Petro Bankruptcy?

Ken_8

B*A*D -- M*A*N*A*G*E*M*E*N*T ?

To have a virtual monopoly, deep resources in commodity markets know-how, and huge storage capacities to mess around with, it is amazing they are not making a finacial killing!

Anyone who ever played the market and messed around with "futures" knows how easy a surging price can be played with - and result in as much, or more profits than the actual retail sale of the commodity itself!

A close relative works for them and has said for years they are so poorly managed and so short-sighted, she cannot believe they ever really made any money in the first place. Their asset to liability ratio has always been "iffy."

Bigger is not necessarily better.



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techheat_2

PETRO'S PROBLEMS
Cash-flow woes hit heating oil company



















BY ALAN J. WAX AND TOM INCANTALUPO
STAFF WRITERS

October 19, 2004


The company that owns the largest supplier of home heating oil on Long Island and in New York City warned yesterday that it may declare bankruptcy because its Petro subsidiary hasn't been able to pass on soaring fuel oil costs to its customers.

Star Gas Partners LP said that another reason for Petro's financial difficulties was the unusually high number of customer defections. Petro over the past two decades has acquired hundreds of fuel oil dealers in this region and elsewhere as a way to increase its customer base.

The Stamford, Conn.-based company serves Long Island and all of New York City except Manhattan.

The company doesn't expect service to its customers to be interrupted. But the announcement sent Star's publicly traded partnership interests plunging 80 percent on the New York Stock Exchange to $4.32, down $17.28 on the day and erasing more than $600 million of the company's market value.

Star said its Petro unit serves 125,000 customers in the region and 524,000 nationwide, but it lost 4 percent of its customers nationwide in the 12 months that ended June 30 because of delays in centralizing its dispatch system. As a result, it said, Petro won't be able to meet the terms of its bank loans.

The problems won't affect Petro's customers, a company official vowed. "There is no effect on our customers. We're business as usual," said David Shinnebarger, chief marketing officer for the nation's largest heating oil distributor. "We are delivering to our customers. No customers are waiting for cleaning."

He added, "We're paying our bills, we're paying our employees and we're buying oil at the terminals."

Petro is honoring its promised cap on prices on heating oil deliveries and, in fact, is offering new price caps and fixed price contracts based on the current market to customers, he said.

The main problem was the sharp run-up in oil prices. "Over the past two months, wholesale prices have gone up twice as much as we expected them to," said Shinnebarger. Yesterday, heating oil for November delivery sold for $1.5097 a gallon on the New York Mercantile Exchange - 82 percent more than a year ago.

Industry experts say a bankruptcy filing by a heating oil retailer as large as Petro would be unprecedented. But, they said, it would not be surprising given the company's heavy debt from acquisitions, including household names like Meenan Oil, and its practice earlier this year of offering price caps that turned out to be well below the record highs that now prevail.

One longtime oil retailing executive who is familiar with Petro's operations said Petro's customer service deteriorated as it grew, in part because it outsourced the function to a company in Canada. "Whoever made that decision doesn't know the heating oil business very well," said the executive, who declined to be quoted by name because of occasional dealings with Petro. "Customer service is what it's all about."
Copyright © 2004, Newsday, Inc. | Article licensing and reprint options




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Mike T., Swampeast MO

Interesting

Sounds like they tried to corner much of the market at the wrong time and without proper consideration for good service to the customer who (unlike with gas/electricity) actually has a choice!

GMcD

Corporate mentality

Having worked in the past for a large publicly traded Corporation, I can tell you that "customer service" is just "words". It's all about "shareholder value" and how the management is compensated based on the share price of the Corporation. Customers are just necessary evils that the field folks have to deal with to collect $$ at all costs. The whole business management strategy is based on short term quarterly earnings, and there is little strategy among many of these Corporations for maintaining a repeat customer base. A "long term" plan to most of these '80's and '90's MBA's is looking ahead four quarters. It's all about "growth" at all costs. Keep inflating the credit bubble till one card slips in the house of cards.

