Citgo & Bellaire

[Montrose Neighborhood]

EXCLUSIVE REPORTS

Citgo mulls relocation to Houston

Monica Perin

Houston Business Journal

Tulsa, Okla.-based Citgo Petroleum Corp. is considering moving its headquarters -- and 800 to 1,000 jobs -- to Houston.

The mayor of Tulsa, Bill LaFortune, revealed on Aug. 12 that "a major employer" in that city was contemplating moving to Houston.

Citgo, whose parent company, Venezuela's Petroleos de Venezuela SA, is still in turmoil in the wake of a major strike late last year and early this year, issued a statement on Aug. 13 confirming that it is studying the move and expects to reach a decision by year's end.

Pam Lovett, director of economic development for the Greater Houston Partnership, confirmed that her organization is "working with Citgo" but she declined to reveal any details about the negotiations.

Citgo is the world's fifth-largest oil exporter and the fourth-largest gasoline retailer in the United States.

The loss of Citgo would be the second economic blow for Tulsa in just six months. In February, Williams Cos. announced a decision to keep its gas pipeline operations -- and 650 employees -- in Houston after considering a move to Tulsa. (See "Williams unit staying in Houston," Feb. 14, 2003.)

The Tulsa-based energy company had been negotiating with Oklahoma state and Tulsa city officials for an economic incentive package that would have helped subsidize the transition from Houston to Tulsa, but decided against the move.

Houston, too, could use the economic stimulus that would result from an influx of nearly 1,000 jobs.

Although it is not clear where Citgo would set up its headquarters locally, real estate brokers say a large lease by a major energy company such as Citgo would provide the market with a much-needed boost.

"Due to the losses that have occurred due to mergers, we could use some in-migration that would give us positive growth," says downtown broker Stewart Robinson of Conine & Robinson. "I would think they would find some eager employees here."

A new CEO, Luis Marin, took over the reins of Citgo Petroleum Corp. on Aug. 1 and immediately initiated a study on the impact of moving the company's headquarters. The study is part of a "new global vision" by Petroleos de Venezuela SA, or PDVSA, Citgo said in its statement this week.

The global vision includes "consolidating all of PDVSA's international investments into one strategic location in order to take advantage of the economies of scale and to maximize the synergies of various PDVSA investments outside of Venezuela," the statement said.

Citgo to go-go?

PDVSA is Venezuela's national oil company. The company has been struggling to reorganize and resume operations since a nationwide strike last December to oust Venezuela's president, Hugo Chavez, virtually shut it down.

The company fired some 18,000 employees as a result of the strike and has been struggling since. Its oil production is still not back to pre-strike levels.

In addition to Citgo, PDVSA's foreign investments include PDV Services Inc., a procurement affiliate with offices in Houston; a refining joint venture with ExxonMobil in Chalmette, La.; and a joint venture with ConocoPhillips in Sweeney.

On Aug. 13, the British Financial Times reported that PDVSA's internal struggle for control continues, with Chavez determined to tighten his grip on the company. The publication said reports surfaced this week that Chavez plans to install a close ally and former army captain at the head of the company.

PDVSA's Citgo owns or operates refineries in Texas, Louisiana and Illinois, including facilities in Corpus Christi, Houston and Lake Charles, La. In Houston, the company owns a 42 percent interest in a Lyondell-Citgo refinery.

Citgo also operates a bulk loading terminal in North Houston and two pipeline companies.

The company's refineries produce 140 million barrels of gasoline, 55 million barrels of distillates and 30 million barrels of jet fuel a year. Citgo markets gasoline through 13,400 U.S. outlets and has 4,300 employees worldwide.

Its new CEO, Marin, had been a director of Petroleos de Venezuela SA and head of PDVSA's eastern division before his appointment to Citgo. A 1980 graduate of the University of Oklahoma, Marin relocated to Tulsa in July from Puerto La Cruz, Venezuela.

Ta-ta to Tulsa?

Tulsa mayor LaFortune and Oklahoma Governor Brad Henry said this week that they intend to "do whatever we can to retain Citgo." But Henry said he was concerned the state might not be able to offer anything attractive enough to PDVSA to keep Citgo in Oklahoma.

Citgo has about 1,000 employees in Tulsa, where it has been based since 1983 when it was spun off from the former Cities Service Co. by Occidental Petroleum.

The company last week rescheduled its quarterly investor conference call from Aug. 11 to Aug. 19.

Also last week, credit rating agency FitchRatings upgraded its rating of Citgo and withdrew its ratings of Citgo's direct parent company, PDV America.

The agency said the rating action recognizes continued improvement in Citgo's liquidity position since the end of Venezuela's strike and the company's strong operating performance over the last several months, but also reflects the potential for further interference from PDVSA.

Citgo produced $500 million in profits for PDVSA in 2002 and the first half of 2003.

