Crude Intentions

04 January 2008

A barrel of oil hit $100US this week…..and the world didn’t end.Blackgold

Interestingly, the Director of the International Energy Agency said he wouldn’t be surprised to see oil go to $150 per barrel.

Unless you are an oil and gas play, when oil goes up your company’s stock tends to go down.  After all, no company lives in a bubble.  Macro economic factors will drive your company stock higher and lower whether you like it or not.  However, too often we see company’s get taken down as oil prices move higher despite that company’s relatively low exposure to oil.  For instance, is it analysis paralysis to say that an increase in oil prices will cause people to stop going to fast food restaurants because it costs more to drive to such restaurants?

This is where investor relations professionals need to step in and earn their bonuses.  IR departments need to demonstrate to existing and prospective shareholders what the real impact (or lack of impact) of higher oil prices are on their company.  A great way of doing this is by demonstrating your company’s revenue and eps success during past increases in the price of oil.

Example – during the past year, when oil increased from $65 to $85 per barrel our company was able to grow revenue by x% and grow eps by y%.

You are not saying that you like higher oil prices.  You are not saying that you are immune to higher oil prices.  You are saying that your company has an ability to deal with fluctuating oil prices and that your exposure is less of a risk factor compared to others.

Selling your company’s ability to adapt, survive, and even thrive in an ever-changing macro environment is one of the core functions of an IR professional.

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