Oil. This year it has truly meant black gold for both producers and refiners of crude. With prices nearing $50 a barrel over the summer, the industry has reaped the benefits of record high profits — and taken lots of criticism for the same.
Los Angeles-based Occidental Petroleum Corp., which in 2003 produced the equivalent of 547,000 barrels a day, has been a top beneficiary. Its second-quarter earnings, announced in July, were up 55 percent over last year, to a record $581 million. Meanwhile, its stock price roared to a 52-week high of $53 in September.
But CFO Stephen Chazen knows how double-edged such success can be. Since energy prices are inextricably linked to economics, they have been blamed for all that is wrong in the economy. Companies, including Wal-Mart, have charged that overheated energy costs have caused weak sales. Economists warn that continued high prices could mean more inflation, fewer jobs, and instability in the stock market.
Although oil companies do not set the prices — national oil companies and the countries that run them do — the 58-year-old Chazen insists that the problem "will fix itself. If energy prices are too high, people won't pay them, the marginal demand will decline, and the price will fall. If it is $45 or whatever, that is not a sustainable price. It will fall over time." Still, he concedes, "the national oil companies have gotten used to the higher prices."
What Chazen does control is how Occidental spends the windfall. Overseeing the "capital program is the most important job of financial management," he maintains. And since all oil companies are racing to replenish an ever-diminishing supply, much of that spending must tap new reserves. To that end, Occidental may soon be the first oil company allowed back into LibyaÂ (For more, read CFO magazine's October interview with Chazen, "Oil Man.")