CHICAGO – Wal-Mart Stores Inc. (WMT) is quietly testing company-owned gas stations at a handful of its U.S. stores, a move that could stall its partner Murphy Oil Corp.'s (MUR) fast-growing gas station business.
Wal-Mart currently has more than 800 Murphy gas stations in the parking lots of its stores, and the oil company expects to open 100 more this year. The stations account for more than one-third of Murphy's revenue, but analysts said they generate very little of the company's profit.
The world's biggest retailer opened its fifth company-owned gas station last month at a new supercenter in northwest Arkansas, just minutes from its Bentonville headquarters.
Wal-Mart opened one in Missouri earlier this year, about 15 minutes from Bentonville. The retailer has three others that it opened in Virginia about two years ago, but spokeswoman Sharon Weber said Wal-Mart wanted more locations closer to home "so that we can really keep a close eye and test them well."
"It's something that Sam's Club (search) has been doing quite successfully for some time," Weber said, referring to Wal-Mart's warehouse club division, which has company-owned gas stations at many of its locations. "We're looking at it and we'll move forward as we can."
Weber declined to comment on expansion plans, and said the retailer continues to have a "good partnership" with Murphy. She said Murphy was aware of the Wal-Mart-owned stations.
A Murphy spokesman did not immediately return a call seeking comment.
Murphy signed on to build gas stations at Wal-Mart stores in 1996. The oil company has agreements with Wal-Mart ranging from 10 to 15 years, with options for two five-year extensions, according to its annual report.
The Wal-Mart gas stations accounted for 38.6 percent of Murphy's 2004 total revenue, according to the company's most recent annual report filed with the Securities and Exchange Commission (search). Murphy said it expected revenues to rise as it opens more Wal-Mart gas stations.
In 2002, the Wal-Mart stations accounted for 30.3 percent of Murphy's annual revenue.
Analysts said despite the hefty revenue contribution, Murphy makes the bulk of its profit from exploration and refining, not retailing, which is a low-margin business.
Murphy reported first-quarter profit of $124.9 million from continuing exploration and production operations. Its refining and marketing division -- which includes the gas stations -- recorded a quarterly loss of $5.5 million.
"When you go to bed with Wal-Mart, they wake up with the profits," said Fadel Gheit, who follows Murphy for Oppenheimer & Co. The retail gas stations are "a very, very small part of their refining and marketing business, which in turn is a very small of the company," he said.
Gheit said if Wal-Mart were to significantly expand its company-owned gas stations at the expense of Murphy, it would be a near-term "hiccup" for the oil company, but would not change Murphy's prospects. He rates Murphy's stock a "buy."
Wal-Mart has a long history of testing out new ventures and usually takes its time evaluating whether the projects will generate sufficient profit. But analysts said if Wal-Mart finds that it can run gas stations cheaper than Murphy can, the retailer will not hesitate to go it alone.
Wal-Mart's gas stations are concentrated in the U.S South and Southeast.