CHAPTER 7 SUPPLY, MARKETING, TRANSPORTATION AND COMMUNICATIONS

• Jurisdiction: United States

International Minerals Acquisition and Operations
(Oct-Nov 1974)
CHAPTER 7
SUPPLY, MARKETING, TRANSPORTATION AND COMMUNICATIONS
Thomas D. Jenkins
The Permian Corporation
Houston, Texas

INTRODUCTION

The subjects assigned for this paper are broad, and the problems formidable not yielding to specific conclusions or easy solutions.

As background for these remarks, it should be noted that The Permian Corporation is the largest independent crude oil marketing company in the United States. Permian's parent, Occidental Petroleum Corporation, with over 32,000 employees, is a fully integrated company. Occidental is engaged in worldwide oil and gas exploration, production, refining and marketing, as well as in the chemical, coal, land development, hotel business and research activities. In the United States, Permian operates more than 425 crude oil truck transports, owns and operates more than 5,000 miles of crude oil pipelines, employs over 1,200 people and handles approximately 560,000 barrels per day of crude oil and other liquids. Permian is also heavily involved in the marketing of refined products and liquified petroleum gases, both domestically and internationally, along with foreign crude oil. Permian does not produce, at any location, one single barrel of crude oil nor does it own any refining facilities.

No longer do any of us involved in any phase of the oil business feel that we have "pat" formulas for the establishment and maintenance of exploratory, producing and marketing operations. The worldwide energy crisis and the resulting mass hysteria promulgated by the news media, politicians and public servants in the United States to all of whom we will give the benefit of being well intentioned combined with the less than statesmanlike actions of OPEC (Organization of Petroleum Exporting Countries) have rendered those oral and written agreements upon which we all once relied almost meaningless. Changing times, or, if you will, the reversing of the roles of the "have not" countries and the "have" countries has been chiefly responsible for the failure of the supplier countries to honor exist contracts. It is unfortunate, but true, that short term economic interests, rather than long term agreements, are the dominating considerations. Contracts under which millions, and sometimes billions, of dollars have been spent for exploration and development are now subject to unilateral renegotiations by the raw material suppliers. A trade that two parties may enter into is usually, in the opinion of both at the time, the best deal that either could make.

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Liken the position of the international companies vis-a-vis OPEC to the cowboy who rode up to the saloon, tied up his horse and went in for a beer. After finishing his beer he came out and found that someone had painted his horse red. Incensed with this vandalism against his mode of transportation, the cowboy charged back into the saloon and demanded to know who committed this atrocity. His demand fell on deaf ears except for one man who, unwinding from his chair, stood seven feet and weighed 300 pounds. The man asked the cowboy to repeat his question. The cowboy said: "someone painted my horse red and I want to know who it was?" The giant man answered, "it was me — what about it?" — to which the cowboy replied — "sir, I just wanted to tell you that the first coat is dry."

I. COMMUNICATIONS

The oil industry is made up of three basic functions: (1) exploration and production, (2) refining and (3), marketing, the fulfillment of which is impossible without the proper use of the function of communications. The outline given for this paper placed the subject of communications last. It is obvious that without continuous lines of understandable communications the three basic functions will erode. Therefore, communications will be discussed as the first subject.

There is no way to be successful in the oil business in a foreign country without good, clearly defined lines of communications; not only with the proper parties in the foreign governments involved, but also with our own government. Understanding pertinent terminology is most essential. It is imperative that you understand what "Sheik Ahmed" means when he says yes or no and that he understands what you mean when you say the same thing. All contracts are subject to arbritration and interpretation. They all contain arbritration clauses and in many, many instances are subjected to arbritration almost before the ink is dry. The reason for this is the difference in meanings accorded words and phrases by persons of different background and language.

To reiterate, and hopefully to emphasize, we must communicate effectively or we cannot exist, nor expect to do business at a profit.

The oil business is no place for a pessimist. The management of Occidental Petroleum Corporation is optimistic. We have a tremendous amount of faith in our business, in our form of government and in our ability to prosper and operate in partnership with most of the countries of the world. I think this is best illustrated by Occidental Chairman, Dr. Armand Hammer's pursuit of detente. He has made the greatest individual contribution to detente with the Soviet Union. Even though our philosophy of government is different than that of the Soviets, we can still trade. They have no intention of converting their form of government...