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Gold/Mining/Energy : Strictly: Drilling and oil-field services
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To: diana g who wrote (39891)3/14/1999 1:58:00 PM
From: Razorbak  Read Replies (1) of 95453
 
Suboptimization of Cost Savings to the Detriment of Revenue Gains

Diana: IMHO, you're missing the forest for the trees.

<<If I were in his position I would be uncertain of the future price of oil but would take the position publicly that I expected prices to go/stay down. He will be negotiating with service companies and drillers. It would be against the interests of his company to do otherwise.>>

By making such a statement, you assume that Fuller might be taking a public position on the oil price outlook in hopes that his comments will help him in future negotiations with service companies and drillers, which only affects the cost side of his company's P&L statement. OTOH, he has a much greater vested interest in seeing his company's top line revenue grow with an increasing price per barrel of oil produced. Integrated oil companies like Amoco have much greater upside leverage through revenue growth than they do through cost reduction. Case in point: Look at Amoco's profitability in late 1997 when both oil prices and rig/service costs were high versus just prior to the BP merger when oil prices and rig/service costs were low. Why do you think Fuller might be willing to suboptimize his company's best interests to the detriment of his own economic well-being?

IMO, Fuller is probably just like most other executives. He probably has a rather healthy ego, thinks he knows where prices are headed, and he sometimes takes public positions in the present simply to be viewed in retrospect as correct down the road once 20-20 hindsight becomes more readily available. <vbg>

Razor
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