Why Parkland Fuel is in no rush to see oil prices rise
ACQUISITIONS PUT COMPANY ‘ IN A GOOD SPOT’
It’s been a busy several months for Bob Espy. In June, his company, Parkland Fuel Corp., completed a transformative, $378 million purchase of retail gasoline station operator Pioneer Energy Group. Then last week, Parkland made two more deals, picking up 80 On The Run retail stores from Imperial Oil Ltd. for an undisclosed sum and adding a $ 22.5 million purchase of Propane Nord- Ouest, a propane marketing business serving Quebec’s mining industry.
Parkland, a fuel distributor, operates on the downstream side of the energy sector. Unlike the upstream, or production, side of the industry that has been decimated by the plunge in oil prices, Red Deer, Alta.- based Parkland is shielded from the worst crisis in the sector in a generation.
Indeed, Espy, Parkland’s president and CEO, likes lower energy prices as it stimulates demand, although it can also be a sign of lower economic activity.
“We have seen demand go up in the East versus the West,” Espy said in an interview. “In the West you do have headwinds in economic activity but, certainly in our network, it’s not off dramatically.”
As oil prices crashed 45 per cent last year, Parkland posted a 17 per cent jump in earnings and raised its dividend five per cent.
“Our current earnings guidance is $ 265 million. There is no reason why we can’t double that in five years,” Espy said.
Analysts like Parkland’s acquisitive streak.
“Parkland is well- positioned to be a consolidator given its leading market position, strong balance sheet, and a track record of successfully acquiring and integrating businesses, in our view,” Sabahat Khan, an analyst with RBC Dominion Securities Inc., told clients in a note after the company announced its annual results this month.
The deal for Burlington, Ont.- based Pioneer Energy, which has outlets primarily in Ontario and Manitoba, has helped Parkland expand its national footprint to more than 1,000 gas stations, accounting for nine per cent of the country’s fuel market.
However, the Pioneer acquisition has run afoul of the Competition Bureau, which challenged Parkland’s acquisition of Pioneer gas stations or supply contracts in 14 communities in Ontario and Manitoba.
The bureau contends that Parkland’s post‑merger market share in those communities is between 39 and 100 per cent, which increases the “likelihood of price coordination.”
“We are still in productive discussions with the Bureau. The sites involved are not material from a contribution perspective,” Espy said, while declining to identify a time frame to resolving the dispute.
Parkland’s fuel business makes up 70 per cent of its revenues, but Espy is hoping to raise the non- fuel contribution to 50 per cent, especially as the company rolls out convenience stores under t he On The Run brand acquired from Imperial Oil.
The company was already running 600 of Imperial’s Esso- branded retail sites and was its largest branded distributor in the country.
Despite the rapid regulatory pressures on the hydrocarbons segment, Espy, a 49- year- old former Navy officer, does not expect to its fossil fuel filling stations to be replaced by electric vehicle charging stations any time soon.
Parkland has a few electric- charge stations but they are only used “occasionally,” said Espy.
“There is a pretty big headwind and inertia to adopting another fuel, and that’s driven by couple of factors: one is the relative cost of fuel, and second is capital base i nstalled in people’s cars. People aren’t rushing out to buy electric cars.”
Parkland has grown to a $ 2 billion market cap company from $ 700 million five years ago, and is looking to diversify from its core Western market.
Acquisition of the Quebec propane company is a continuation of the company’s move into new areas, as is an increasing focus on the U. S market after it picked up North Dakota-focused SPF Energy Inc. for $ 113 million in 2013.
But the company’s exponential growth may also be difficult to maintain going forward, analysts say.
“The inability to acquire businesses at reasonable valuations or integration issues post- acquisition could impact the company’s long- term growth potential,” says RBC’s Khan.
The company’s shares grew 6.5 per cent in 2015, but have pulled back 4.5 per cent this year.
Lower economic activity, rising competition from fuel marketers and continued market share gains of nontraditional players could also affect Parkland’s results, Khan said.
“We are in a good spot,” Espy counters. “We have demonstrated that we can make accretive acquisitions for shareholders.”
And Espy may not be done dealing yet.
Opportunities for more acquisitions are rising as l arge operators such as Exxon Mobil Corp., Royal Dutch Shell PLC and Chevron Corp. are in the midst of a decades- long retreat from their retail operations.
“There are others probably better positioned to run the day- to- day operation on the ground,” Espy said. “If we can take over a site and do better on the productivity, than everybody will win.”
PEOPLE AREN’T RUSHING OUT TO BUY ELECTRIC
CARS.