ZIFFPAGE TITLEPipeline to ProfitsBy Mel Duvall | Posted 2005-10-06 Email Print
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Trading, pipeline scheduling and accounting systems boost revenue-without big staff increases.
Pipeline to Profits
In simple terms, Western Petroleum makes a profit by buying petroleum products in bulk and selling them in smaller chunks. The company might, for example, buy 25,000 barrels of fuel from Exxon Mobil and resell 5,000 barrels to a customer such as the Kum & Go chain of gas stations, Northwest Airlines, Campbell's Soup (for its trucking fleet), McDonald's or General Motors.
A customer like Kum & Go fills up a tanker truck at one of dozens of pipeline terminals throughout the Midwest and Rocky Mountain states. The buyer signifies, usually through a customer code, that it is "pulling" its gas supply from Western. At the end of each day, the pipeline companies electronically file reports to Western, detailing the customers that received fuel at the terminals and the exact quantities.
This may sound a lot like the kind of operation run by the disgraced Enron-and in some respects, it is. The big difference is that Enron was likely to electronically flip energy contracts to make a profit, whereas Western takes ownership of the fuels it purchases and sells to actual consumers. It's also been at it for 36 years.
While Western buys its gas from big refineries like Exxon Mobil, it also competes with them for customers. It wins by being able to purchase large volumes of gas on one day at a certain price, say, $50 a barrel, and sell it off in smaller chunks at, say, $51 a barrel. There's also a tremendous risk involved, Emison says. If the price of oil falls $2 the next day, Western may have to unload its purchase at a loss.
As Western's business has grown, the company has relied heavily on technology to reduce the need to hire more staff. Western's philosophy, according to Emison, is to automate wherever possible and outsource all non-critical functions.
A key piece of the automation strategy is a software platform called PetroMan from Sisu Group of Tulsa, Okla. Originally developed seven years ago for QuikTrip Corp., a chain of convenience stores and gas stations based in Tulsa, PetroMan is a hybrid system that includes a trading application, contract management and risk management system, pipeline scheduler and accounting program.