Rapid Growth Creates Giant Refiner

Feb. 1, 1998
COMPETITORS of Giant Industries Inc have learned how to deal with a freight train moving at full speed: accelerate or get out of the way. In the past

COMPETITORS of Giant Industries Inc have learned how to deal with a freight train moving at full speed: accelerate or get out of the way. In the past few years, Giant Industries has been steaming ahead through the acquisition of petroleum jobbers, retail service stations, and an additional refinery.

Completion of a $1.1-million maintenance and repair shop combined with the purchase of new truck and trailer equipment are just two examples of the recent growth in Giant's transportation operations.

"Dedication to profitable growth and the bottom line has been the definition of success since the company began in 1969," says James E Acridge, chairman of the board. "Our current strong financial position combined with strong cash flow puts us in a position to aggressively pursue opportunities that will lead to Giant's continued growth and will result in improvements to the bottom line and shareholder value."

Commitment to profitable growth is evidenced by the company's financial reports for 1995 and 1996: earnings per share increased to $1.52 from $0.69; cash flow per share increased to $3.68 from $1.98; return on equity grew to 15% from 7%; return on assets increased to 8% from 5%; and total debt to total capitalization ratio decreased to 48% from 57%. "In 1996, Giant paid off $32 million in long-term debt, putting the company in the best financial position in its 27-year history," Acridge says. "We will continue to search for added refining capacity that fits our strategic focus."

Giant's common stock is traded on the New York Stock Exchange under the symbol "GI." Corporate headquarters are in Scottsdale, Arizona. Assets total more than $324 million. The company's principal business is the refining of crude oil into petroleum products that are sold through branded retail outlets, distributors, industrial/commercial accounts, and major oil companies. Giant is the largest refiner and one of the largest marketers of petroleum products in the Four Corners market, an area of the Southwest where New Mexico, Arizona, Colorado, and Utah meet.

Growth also comes from the recent acquisition of an additional refinery near Bloomfield, New Mexico, with a crude oil throughput capacity of 18,000 barrels per day (bpd). The company's other refinery near Gallup, New Mexico, has a crude oil throughput capacity of 26,000 bpd.

Refining and marketing operations are supported by a fleet of 104 vehicles. In 1996, Giant Industries hauled 10,559,310 barrels of crude oil and refined petroleum products by tank truck and trailer. The company estimates totals for 1997 will be in excess of 11,300,000 barrels, an increase of 7.5%. Although most deliveries go to company-owned properties, the company has common carrier authority in New Mexico.

During the 1970s, the transportation division consisted mainly of a two-bay repair shop and a fleet of 17 tractors and trailers. With recent acquisitions of petroleum jobbers, Giant now owns a fleet of 140 rigs for hauling crude oil and refined petroleum products. One such acquisition is Phoenix Fuel Company, a petroleum marketer in Phoenix, Arizona, that began in 1927 as a dealer in wood and coal. As Arizona's oldest and largest commercial fuel and lubricant company, Phoenix Fuel has distribution agreements with several major oil companies.

In 1995, Phoenix Fuel ranked 13th on the Arizona 100, a revenue ranking of privately owned businesses in the state. That year, gross sales for the company totaled more than $240 million.

Phoenix Fuel purchases most of its petroleum products from refineries along the Santa Fe Pacific Pipeline. The company's fleet of trucks and tractors delivers a monthly average of approximately 22 million gallons of petroleum products.

In 1996, Giant Industries acquired a large number of retail service stations and transportation assets from Thriftway Inc, a marketer and retailer in the Southwest. The acquisitions significantly increased transportation revenues for Giant's refined products division.

Earnings Growth Like everywhere else within Giant Industries, the transportation department has experienced significant growth while maintaining a quality level of customer service, says Michael S Hardy, vice-president of transportation. An increase in earnings is one example.

"Between 1995 and 1997, transportation earnings increased by 50% because of growth in revenue, additional business, and increased efficiencies in our fleet operations," Hardy says. "Acquisitions of retail service stations and decreasing the age of our fleet also have been key to an improved bottom line."

In 1997, Giant upgraded about a third of its crude-oil fleet with the purchase of 15 new truck-and-trailer combinations. The company increased equipment utilization and reduced the weight of each new combination by about 1,500 pounds by specifying lighter components.

"In addition to a lighter drive train, we now use a single 10 3/4-inch frame rail instead of a double frame," says Joe Stevens, crude-transportation manager. "Kenworth air suspensions also save a lot of weight."

Equipment runs 15 hours a day, seven days a week. Crude-oil drivers working out of Bloomfield and Lybrook, New Mexico, and Cortez, Colorado, load product from 4,000 well sites in the Four Corners area and deliver the product to Giant's refineries.

