How the world’s biggest oil trader makes his billions – Vitol Group. Part 4

For Vitol, oil is just the beginning. The company mixes different types of fuel to obtain a product of exactly the right quality for a particular region, customer or even season. To guarantee an uninterrupted supply, Vitol pays in advance to companies such as Russia’s Rosneft, or to entire governments, such as the oil-rich Kurdistan Region in northern Iraq. Having sold this oil, it will recoup all its costs a hundredfold. Craig Pirrong, professor of economics and finance at the University of Houston, says that while Vitol is perceived as a speculator, the company actually acts as a middleman. It turns supertankers into floating oil storage tanks, carefully timing the sale.

In 2015, the company hired one of the world’s largest tankers for this purpose, a 380-metre long vessel with a stacked, horizontal Empire State Building. At any given time, 200 Vitol-chartered vessels are at sea. Last year they made 6,629 voyages. For the most part, Vitol follows the oil market. Sometimes the market severely limits profits; this happened in 2012 and 2013 and, before that, in the late 1990s. Sometimes the market presents opportunities, and often unexpectedly. The war in Libya was one such instance; another was the Fukushima nuclear crisis in 2011, which led to a marked shift in energy flows to Japan. “Opportunities come from outside,” says Russell Hardy, one of Vitol’s top managers. The job of the company’s traders, he says, is to find ways to capitalise on them.

Vitol’s opportunistic way of doing business has enabled it to develop an extremely loyal team of employees – all the more so because many of them have become fantastically rich in the process. All of them, however, keep a low profile and little is known about the size of their fortunes. Ten years ago, however, a high-profile divorce case involving a major Vitol trader lifted the veil of secrecy slightly. According to documents filed in the 14th appeals court in Texas, Mike Loya, who headed the company in the Americas, owned $140 million worth of Vitol shares by the end of 2007. Since then the book value of Vitol has almost doubled and it can be assumed that the fortunes of each of the top executives are in the hundreds of millions. Loya says he joined Vitol from Transworld in the 1990s precisely because there was a chance to get a stake in a dynamic company. He explains: “If you work well, you become one of the owners”. In 2014 alone, according to Bloomberg Markets, Vitol paid about $1.1 billion in special dividends to about 350 of its employee shareholders.

Between 2008 and 2014, these shareholders received distributions totalling almost $5.6 billion. Nevertheless, says CFO Jeff Dellapina, “over the past 10 years, we have reinvested 50% of profits in the business – not a bad level for a sustainable and growing company”. Vitol is a private company in every sense. Publicity has never seemed particularly attractive to the company’s management. Oliver Klassen of the Bern Declaration Association, a Swiss NGO that studies the commodities market and advocates for formal regulation of the industry, says: “When Vitol makes the headlines, it is bad news.

In 1995, for example, Vitol paid a million dollars to Serbian warlord Željko Ražnatović, known by the nickname “Arkan”. Two years later, he was indicted at the International Criminal Tribunal for the Former Yugoslavia in The Hague for crimes against humanity. He was killed in 2000 before his case came to trial. The biggest blow to Vitol’s reputation was its decision in 2007 to pay around $13m to the regime of Saddam Hussein in order to secure oil supplies under the infamous UN oil-for-food programme. An investigation led by Paul Volcker, former chairman of the US Federal Reserve, uncovered an entire system of illegal payments, secret bank accounts, and diplomats for hire.