The message that fuel oil distributors must reinvent themselves was voiced by many of the speakers during Oilheat Visions 2008 held in the Boston Hilton Hotel at Logan Airport Sept. 8-10.
‘Two years from now this industry is going to be completely transformed. We’re going to revolutionize it. We’re going to make it happen,” said Peter Carini, honored at the conference for a distinguished career as an oilman. ‘Change is not an option, it’s a necessity,” the chief executive officer of Champion Energy Corp. said in accepting the Bob Greenes award.
Presenters in a number of seminars mapped out how distributors can market biofuel, expand into home energy audits and venture into heating, ventilation and air conditioning. They also discussed business planning, how to improve operational efficiencies, cost-saving, banking relationships and the ins and outs of hedging.
Ian A. Bowles, secretary of energy and environmental affairs for the state of Massachusetts, outlined the state’s biofuel mandate for attendees of the conference. The mandate requires a minimum percentage of biofuel as a component of all home heating fuel sold in the state, starting at 2 percent in 2010 and increasing in graduated steps to 5 percent by 2013. The state can delay the minimum content requirements if there are no biofuels available that meet standards, but Bowles told the audience at the Visions conference, ‘We strongly believe fuel will become available. Assume there will be no delay.”
Despite an expectation that there will be continued consolidation of fuel oil distributors, keynote speaker Joe Petrowski, president of Gulf Oil, said, ‘I think this industry has a great future.” To realize it, distributors must take a number of steps, Petrowski said, including developing multi-fuel capability and defining themselves as service providers to homeowners and businesses.
‘Service and knowledge are competitive advantages,” Petrowski said, and they are strengths that heating oil distributors already have and should play to. ‘There is a huge, burgeoning industry in home energy efficiency.”
The industry must lobby for credit support and tax policy initiatives, Petrowski said. Legislation that rewards ‘demand mitigation” is needed, and funds should be earmarked for efficiency projects, he added.
Hedging was the focus of a heavily attended seminar of the conference. It is a necessity in today’s market, said John Kilduff of MF Global, one of the speakers in the session on fuel buying. ‘Swings that took years now take a day or a morning,” he said. ‘To not get chopped up you need to engage in hedging ‘ not for profit but as ‘insurance’ to prevent losses.”
But hedging is a complicated activity, Kilduff and his MF Global colleague, Don Luke, emphasized, and it requires cash. ‘Don’t go it alone is my advice,” Kilduff said.
Volatility in fuel prices is what prompted Gary Sippin and a colleague at Sippin Energy Products, Monroe, Conn., to develop a Web application designed to help oil distributors manage their businesses fluidly.
‘About 15 years ago we started providing oil price protection to our customers,” Sippin said to attendees. At that time it wasn’t overly complicated to do that, but now ‘big mistakes in hedging have a much greater impact.”
The Web application that Sippin described, Destwin Fuel Dealer Solution, at destwin.com, is designed to help distributors manage their business. It can be used to manage oil price protection programs. For example, the program contains a ‘risk management summary” for the current month that displays data on a single grid, including: gallons bought, sold and to be bought, along with a running total of those gallons; gallons delivered; the average price and average cost for the delivered gallons; and the margin on the delivered gallons.
The cost of fuel, and the pressure to pay wholesalers within 10 days, has set up a situation where financing, and the art of maintaining a sound working partnership with one’s bank, is more important than it has ever been. And it is a challenge that some distributors meet with greater success than others, Thomas O’Leary of Citizens Financial Group, said in a session on banking and financial management. There is a ‘fundamental under-capitalization of the industry,” O’Leary said, resulting from high fuel costs and ‘multiple years of carry-over customer credits coming home to roost.”
If receivables build and remain unpaid, the value of a distributor’s customer list declines, O’Leary noted, which limits a bank’s ability to provide long-term financing to recapitalize. What to do?
Steps that can help, O’Leary said, are to increase margins, get your supplier to extend the due date for payment by a week and eliminating a working capital deficit by putting money back into the company.
Companies that maintained their margins last year did better for it, and O’Leary recommended that course for all distributors this coming season. Service fees can also be a significant source of revenue. He advised distributors should keep talking to their bankers, making certain they are apprised of all developments.
‘Really, more so than ever, it’s all about cash flow,” said Matt Ide, Citizens Bank’s senior vice president of energy lending.
The Small Business Administration has made a noteworthy change to the eligibility requirements for its programs, Ide said. The SBA had stipulated that a company’s sales must not exceed $13 million to be eligible for SBA programs. ‘With oil so high it’s easy now to exceed $13 million,” Ide said. The SBA appears to have reached the same conclusion. It has changed the requirement so that companies can be eligible for its programs if they have 50 or fewer employees.
The notion of performing home energy audits received more than passing attention from a number of speakers, including NORA President John Huber and the director of education, Bob Hedden, who is developing a program to train technicians in home energy analyses.
Huber observed that the number of house keys fuel oil companies hold is legendary, a sign of outstanding customer relations, ‘but it’s based only on oil delivery. We need to expand that relationship.”
Blaine W. Fox of Warm Thoughts Communications, a marketing firm, in a presentation on getting into HVAC, contended that in a group of 10 technicians ‘three sell the company no matter what, and three don’t want to talk to customers.” The others, Fox said, ‘can be brought up to sell. Selling is a learned behavior.” Warm Thoughts has set up a Web site, rpyhb.com, designed to help companies interested in getting into the HVAC business.