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Appointments: Oil industry heads for acquisitions and closures

By Graeme Kennedy

Friday 5th May 2000

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Peter Griffiths COST CONSCIOUS: Peter Griffiths says drivers could reduce fuel costs by slowing down
Pitiful returns and shrinking margins are likely to force some rationalisation in the New Zealand retail oil industry, warns new BP managing director Peter Griffiths.

"The market is very competitive and no one is getting adequate returns. That situation can't go on forever and there will have to be some sort of rationalisation one way or the other - either people will leave the market or there will be some acquisition," Mr Griffiths said.

"Overseas, Exxon has acquired Mobil and BP has taken Amoco, Arco and Castrol and it is not impossible to see more of that global game played out here in New Zealand."

Mr Griffiths said while an industry return of 15% on capital employed "would be nice," the figure was closer to 1-2%. BP, New Zealand's biggest oil company, last year made around $30 million profit of an industry total of less than $100 million.

In 1998-99 BP slashed its staff from more than 400 to around 185 and was on track to reduce operating costs by half to achieve $45-50 million savings.

"The last four months have been atrocious in terms of profitability. High oil prices led to high product cost and New Zealand pump and commercial prices did not rise at the same rate as product so that margins were squeezed - we were selling diesel really at below cost in February," Mr Griffiths said.

"New Zealand is a difficult market - it's remote with difficult terrain and low density, especially outside Auckland, but to service the demand you need an infrastructure of terminals, tankers and trucks.

"You need the market share and volumes, therefore you've got to compete to get enough customers to pay for the infrastructure investment and with six or seven players now the market is pretty highly contested."

Mr Griffiths began his oil industry career right at the bottom - on the sea floor working as a contract diver on the North Sea fields.

He graduated from Victoria University with a BSc (hons) in marine zoology in 1971, planning to become a research scientist specialising in fisheries and marine ecology. He worked with a small UK company studying the effects of oil pollution on the marine environment.

Earning a basic £25 a week as a research assistant, he saw North Sea divers getting £100 a day and quickly made his career change. Mr Griffiths spent 15 years as a diver in the South China Sea, off Western Australia and on the Maui field.

He went into project management, laying pipelines and repairing, inspecting and maintaining rigs until he joined BP and came home to become the company's South Island operations manager in 1987.

"It's a tough life working offshore and being away from the family for five months of the year. We were expecting our second child and it was time for another career change," he said.

Mr Griffiths spent four years running BP in Papua-New Guinea before becoming New Zealand general manager and now managing director.

New Zealand petrol sales are between $3-4 billion with diesel and jet fuel about $1 billion each and lubricants $200 million. BP, which has been in New Zealand for 50 years and grew with the acquisition of Europa, has about 28% of the market, Shell 26-27%, Mobil 21-22% and Caltex 17%.

Success in the industry was driven by location and loyalty programmes with price coming in third, Mr Griffiths said.

"BP has skills in identifying good pieces of real estate and acquiring them. Our motorway service areas at Bombay and Papakura opened a few months ago with restaurants and retail outlets and we are very pleased with how they are turning out," he said.

BP last week ended its 12-month trial service station-supermarket venture with Woolworths at Herne Bay and Henderson and although Mr Griffiths said the scheme had done well the company will open a similar supermarket format under its own brand later this year.

"The returns for the investment will be better for us and we see other retail as a very important and growing part of service station business. It provides the income, the livelihood for operators - fuel just covers their costs.

"New Zealanders have a fascination with fuel prices - one cent more on a litre and it's national news, yet if people changed their driving habits, took four or five kph off their speed, they could save far in excess of a cent on their petrol bills.

"And they would save fuel if their cars were properly tuned. It's estimated 20% of New Zealand cars could do with a tune."

Peter Griffiths
Position: Managing director, BP Oil NZ
Age: 44
Marital status: Married, two children
Pastimes: Diving, fishing

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