But Citgo, along with every other U.S. refiner, faces enormous capital expenditures to meet new environmental requirements for low sulfur fuels. Industry experts put the total cost at $15 billion to $20 billion and predict that some refineries will be shut down.

Citgo has estimated its costs will be $1.3 billion over the next five years.

Despite those challenges, Marin said last week that Citgo plans to increase its heavy crude refining capacity and to buy more Venezuelan heavy crude.

The company has been upgrading its refineries in Lake Charles and Corpus Christi for that purpose, although the Venezuelan strike severely reduced Citgo's incoming oil shipments.

[email protected] -- 713-960-5910 Reporter Nancy Sarnoff contributed to this story.

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EXCLUSIVE REPORTS

Bellaire corridor shops to Latin beat

Allison Wollam

Houston Business Journal

Hispanic buying power is creating a busy retail hub along Bellaire Boulevard.

Much of the activity is being generated by business newcomers from Latin America who have developed well-known brands in their own countries and are now pursuing expansion north of the border.

The diverse mix ranges from fast-food outlets to full-blown shopping centers.

Jeff Kaplan, a retail broker with The Weitzman Group, says this first wave represents the beginning of a major trend of Latin American retailers following emigration patterns.

"A lot of these retailers have reached saturation points in their countries and are now looking to continue to grow in the United States," says Kaplan. "As more and more people move here, they miss the types of products they're used to in their home country, and it creates a tremendous demand for these retailers."

Cultural contact

Houstonian Carlos Ortiz recognized the pent-up demand from Latin American patrons who were craving brands they grew up with before moving to the United States.

Ortiz worked for five years to secure a franchise agreement with Pollo Campero, a fried and rotisserie chicken chain founded in 1971 in Guatemala.

The response in Houston has been overwhelming. The first store, located at 5616 Bellaire Blvd., regularly causes traffic jams due to long lines of customers winding around the outlet.

Ortiz will open a second store at 8358 Long Point later this week, and has a business plan to open 14 stores in the area.

Ortiz says Pollo Campero has been well-received because it was already a recognized brand name that many people in Latin America grew up with, similar to the way people in the United States grew up with McDonald's.

"Most Latin Americans have good memories of the food because it reminds them of their roots," he says.

Ortiz says the Bellaire location is proving to be one of the most successful sites in the country because of the high percentage of Latin Americans living in the area.

Personal contact is another factor in Pollo Campero's success, says Ortiz, who regularly visits with customers to solicit their opinions on the food and service.

"To have a successful Latin concept, it has to be run by someone who knows and feels the culture," says Ortiz. "People like to see one of their own when they go to these places."

Just down the street from Pollo Campero, a new, brightly colored 43,000-square-foot shopping center called Plaza Del Rey is filling up fast with retail tenants primarily from Latin America.

Leasing agent Ed McCool of EEM III Commercial says the center is approximately 88 percent leased. Locations range from 1,280 square feet to 8,700 square feet, and only about four spaces remain.

McCool estimates that 90 percent of the businesses moving into the new center are Latin-owned.

The mix consists of several restaurants, including two from Mexico and another from El Salvador, along with a soccer shop and a photography studio both operated by Latin owners.

The shopping center is currently being built out and is scheduled to open by September.

McCool says the owner, Joana Tagaropuloz, was raised in Panama and recognized a lack of bright, positive shopping centers in the area.

A similar 20,000-square-foot shopping center is currently in the works adjacent to the Plaza Del Rey project, according to McCool.

Meanwhile, El Taco Tote, a franchised fresh Mexican grill, is also scouting the Bellaire corridor for future sites.

Craig Slavin, owner of Chicago-based Franchise Architects, was hired a little over a year ago to franchise the family business.

Slavin says he's negotiating with two prospective franchisees and expects the first restaurant to open by the first quarter of 2004.

Slavin says deals have already been signed in San Antonio, Dallas, the Rio Grande Valley, Dallas/Fort Worth and Corpus Christi, making Houston the next natural fit for the build-your-own taco operation.

"The concept is geared toward the Hispanic market and was created by Hispanics for Hispanics," says Slavin.

He adds that the restaurant usually first embeds itself into Hispanic communities, such as the Bellaire area, and then fans out into more diverse locations.

Cluster effect

Kaplan of The Weitzman Group points out that retailers logically cluster in predominantly Hispanic areas such as the Bellaire corridor because shopping patterns show that Hispanics are community-oriented and regularly patronize Hispanic-owned businesses.

According to a study conducted by the Urban Land Institute, Houston ranked in the Top 5 of the fastest-growing Latino hubs in the country. The local Latino population rose from 21 percent of the total population in 1990 to 30 percent of the total population in 2000.

The study also points out that the size, growth rate, geographic distribution and purchasing power make the Latino population an important force in the U.S. economy in terms of the labor force, the housing market and retail demand.

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YEA HOUSTON