They work four days and take off two days on a rotating schedule. Mechanics handle the majority of the maintenance and repairs at night so that trucks are ready to roll the following morning.

Drivers in the refined-products division haul gasoline and diesel from both refineries and a terminal in Albuquerque, New Mexico, to approximately 150 branded and unbranded retail stations owned by Giant, 25 of which are located in the Albuquerque metropolitan area. Drivers include a number of owner-operators who have played an important role in Giant's success.

New equipment combined with a more efficient driver-to-truck ratio has resulted in higher earnings for the refined products division, says Mike Mathers, distribution manager. Inthe Albuquerque area, two shifts of drivers typically work six consecutive days while slipseating the same rig.

"Two to three years ago, about seven percent of the trucks in our fleet that haul refined products were double-shifted compared to 50% today," Mathers says. "Between 1995 and 1997, earnings as a percentage of revenue for the refined-products division have increased by six percent because of our decrease in operating costs. And our efficiencies will continue to improve each year.

"Lighter equipment also has contributed to an increase in earnings. On each trip, Albuquerque-based drivers usually haul an additional 600 gallons with the truck-trailer combination. Another benefit of this combination is the tight turning radius that you don't have with a semi-trailer."

Giant recently completed the construction of a new maintenance and repair shop near Bloomfield, New Mexico. The 13,000-sq-ft building includes a seven-bay repair shop with warehouse space on the first and second floors for parts. Three of the repair bays are dedicated for welding and repair of tank trailers and tank trucks. The tank repair area is separated from the rest of the repair shop by a fire wall. The shop along with the purchase of new transportation equipment reflects the company's increased emphasis on preventive maintenance.

"We previously operated an older truck fleet," says Barry Stanley, maintenance manager. "Mechanics did major work on engines and transmissions. We decided it would be more economical to run a newer fleet for a shorter period of time and concentrate on preventive maintenance and routine service. "Our goal is to have equipment go through our preventive maintenance and routine repairs without requiring major work. Tractors are traded before requiring major overhauls."

Crude-oil trucks are replaced every five years. Trucks used to haul refined products are replaced at three-year intervals due to a heavier operating schedule. Weekly mileage for crude-oil trucks averages 1,500 miles while refined products trucks run 5,000 to 6,000 miles a week.

Tank trailers used for hauling crude oil are replaced every 10 years. Refined-products trailers are replaced on a six-year schedule.

Maintenance Schedule Fleet vehicles are inspected weekly. Two shifts of mechanics keep the maintenance shop open until 11:30 pm six days a week.

"Drivers who haul crude oil usually begin work around 5 am," says Tim Kinney, general manager of pipeline and transportation services. "The shop is open late at night so that mechanics can finish work on a rig and have it ready the next day. We try to avoid taking a vehicle out of service."

Oil and filter changes are performed every 12,000 miles for crude-oil trucks and every 18,000 miles for finished-product trucks. Mechanics previously followed a maintenance schedule that called for oil changes every 6,000 miles for crude-oil trucks and 10,000 miles for the others.

With every other oil change, samples are sent to a commercial laboratory for analysis to provide early detection of excessive engine wear. Mechanics use 15w-40 year-round and Fleetguard oil filters. Synthetic lubricants are used in transmissions and differentials with 750,000-mile warranties.

Inspections and testing required by federal cargo tank rules are handled by company-certified welders. They do annual visual inspection and the five-year hydrostatic test. Giant mechanics handle all truck warranty work except for major engine repair.

Inspection dates, along with maintenance records, are tracked by computer. Giant recently installed a Windows-based maintenance program that generates reports for the vehicle maintenance system. It provides mileage survey, maintains a detailed maintenance history on each vehicle, and tracks the parts inventory. The program generates a monthly report on all PM inspections and repairs.

Giant-certified welders also handle major tank trailer repairs. The company expects to receive the National Board Inspection Code "R" stamp for specification cargo tank repairs by this spring. Shop welders already holdASME certification. Giant has begun training welders in confined-space entry.T o acquire an "R" stamp, a company first must choose an inspection agency and write a quality control manual. The manual defines the process controls, responsible parties, how materials are purchased and inspected, and procedures for handling nonconformities. An audit then is scheduled by a member state of the National Board, jurisdiction, authorized city, or a National Board member. The National Board charges $100 an hour plus expenses to perform an audit. Most companies take four to six months to acquire an "R" stamp.

Dispatchers are part of the fleet maintenance program. They work with the maintenance department to ensure that vehicles are serviced on schedule. Each day, drivers complete pre-trip inspection reports that include mileage so that dispatchers can monitor PM schedules.

