgo said.

In fact, the deal between the two companies was set to expire at the end of this month. And more than a year ago, 7-Eleven sought bids from other suppliers with an eye toward selling its estimated 2 billion gallons a year of gasoline under its own brand.

"Certainly Chavez's position and statements over the past year or so didn't tempt us to stay with Citgo," Chabris told the Associated Press.

Tim Rogers, president of Tower Energy, said that Citgo didn't lose the business because of Chavez.

"It really wasn't that," said Rogers, whose company is the biggest beneficiary of the switch. "It was more that [7-Eleven] decided that they wanted to do their own brand."

Under a new contract, Tower Energy will supply the gasoline for nearly 90% of the more than 2,100 7-Eleven sites that sell gasoline nationwide. Rogers said his company started deliveries under the contract over the last two months.

The privately owned company has supplied Citgo-branded gasoline to all the 7-Eleven stores west of the Rockies since 1992. Tower Energy continues to serve most of those 7-Elevens -- including about 250 in California -- but instead of Citgo gas, the supplier will deliver fuel carrying the 7-Eleven name.

Rogers said the new deal would boost Tower Energy's annual sales to $5 billion in 2007 from $3 billion this year and would more than double the number of 7-Eleven stores Tower Energy serves to 1,850. Frontier Oil Corp. of Houston and Sinclair Oil Corp. of Salt Lake City would supply the rest of the 268 stores, he said.

Citgo has been owned by the Venezuelan state oil company, Petroleos de Venezuela, since 1990, when the Latin American company bought out 50% from its partner to become the sole shareholder. Chavez became president in 1999.

Petroleos de Venezuela executives saw Citgo and its Gulf Coast refineries as a natural, relatively close destination for Venezuela's crude oil, much of which is heavy in sulfur content and more costly to refine.

Following an unsuccessful coup and an opposition-led general strike in 2002, Chavez gained more direct control of both Petroleos and Citgo. Since then, he has repeatedly threatened to sell the American company.

This year, Citgo sold its half-ownership in a major Houston refinery and announced plans to retreat from selling gasoline in several states. Chavez, meanwhile, has used Citgo to spur publicity in this country by delivering low-cost heating oil to poor communities in Massachusetts and other states.

Resentment over Chavez's harsh criticism apparently was brewing among U.S. consumers before last week's speech.

In August, several Citgo dealers in the Midwest and Southeast told the Oil Price Information Service that they blamed Chavez's constant jabs at America and his friendliness with Cuba's Fidel Castro and the president of Iran for a recent 15% to 25% drop in gasoline sales. Rogers, the West Coast supplier to 7-Eleven, said he had not seen a similar decline in fuel sales at Citgo-branded sites.

Tom Kloza, chief oil analyst at the Oil Price Information Service, which monitors fuel markets, said none of those factors caused the supply change at 7-Eleven, which is owned by Seven & I Holdings Co. of Japan. The timing of 7-Eleven's announcement -- which came months after the switch was underway -- is a different matter, however, Kloza said.

"This was opportunistic," Kloza said, reflecting on 7-Eleven's desire to make a very public break with Citgo. "When we were writing about this awhile ago ... they were very quiet about it and there was no fanfare."


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