Magazine article Business Credit

Choosing to Grow: Thoughts on the Changing Landscapes of Petroleum Credit

Magazine article Business Credit

Choosing to Grow: Thoughts on the Changing Landscapes of Petroleum Credit

Article excerpt

Editor's Note: The following comments were delivered to the International Petroleum Credit Association at their October 6th meeting.

I'D LIKE TO BEGIN BY TELLING YOU ABOUT THE COMPANY I work for. Chevron is an international company with a market capitalization of more than $50 billion and about $43 billion in revenue. Worldwide, each day, we produce over a million barrels of oil. Like other international majors based in the United States, we focus more on opportunities elsewhere in the world than here at home. Bright spots remain in the United States but today, we invest about a dollar and fifty cents outside the country for every dollar invested at home-a reversal from the ratio of the late 1980s.

We've concentrated in the last five years on reducing our costs. Compared to 1991, we're down about one billion per year, and that's real dollars with no adjustments for inflation. This reflects combined savings from reorganizations, process improvements and shrinking our work force from about 50,000 in 1990 to 35,000 people today.

The story of Chevron is in many ways the story of the industry. The downsizing years claimed many industry jobs-an estimated 430,000 since 1982. For all of us, managing operating costs is not just a priority. It's our culture and a competitive imperative.

How we came to our present state is understood. We've restructured around a whole new set of economic realities and have sustained our emphasis on financial performance in response to the rising expectations of our stockholders and investors. I think it is fair to say that the oil industry has spent the 1990s learning how to be successful without high oil prices. Even though the last 10 years have often been difficult, they've prepared us for the next 10. However, if the analysts are right, some companies won't survive.

What this means for the credit function is that the persistent focus on efficiency and cost reduction must continue-and at a faster pace. Unlike some other sectors within oil companies, credit can reduce costs through process improvements that aren't linked to the commodities themselves.

Arguably, the function itself is getting more important. The tougher each dollar of profit becomes, the more important it will be to secure, capture and put it in the bank. Doing more with less is what our companies expect of us today. Credit professionals face tough challenges which, if not addressed, will make the function obsolete. But, they also face tremendous opportunities that should be welcomed.

The traditional creditor role is not developed in many emerging nations where God put oil. Our economic culture of strong internal controls, regular payment times, interest and double-entry booking is not intuitive to newcountry partners. Companies need a great deal of perseverance and creativity to resolve this. How do you measure sovereign credit risk when a country has no established legal or tax systems? It's very difficult, and I believe we'll see more "creative" deals in the future, which will present us with some very real financial contract and credit issues.

At Chevron, we've centralized the credit function, added a lot of new technology and improved most of our work processes, so that today we have half as many people in credit as we did 10 years ago. For example, our Financial Services Center has about 100 people doing the work that used to require 200 people spread among five subsidiaries. Still to be fully explored and addressed is the structural issue of outsourcing. This is a somewhat emotional issue, and we still have a lot to learn about it. What's clear for now is that outsourcing is not a panacea. It's one thing to outsource simple work. It's quite another to outsource customer stewardship. This is one more argument for building highly capable, business-focused credit functions.

Another challenge to credit is managing technology. I'm convinced that technology gave our industry much of its profitability and productivity in the last 10 years. …

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