By Mick Gregory
President Hugo Chavez has new dictatorial power that he is using to nationalize several U.S. oil companies’ investments in upstream projects. Those involved include ConocoPhillips, Exxon Mobil, and Chevron. The Marxist president who calls his own middle class “rancid” is demanding that the oil firms sell the majority of their Venezuelan project control to his government, in effect, nationalizing the projects.
Citgo Petroleum, the Venezuelan oil company operating in the U.S. has failed to file SEC reports for the past 18 months and its Houston corporate website says they still have 13,000 retail locations (and they’re sticking to it), even though there are well-publicized reports of more than 3,000 locations that have dropped the Citgo brand in 2006, including 7-Eleven, Circle-K and Petro Express.
Remaining Citgo retailers seem willing to weather the national boycott, things are going to get better? You think? Some owners are apparently satisfied with the big discounts Citgo grants them on fuel for staying with the tarnished brand. What’s the future in that, when oil is at historic highs?
Analysts are beginning to wonder how much longer the Citgo brand will exist. The organizational, legal and marketing costs of maintaining the brand are much more than the value the brand generates to attract customers. In fact, it may well be repelling customers. Chavez could shave some $60 to $70 million from the budget. Several million dollars have been slashed from the marketing and promotion budget. The sponsorships of NASCAR, BassMasters fishing tournament and several regional sports promotions have been cut, and the Events Marketing Manager Geoff Smith was let go in January. Plus there are expensive lawsuits springing up from retail owners regarding pricing irregularities and lack of marketing support. That’s on top of serious federal EPA lawsuits for illegal emissions.
At $56 a barrel, PDVSA would be better off selling their Venezuelan, OPEC oil on the world market without the expense of supporting a failed brand name.
Remember the “feel good” ad campaign Citgo ran last year, “Fueling the Future?” There were no reported sales gains from the multi-million dollar effort. How long before PDVSA’s financial advisors run the numbers?
Some believe Chavez planned to shut the downstream retail business all along. Last summer, Chavez brokered a deal to sell half of its current U.S. supply to China, as soon as the super tankers and refineries are up and running.