Vehicle appearance is very much a part of the preventive maintenance effort. Trucks and trailers are washed once or twice a week, and paint is touched up whenever needed. "Our trucks are moving billboards," Stanley says. "Image is important because the public sees a clean truck as a safer truck. Fleet image also helps build driver pride and morale."

Kenworth Trucks All of the trucks and tractors are from Kenworth. For crude-oil deliveries, the carrier uses T800 conventionals with Cummins N14-460 electronic engines that have automatic shutdown protection to prevent over-revving.

The T800s have Fuller RTLO-16718B 18-speed transmissions, Spicer 15.5-inch clutches, Centrifuse S-cam brake drums, and Gunite automatic slack adjusters. Tractors are specified with Rockwell (Meritor) WABCO antilock braking.

The Eaton drive-tandem has a 45,000-lb rating. Axle ratio is 4:11. The front suspensions are composite springs with shock absorbers and a 12,000-lb rating. Rear suspensions are Kenworth Air-Glide 100 with 44,000-lb rating.

Other components on the crude oil trucks include Delco alternator and starter, Holset 13.2-cfm air compressor, Jacobs engine brake, Chelsea PTO, and Bendix air dryer. Overfill protection systems are by Civacon and Garnet.

Each crude-oil rig is equipped with two overfill protection systems to ensure no possibility of spillage. Drivers use truck-mounted centrifuges to determine the quantity of sediment and water from product samples at well sites.

Ten-axle Rocky Mountain doubles used for hauling crude oil in Utah are the most recent additions to the Giant fleet. The units have a gross combination weight of 126,000 pounds. The tractors are specified with steerable lift axles by Watson & Chalin. The newest tractor is equipped with a 550-hp Caterpillar 3406E engine that generates 1,850 foot-pounds of torque at 1200 rpm.

For delivery of refined products, Giant uses Kenworth W900B conventionals equipped similarly to the standard crude-oil truck. The power units are specified with Meritor or Rockwell RMX10-165C 10-speed transmissions. Drive axle ratio is 3:58. Rear suspensions are Kenworth Air-Glide 200 with 40,000-lb rating.

The newest truck-mounted tanks and pup trailers used for hauling crude oil were manufactured by Trailmaster Corp. The combinations can haul up to 9,000 gallons of petroleum product.

The 4,400-gallon truck tanks and 4,600-gallon pup trailers are built of aluminum to DOT407 code. Tank hardware includes Knappco domelids, Allegheny emergency internal valves, Betts butterfly valves, and Fort Vale pressure/vacuum relief vents with Teflon gaskets. The pup trailers have Meritor WABCO antilock braking, automatic slack adjusters, Meritor axles, and Reyco 21AR air-ride suspensions.

New truck tanks and trailers used for hauling refined products are manufactured by Heil International. The aluminum DOT406 truck tank vessels have a 4,400-gallon capacity, and the pup trailers have a 5,400-gallon capacity. Tank hardware includes Knappco manholes and emergency internal valves, DOT406 smart vents, and Civacon vapor vents. Other equipment includes Scully overfill protection and Blackmer pumps.

New trucks are equipped with a pump manifold system from PVB Inc. Variable flow rates allow the operator to check connections at low pressures and low volumes. "Drivers like the pump system because it allows them to control the flow rate of product and change flow direction instantly," Mathers says. "From a safety standpoint, this drastically reduces the chances of contaminations and spills. It also has proven to be very efficient for pumping out gasoline storage tanks."

Mechanic Selection With the emphasis on diagnosing problems rather than just replacing parts, Giant Industries exercises care in hiring mechanics. Attitude is a key consideration. Applicants for a mechanic position must have three to five years of experience, and a Commercial Driver License with tank and hazardous materials endorsements.

"No matter how much experience they have, new hires still require some training," Stanley says. "They spend at least a week learning our service procedures and documentation of repairs."

On-the-job training is an ongoing process, and mechanics receive regular updates when component technology or specifications change. Vendors provide instruction on components as needed.

All training or shop meetings are held at the main shop in Bloomfield. On average, the maintenance department holds two meetings each month that focus on safety and training. Company mechanics at two satellite repair shops in Colorado and New Mexico also attend the meetings.

Across the parking lot from the maintenance and repair shop, Giant opened a new 15,000-sq-ft office building that houses departments for transportation, safety, refining, pipeline, retail, marketing, and human resources.

"The new building already has improved operating efficiencies for the transportation department," Hardy says. "Dispatchers for the crude-oil and refined-products divisions finally are under one roof. It's one more example of Giant's commitment to profitable growth, customer satisfaction, and long-term value to shareholders."

About the Author

James Russell