Constantin

Between the economies of scale and...

...simple monopolistic/predatory behavior, one could have expected a roll-up strategy like the one used by this company to succeed.

Look at the success of Blockbuster in what used to be a similarly fragmented industry. The former CEO of Blockbuster simply applied the same management rules to Blockbuster as the ones he used to build his Waste Management empire.

It appears as though the CEO of this enterprise was neither good at cribbing a "me-too" strategy nor at running his/her enterprise. After all, if your service is significantly worse than the other guys, you can't expect customers to patronize your business in the future.

Competition among providers is a good thing, that's why I chose oil as a fuel source. The more suppliers we have around, the less likely it is that collusive or monopolistic behavior will succeed.

jerry scharf_2

well said

Brian,

From my computer days: "user is a 4 letter word."

When will we actually get out of this short term make a buck mode? I hope it starts shifting soon.

jerry

Dean_7

Petro

Once upon a time in about the 10th grade in high school I had a history teacher who made us learn this phrase: "Those who cannot remember the past are condemmed to repeat it." Anyone want to look up the business practices of the 1920's just before the Great Depression?

Ken D.

Petro

Trust me on this, Big Blue + Big Green = Disaster. Two wrongs don't make a right. Among many problems is too many people in high places who not only don't understand their markets, but don't understand the business in general. The large corporations these bozos came from were not dependent on the personal service it requires to run a successful oil company. They figure here we are, you will like us because we say so. Besides if you change suppliers, we will probably buy them too, so you might as well stay with us.There are not too many customers that will spend a thousand bucks or more a year for oil service - not to mention contracts- only to receive poor service and indifferent CSR's. Big Green in our area is well known for keeping the delivery schedule so long that great amounts of their customers run out of oil time after time. So many of them are so insulted by the company's attitude that they will never go back and many went to gas All so Green can avoid one extra delivery. Nice going, guys. These outfits don't grow by their merits, they grow by purchasing other companies The damage they do to the industry is a crime. They treat their customers and employees equally - like crap. Been there, Done that. I must lie down now, my blood pressure is through the roof.

Constantin

The tragedy in all this...

...is that in order to have better customer service than the next company over, all you have to provide is a customer service that stinks just a little less, right?

Here in NE, the gas companies are slowly picking off all the oil accounts with monetary incentives and the promise of less maintenance, no more deliveries, etc. In other words, they're selling convenience and due to its fragmented nature, the oil industry has no unified answer. What we have now is individual companies that "get it" which will defend their customer base from defections, and those that will die a slow death by attrition.

Just two weeks ago, one of my clients asked me about her heating system options (since she knows I'm renovating). She was amazed to hear that I'm installing an oil system because she thought gas was a better fuel source. I showed her the math using last years winter prices where oil was 20-40% cheaper. With current prices, oil comes out even, even when one accounts for differing plant efficiencies. [thanks for pointing out the inconsistency, Rob]

Since her boiler is running fine, I told her to save her $$$, and go about insulating her home properly first. Some parts of her home freeze in winter weather at present (!!!) Once the heat loss is down, the house weathertight, one can revisit ones options WRT the heating system. This is where I think the government is not pursuing the right policy.

Think about it, consumers are inundated with ads from the Gas companies about convenience, space, rebates, etc. Why does the government do so little to promote energy efficiency in terms of consumer mindsets? It's all about marketing, baby, and the government has yet to drill into people's heads that they need to address the heating and cooling of their homes as a system, not as unconnected individual components.

BTW, I don't think the suppliers upstream of home heating oil distributors (the big oil companies) care all that much about the heating oil market either, as it's low margin. You might as well blend it a little more and turn it into "Diesel" (i.e. add that tax dye the inspectors look for).

Mad Dog

Santayna................................

said it - no not Carlos. Mad Dog

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Ken D.

