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What BP likes in TA: Good price per outlet, environmental benefits

A day after the jolting news that BP America is buying TravelCenters of America, the energy transition benefits to the international oil giant become clearer. 

And it looks like it was a good deal, too, at least according to Joseph Petrowski, a fuels market legend who has been CEO of various fuel distributors and is now affiliated with Brookwood Partners, active in the convenience store and fuels sector.

“I think it’s a great deal for BP,” Petrowski said in an interview with FreightWaves. “They are paying less than $5 million per truck stop and you can’t build it for that, and it takes so long to get permitted.” He put the price of the deal at about $4.7 million per truckstop. 

In its prepared statement announcing the transaction, TA (NASDAQ: TA) said the company operates 281 locations in 44 states. 

And while the $1.3 billion acquisition was touted as expensive in part because of the more than 70% premium BP America paid over the closing Wednesday stock price of TA, the day before the deal was announced, the reality is that it’s a purchase easily financed by BP. The U.K.-based parent company (NYSE: BP) posted fourth-quarter earnings in excess of $10 billion.

BP has been one of the more vocal major international oil companies in steering its policy toward an energy transition, a loosely defined term that sees more use of alternative fuels and less of fossil fuels.

And given that, Megan Boutwell, the president of energy consultancy Stillwater Associates, said the TA acquisition makes sense for BP. 

“One of the things we’ve seen in the energy transition is owning more pieces of the value chain,” Boutwell told FreightWaves. “One of the benefits is to capture the full value of tax credits and credit incentives.”

Those incentives can include such things as the Low Carbon Fuel Standard credits generated by a California program to boost transportation fuels with lower carbon intensity. Similar systems are in place in Oregon and Washington, the latter having gone into effect at the start of the year. 

Value also can be produced by Renewable Identification Numbers (RINs), an asset that can be sold by companies that generate more renewable fuels than they can consume to those that are in deficit relative to state and national mandates. 

Generally, the further a company is down the petroleum supply chain, from drilling down to retail, the more it is in a position to generate credits that can be sold and to avoid buying them. The opposite is that the less integrated a company is, the more likely it is to face a big bill. For example, an executive with PBF Energy (NYSE: PBF), an independent refiner with no retail outlets, said on its Thursday earnings call with analysts that its RINs obligation for all of 2022 exceeded $1 billion, in a company that had full-year earnings before interest, taxes, depreciation and amortization of $4.8 billion.

Boutwell noted that BP now produces renewable natural gas (RNG) and renewable diesel at its Cherry Point, Washington refinery in Puget Sound. By marketing those fuels through a greater number of outlets, “they get to keep all the value through the value chain.”

“If you own more places, you get to capture more of that,” Boutwell said.

RNG is taken from decomposing matter that produces a biogas, but then that biogas needs to be treated to produce RNG that has the same qualities as “regular” natural gas. Similarly, renewable diesel is made from the same feedstocks as biodiesel, but more complex treatment of it results in a finished product that is an apples-to-apples replacement for petroleum diesel.

Petrowski said that the “truckstop of the future” will be dispensing RNG or hydrogen, but that hydrogen still has a long way to go as an accepted commercial fuel in trucking.

“RNG will work really well for trucks and I think BP has an eye on that,” Petrowski said. 

Given BP’s focus on electric vehicle charging as one of the five pillars going forward, the TA acquisition is “a great way to expand that network,” Boutwell said. 

But one possible hurdle to using the more than 200 TA outlets as electric charging stations is that TA is highly truck-oriented, to the point that gasoline makes up only about 10% to 12% of its fuel sales. What that means is that the cars that might need electric charging are not finding their way to TA outlets now.

“I think it’s going to be difficult to get cars in there,” Petrowski said. “TA has never marketed itself to auto fleets, and people have the impression that truck stops are not a place to fuel up. It’s designed for truckers, and truckers and the public mix in the same area, which makes it uncomfortable for both.”

He described TA as the weakest of the big three truckstop chains: Pilot Flying J, Love’s and TA. Petrowski said Pilot Flying J has done a “tremendous job … by bifurcating the store with one side for gasoline and civilians and the other side for trucks.” That brings in car owners, a weak spot for TA, he said. 

As far as whether the stations will continue to fly the BP brand, it’s a mix, according to a spokeswoman for BP responding to an email from FreightWaves. She said BP will evaluate gasoline branding on a “site by site basis and where appropriate.” But she added that diesel canopies will “continue to utilize the TA and Petro brands.”

But Petrowski said BP is a stronger brand than TA, except in the Southeast. The Deepwater Horizon spill in 2010 left a lingering stain on BP’s reputation in that region, he said, which Petrowski said he saw up close when he was president of retailer Gulf Oil. “We picked up a lot of sites along the Gulf Coast,” he said.

While the vast majority of BP’s sites are independently owned with a branded relationship between outlet owner and the parent company, the acquisition of TA will expand its stable of owned outlets. It follows on an acquisition in 2021 of Thornton’s, a convenience store chain in the South and Midwest.

At the time of the acquisition, BP said the purchase of Thornton’s “mark[ed] its re-entry into fully owned and operated stores in the US.”

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