The Russians Are Coming... With Another Lukoil Gas Station
The gas station down at the corner is taking on a bold new look.

The latest player on the block is Lukoil, a Russian oil company that holds the second largest oil reserves in the world behind only ExxonMobil.

In the past 16 months, Lukoil has been rapidly converting hundreds of Mobil service stations in the region to its own distinctive brand. Its tanker trucks seem to be all over the roads, and its storage tanks are visible from the New Jersey Turnpike.

Instead of the traditional blue and white signs of Mobil, the Lukoil stations are painted red and white, often with huge signs burnished with the company's bright red logo. More than 240 locations around New Jersey have been converted, and by the end of next year more than 800 stations in the state and neighboring Pennsylvania will have taken on the Moscow-based company's brand.

The conversion, averaging about 10 a week, began in the Philadelphia area and has been slowly moving northward, with several stations along the Garden State Parkway already flying the Lukoil flag. It is all part of an aggressive effort by the Russian company to establish a toehold in the very competitive Northeast gasoline market.

"They're looking for an outlet in the U.S.," said Bill Dressler, executive director of the New Jersey Gasoline Retailers Association. "It's a very lucrative market."

Lukoil leaped into the market in 2000 when it purchased Getty Petroleum Marketing and boosted its presence when it purchased 800 Mobil stations in New Jersey and Pennsylvania two years ago. The deal came after the Federal Trade Commission ordered Exxon and Mobil to sell all of the latter's stations between Virginia and New Jersey as a condition for allowing an $81 billion merger of the oil giants to proceed.

"It was the opportunity that attracted us," said Dave Wallace, Lukoil's director for the region. "The stations were high-volume, high-visibility and great locations."

At this point, Lukoil doesn't ship crude oil into the United States or operate refineries, but buys product from other major oil suppliers. Longer term, that is expected to change, executives said.

"Russia is finding oil every day. They are going to be players whether Lukoil is here or not," Wallace said.

The marketing transformation, however, has not gone without a hitch. A number of dealers have balked at the switch, including more than two dozen former Mobil dealers who have filed a lawsuit against Lukoil, arguing the conversion illegally terminated their franchise agreements and the changeover has damaged their business.

"The pricing is way out of line," said Craig Copeland, who runs a station on Route 35 in Middletown.

Copeland said his volume has dropped to about 70,000 gallons a month from 120,000 gallons since Lukoil took over delivering oil to his station.

"I'm one of the highest (price) guys on the street with the lowest margin," said the 48-year-old Copeland, who has been running a station for 17 years. "I have a repair business that is subsidizing my gasoline business."

Lukoil's Wallace declined to comment on the lawsuit, but said the conversion to the Lukoil brand name is going well. "We've developed a great strategy through this transition. It just takes time to build brand equity."

Many of the dealers Dressler talks to said otherwise.

"Who is Lukoil? The public does not know who Lukoil is," he said. "If you listen to the dealers, they're not happy. They're not getting a good wholesale price, which they need to be competitive."

But some dealers are trying to make the arrangement work. Ardas Sariyan, who runs four stations in Bergen County, said he has seen his volume drop off, but is encouraged by other aspects of the arrangement with Lukoil.

"I'm upset, too, don't get me wrong," said Sariyan, who owns a station/convenience store on Route 4 West in Hackensack, directly across the highway from another Lukoil dealer. "But I am a businessman and I look at it, how can I improve my business?"

One option he is exploring is replacing an underused car wash at a station in Englewood with a Dunkin' Donuts. He also sells propane tank refills for outdoor grills at his stations.

"It's very important to look at this outside the box," Sariyan said. "You have to educate your customers, so they know that this is the best facility; the cleanest facility."

Lukoil also launched its own credit card with a special rebate that allows customers to purchase gasoline at a discounted price for the first few months, a deal which has helped boost business, Sariyan said. The company has signed up 27,000 cardholders in the U.S. since the launch, according to George Wilkins, brand manager. "We've tried to develop tools to help (the dealers)," he said.

If the company starts importing and refining it here, it could help to bring down prices and make their businesses more competitive, Sariyan said. "I think they are on the right track," he said.