Constantin

You are so right. The main reason Oil Heat experienced such explosive growth in the 40's, 50's, and 60's is that big oil backed it to the hilt with inovation and marketing. Now the don't give a darn. Not enough money in it. Hopefully NORA will change all that. It remains to be seen.

Firedragon_4

Hey Ken,

it's been 4 years??? Wadda ya thimk?

Ken D.

Firedragon

I don't see much improvement yet at the grassroots level. I am hopeful.

Geno_15

monopoly

There are other companies engaged in this practice of buying full service companies with a lot of customers who are used to paying top dollar for their fuel. They want to get oil for next to nothing and charge top dollar for it while cutting service. They do not have the type or quality service to back up what they sell themselves as, a full service company,they are not organized, they are scary. I saw one take over a company with state of the art systems for delivery and service, soon after they took all this stuff out and started having run outs, I'm talking 15-20 per night, and the service men tell me they get no replacement parts, at least not enough to restock their trucks so they have to clean nozzles.

What was that old saying? Only the strong survive??

Unknown

If it's even cost, I don't see a benefit to oil. It's price is about to surge way faster than gas will (though gas will follow a bit more slowly), it burns dirtier, where is the benefit?

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Constantin

It all depends...

The Northeast of the US is a strange animal, as you may know WRT oil vs. gas prices. Our gas supplies are severly constrained by the lack of pipelines, so much so, that it pays to transfer the stuff up here, compress it into liquid form, then store it until winter. Hence, the price up here of gas is significantly higher than the national average. Conversely, our oil prices are lower than most places.

The two converge to create a situation where oil prices traditionally were about 40% lower than gas prices on a per BTU basis. Furthermore, with gas we have no choice who delivers it - we are at the mercy of Keyspan, NStar and all the other monopolies that may or may not have our interests at heart. For example, I find it hilarious that heavy users of gas & electricity get a big discount, while the residential folks pay up to 4x more per kWh/therm.

The reason I dissuaded my client to go with a gas boiler is that she ought to fix the issues in her home first, the heating plant second. It is not normal to have parts of the interior space freeze during the wintertime, and I gather that she and her remodeling contractor are now heading to court.

Only once her house envelope is tight and the insulation effective, does it make sense for her to take a closer look at how she could make her heating plant more efficient. For one, it's pretty safe to assume that a new plant will need to be smaller than the extant one (before the retrofit of insulation). Proper sizing is important as we all know, particularly if she uses oil as a fuel once more. At least modern gas appliances can modulate down to "cover up" oversizing somewhat.

Lastly, I should clarify things a bit. Last winter, oil prices were 20-40% below those of gas on a per BTU basis in Boston. With the current run-up in oil prices, the difference is close to 0% or may even approach negative. However, I don't believe that oil prices will continue to skyrocket unabated. There is too much oil in the ground and too many opportunities for substitution that demand will (eventually) shift back down. At least, so I hope.

In any event, Ms. Vitola can always be converted to gas if things really get out of hand.

Unknown

absolutely it wasn't a priority for her, now. I was just questioning on basic principle.

you should google on "peak oil" sometime. Oil's going up, and it's going to keep going up, and there is no way to stop it at this point, as far as anyone can tell anyway.

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eleft_4

four years!!!!!!!!!

C'mon George! ..... you can't legislate "ones" philosophy, greed, gluttony or any other bad habits.

I still remember 1988!!
al

Constantin

Speculation is a wonderful thing...

We can all be right and wrong at the same time. It merely depends on what point in time the differing opinions are put to the test. Presently, I think there is a lot of speculation going on

Unknown

there was a big difference in previous oil price hikes.

that is, there actually was spare capacity that was not being used.

We're entering a new era. Check it out, the info is all out there. China and India are ramping up fast, and production is not. Can not. It's a simple equation.

Of course I could be wrong, and I hope I am. I just don't think so.

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