Fiery politics fuels problems for Citgo

BOSTON — Venezuelan President Hugo Chavez’ calls for a socialist revolution haven’t made it easy for Citgo Petroleum Corp. to quietly go about refining oil and selling gas to U.S. consumers, or steer clear of spats between Caracas and Washington.

But now, the U.S. arm of Venezuela’s state-owned oil company faces its biggest such challenge since Chavez took office in 1999.

His United Nations speech calling President Bush “the devil” has left Citgo dealing with a political backlash. In the weeks since Chavez’ Sept. 20 U.N. speech and his comments the next day at a New York City church referring to Bush as “an alcoholic and a sick man,” momentum has been building for a fledgling U.S. boycott of Citgo products.

Chavez’ remarks also inspired anti-Citgo proposals — for example, a Boston politician wants to tear down a Citgo sign that’s a prominent landmark on the city’s skyline, and a Florida lawmaker wants to end Citgo’s exclusive filling station contract on the Florida Turnpike.

Experts don’t expect anti-Chavez sentiment to have a lasting impact on Citgo’s bottom line, since gasoline consumers typically put price above principles, and face a difficult task choosing a gas brand that doesn’t have political or ethical baggage.

But amid the backlash, the Houston-based company last month began running full-page advertisements in major newspapers touting its 4,000 U.S. employees, its program to provide discounted heating oil to needy Americans, and work on behalf of charitable causes such as disaster relief and fighting muscular dystrophy.

Citgo won’t discuss the campaign’s cost, but says it’s not an effort to repair any financial damage from a consumer backlash targeting more than 13,000 independently owned, Citgo-branded U.S. filling stations.

“The company has seen not impact on sales volumes from any calls for a boycott of our products,” Citgo spokesman Fernando Garay said.

Observers say the claim is likely accurate, although verifying it is difficult since the privately held company doesn’t disclose financial data or sales.

An Aug. 28 report from ratings agency Standard & Poor’s noted much of Citgo’s free cash flow is returned to its parent company, Petroleos de Venezuela S.A., through dividends. Citgo has returned nearly $1.2 billion in dividends to state-owned P.D.V.S.A. since the start of 2005, according to company news releases.

The S&P report also said that because Citgo doesn’t own its U.S. filling stations, it “does not benefit directly from convenience store and other nonfuel revenue.”

Meanwhile, scattered reports of falling sales at Citgo stations have surfaced in states like Oklahoma, where one distributor reported drops of 10 percent to 15 percent after Chavez’ U.N speech. But experts say it’s hard to definitively link the trend to Chavez alone, since sales may be influenced by Citgo’s July announcement that it would move out of parts of the Midwest as well as Oklahoma, Kentucky and northern Texas by March 2007 and refocus on core markets in the East and Gulf Coast.

In the long run, experts say Citgo isn’t likely to suffer significant economic harm, given the failure of past oil company boycotts such as the anti-Exxon campaign after the tanker Exxon Valdez spilled oil along Alaska’s coast in 1989.

“Unless the refineries participate in a Citgo boycott, it would be hard to hit them,” said Noel Maurer, a Harvard Business School assistant professor.

And price usually wins out over principles in the petroleum market, where oil companies have an incentive to sell as much gas as possible through their own branded stations, rather than through other retailers’ outlets. Companies’ ties with political regimes of varying stripes around the world make it difficult for consumers to buy any brand of gas free of anxiety about whether they’re doing the right thing. Complicating it all is a many-layered global oil refining and distribution system that makes it difficult to track the product’s path from below the ground to the gas tank.

“Most people are going to make a decision on where they pull in to fill up their tanks based on price and convenience,” said Tom Kloza, director of Wall, N.J.-based Oil Price Information Service. “There aren’t going to be a lot of folks who say, ‘I’m not going to buy there because Hugo Chavez is going to benefit if I buy from Citgo.”’

“These boycotts tend to make some noise, but they don’t tend to get much traction out there,” Kloza said.