Published 2:11 pm Friday, July 14, 2006
Mississippi is lucky to have a company like Ergon. It’s family-owned and local. Companies like that really give vibrancy and strength to a community. Viking Range in Greenwood and Cellular South in Jackson are the same way.
One of the great changes of this generation is the disappearance of many of our strong local companies and the rise of publicly-owned national chains. These big national companies don’t have the local ties and connections, and make poorer citizens.
Fortunately, when the chains buy out local companies they create a lot of wealth that often stays in the community. It remains to be seen whether the creation of such local wealth will offset the negative aspects of national chain ownership of so many of our most important local businesses.
Perhaps the toughest loss has been many of our local banks. Fifteen years ago, all our major banking institutions were grounded in Mississippi. Now most are part of huge regional or national banks.
It’s hard to imagine that Ergon was started in 1954 on Farish Street with two employees. Today it has 2,500 employees comprising 50 companies from oil and asphalt to real estate and computers.
Among other things, Ergon operates two major refineries in Vicksburg and El Dorado, 500 natural gas wells in Texas, 33 towboats and barges, a computer manufacturing plant in Madison, an oil and gas exploration company, a real estate development company, and an entire oil and gas distribution system with 250 trucks and dozens of terminals and storage tanks.
That’s a pretty impressive track record for one and a half generations of a family company. What’s that they say about luck? It’s where skill meets opportunity.
Listening to Lee Lampton, one of four second generation sons, speak about Ergon to my Rotary Club, I was impressed with his salt-of-the-earth insight and knowledge. Lee Lampton was born with an unusually large dollop of common sense. He is currently Ergon’s director of operations.
Lee got a good chuckle from the audience as he was describing Ergon’s tugboat operations on the Mississippi River. “If you have a son who needs a job, call me. After 30 days working on the poop deck, they’re ready to go back to school and apply themselves.”
Commenting on Ergon’s Austin chalk wells drilling operation: “It’s like rolling dice. If you hit it, you hit it big. Otherwise, it’s just a big dry $7 million hole in the ground.”
Lampton defended his industry’s recent profitability. “The oil industry has had lower profits and returns than American industries overall.”
What’s driving the current run-up in prices? “It’s simple supply and demand.” Rita and Katrina disrupted supply while global growth, especially China, increased demand. “When you put a bunch of Chinamen in cars, prices are going to go up.”
Over the last 15 months, the cost of gas is broken down like this: 54% crude oil, 20% taxes, 17% refining, 9% marketing and distribution, and 10% profits.
“We’re not really finding much oil, even though we’re trying.” That gives the oil-supplying countries the chance to manipulate prices. “Every time there’s political unrest, it raises prices. Chavez is no dummy.”
Lampton is most amazed by the new role of hedge funds and speculators as a major influence on prices. As an example, he points out that on the New York Mercantile Exchange, 55 million barrels of oil were traded while only 8.4 million barrels were actually produced. “Something’s got to be wrong,” he says. “Sophisticated investors are increasingly buying and selling oil contracts. Speculative trading adds 20 percent to the price of oil. We’re getting blamed, but somebody else is driving the car. We’re just sitting in the back seat enjoying the view.”
High environmental standards contribute to cost. Ergon had to spend $100 million on scrubbers to reduce sulphur emissions at its two big refineries. That’s a lot of coin for a company of Ergon’s size.
Ultimately, it is the consumer who decides the price of oil by deciding what kind of car to buy. If Evian water was sold by the gallon, it would cost $121 per gallon. “Evian spelled backward is naive.”
Lampton said projections are that crude will stay flat. Existing refineries are operating at all-time capacity highs. This environment makes alternative energy sources viable. Ergon is preparing to build a multimillion dollar ethanol refinery in Vicksburg.
As a private company, Ergon doesn’t release its financial figures, but it’s safe to assume its revenues are well in excess of two billion dollars a year. It’s great to know that in this world of consolidation and globalization, a homegrown, family-owned company can grow and compete with the best of them