Island Petroleum: An Island Mentality
Energy Executive Spotlight
Written by Eric Slack   
Thursday, 31 January 2008
Island Petroleum: An Island Mentality - American Executive - RedCoat Publishing
Mike Hennessey leads this Canadian company’s effort to evolve the way oil heat is used on PEI.
Finding a niche in the marketplace isn’t that hard for Prince Edward Island’s Island Petroleum. According to Mike Hennessey, Island’s general manager, roughly 85% of homes on PEI use oil heat. Although that creates plenty of opportunity in the short-term, the debate over climate change and the rising price of oil present Island with plenty of long-term challenges.

Island Petroleum: An Island Mentality - American Executive - RedCoat Publishing
Mike Hennessey, General Manager
“I believe oil heat can be a part of the solution, but possibly supplemented with some other energy sources,” Hennessey said. “That will be our biggest challenge over the next few years: maintaining our customer base with the infrastructure we have while offering alternative solutions.”

Thinking locally
Although its origins can be traced to 1929, Island was formed in 1982 as an agent for Texaco’s Canadian operations. In 1986, Texaco brought out a new wholesale marketing program and reduced the number of companies it worked with to two, Island being one of them. Since then, Island has gone from a one-truck commissioned agent for Texaco to a full-service heating company offering everything from fuel delivery to heating equipment sales.

Part of Island’s success stems from PEI’s use of oil heat. Gas heat doesn’t exist on the island, and electricity is relatively expensive because most electricity the island consumes is generated elsewhere. This creates customers for Island, but it also means stiff competition. As part of a market-driven strategy, the company believes the community connection sets it apart from the larger companies operating in its backyard.

“A lot of our competitors are large oil companies like Irving and Esso, and a lot of their service levels are off PEI, like call centers in the Atlantic region,” said Hennessey. “We feel we can offer a more personal level of service with our offices in Charlottetown and Summerside.”

For example, Island doesn’t have a call center. While some companies can’t imagine not having one, Hennessey says Island’s administrative staff of about 20 people is able to handle customer calls directly. Customers can choose to order products and request services through the company’s Web site as well. Many larger oil companies don’t offer inhouse service departments, choosing to subcontract that work out to other firms. Island has its own technicians on the payroll, allowing greater control over customer service issues.

One staffing issue Island faces involves a shortage of skilled tradespeople. The petroleum business is booming in Western Canada, particularly in the Alberta province. Many people have headed west to find their fortune in one of the fastest growing regions in the country. Hennessey says Island’s best defense against a mass exodus is the benefits the Island lifestyle can offer.

“This is a smaller community, and a lot of people don’t like the lifestyle of the larger population centers,” he said, noting data suggests most skilled technicians departing for Western Canada are young, single males. “On the technical side, we’ve had success by always bringing in apprentices to train under the skilled tradespeople.”

The apprenticeship program is a three-year schooling process, two months a year, plus 6,000 hours of on-the-job training. PEI’s local community college, Holland College, offers the HVAC courses, and the federal and provincial government sponsor apprenticeship programs.

The company invests annually in efforts to improve its fleet of trucks and modernize its back-office functions. Island has approximately 25 delivery trucks and 25 service vehicles, which are upgraded at the pace of two trucks a year. Several years ago, Island installed a new computer server at its Charlottetown main office, allowing branches to report to one central database. All billing is handled through the local branches, but the main office is able to maintain a consistent flow of data about day-to-day operations. Island also expanded its Web site over the last few years and is seeing increased traffic as more and more customers turn to online billing, service requests, and product orders.

Island’s leadership is aware that PEI’s overwhelming reliance on oil heat is not permanent. Oil prices continue to rise upward, customers are concerned about oil’s impact on the environment, and energy demands are increasing. To save itself some major headaches down the road, Island has a long-range vision the company believes will keep it viable even as the market changes.

“In the years ahead, there will be even more demand for energy efficient equipment or alternate methods of enhancing oil heat,” Hennessey said. “People are going to be more energy conscious with the prices rising the way they are.”

In response, Island has a strategy designed to satisfy customers and adapt to the market. To keep costs as low as possible, Island deals almost exclusively with local vendors for everything from heating equipment and supplies to vehicles. The company’s relationship with its main petroleum supplier, Ultramar, stretches back to Island’s days with Texaco. In 1990, Imperial Oil purchased Texaco’s assets, which were subsequently purchased by Ultramar. Although Ultramar is owned by American energy giant Valero, Island deals only with Ultramar’s Canadian operation.

Island is also part of a diversified organization. In addition to the PEI business, Island has branches in Amherst, Nova Scotia and Woodstock, New Brunswick. The company also owns a separate business called Hynes & Smith Plumbing & Heating. As the push for reduction in the use of fossil fuels continues, Island thinks the answer lies in increasing efficiency and offering alternatives to complement oil heat as they become available. Through newer condensing hot water boilers, heating equipment efficiency could rise as high as 93%. Whether additional technologies such as biofuel or solar-generated heat can be incorporated into oil heating systems remains to be seen. But to continue its success for another 20 years, Island must study every available option.

“We can’t just stick our heads in the sand and try to push high-priced oil on our customers,” he said. “We have to offer them the most competitive heating option out there.”
 
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