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Published: May 3, 2010
 / Summer 2010 / Issue 59

 
 

Why We Hate the Oil Companies

At the same time, oil companies that own a retail network have historically faced innumerable antitrust charges. After hurricanes or other supply disruptions, I could always count on attack letters from the attorneys general of the states that were affected, who accused the company of conspiring to raise prices or withhold supplies. Retail outlets have also been a source of fines and permit violations. There’s nothing like local officials going after the deep pockets of a big oil company over a single gas station violation of a local ordinance.

That’s why ownership of the retail end of the business has shifted from oil companies to local business owners, who purchase supply and branding rights. For their part, top-level oil executives spend virtually no time on the retail end of the business. In eight years of executive meetings in my global role at Shell headquarters in The Hague, I can recall very few discussions about the retail business, unless they had to do with selling off stations. In some major oil companies, you have to dig four or five layers down from the top to find someone dedicated to retail stations. Indeed, in the middle of the controversy over rising oil prices in late 2005, one oil company executive is rumored to have told Dennis Hastert, then Speaker of the House of Representatives, that if the American people didn’t want his gasoline that was fine with him. There were plenty of others around the world who did. (Of course, this re­mark was not made in a public hearing.) And oil companies wonder why they are hated.

The Perception of Time

When oil executives speak publicly, they focus on what they believe is the best thing they can do to benefit consumers: finding more oil and gas supplies for the future. The oil that will be in gas pumps and cars and planes and ships for the next eight to 10 years has already been secured. By the time a tanker’s load of gasoline is delivered to the retail station, the oil executive has moved on to thinking about the gasoline that will be delivered 10 to 25 years in the future, and that is still to be discovered or tapped. The clock never stops ticking on the need to identify and access future supplies, or reserves. It is a compelling, ongoing preoccupation for many oil executives.

To develop access opportunities, each oil company must build and sustain relationships with governments, other companies, and mineral rights owners. It must also invest in talented people, advanced geology and drilling and production technology, logistics management and refining equipment, and safety and environmental management. Time is the most critical resource. What risks and opportunities will present themselves in what time frame? Shell is famous in the industry for its 100-year forecasts and even more so for its complex scenario planning. Both approaches are time-based analyses that attempt to describe the future of resource supply and depletion while anticipating global, regional, or local events — in society, culture, politics, and the economy — that may or may not impact supplies.

This difference in perspective further distances the oil executive from the consumer. Imagine the dumbfounded oil executive who is jerked back to today’s market reality by public opinion issues. The executive is further perplexed when public officials inevitably side with consumers. I heard it many times over the years: “How could these elected officials be so dumb, so de­tached, so distant, and so unrelenting in their opposition to what it takes to meet future demand for gasoline? Don’t they know everyone needs fuel?”

One area where oil executives are focused firmly on the present is profit. They expend particular effort on cost management. The temptations to spend, to address issues with more money, are ever-present. And all budget planning has to take into account the volatility of oil prices. Huge capital expenditures, investments in growth and new facilities, staffing levels, positioning plays, and day-to-day operations must carry on despite unpredictable and extreme fluctuations in the oil price. It may seem from the outside as if higher oil prices are a win-win for oil companies, but those higher prices also drive up competition and costs for new oil leases, drilling equipment, and oil-field services. When prices later fall, especially as dramatically as they did in 2008, recouping those costs becomes difficult.

 
 
 
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Resources

  1. Stewart Brand, “City Planet,” s+b, Spring 2006: How the profound consequences of increasing urbanization are changing the way we think about demographics, cultural vital­ity, and economic development.
  2. Viren Doshi, Gary Schulman, and Daniel Gabaldon, “Lights! Water! Motion!s+b, Spring 2007: Rebuilding the world’s urban infrastructure can be done only by integrating energy, transportation, and water.Peter Senge, Bryan Smith, and Nina Kruschwitz, “The Next Industrial Imperative,” s+b, Summer 2008: Why facing up to climate change requires a revolution in business thinking.
  3. World Wide Fund for Nature and Booz & Company, “Reinventing the City: Three Prerequisites for Greening Urban Infrastructure,” (PDF) March 2010: More analysis and ideas on why we need to aggressively pursue urban sustainability.
  4. For more thought leadership on this topic, see the s+b website at: www.strategy-business.com/sustainability