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Workers assemble a domed roof inside an under construction fuel storage tank at the VTTV oil storage terminal, a joint venture of Vitol Group and MISC Bhd., in Vasilikos, Cyprus. Photographer: Andrew Caballero-Reynolds/Bloomberg(bloomberg)
(Bloomberg) -- Vitol Group paid a record of more than $1.6 billion to its top executives and staff through share buybacks last year, highlighting the riches enjoyed by the partners who own the world’s largest oil trading house.
The buybacks -- Vitol’s principle way of rewarding about 350 top employees who own shares in the privately-held company -- bring to more than $10 billion the distributions paid out from 2007 to 2017. Vitol has enjoyed strong profits in recent years, including in 2016 when net income surged to its third highest ever as it rode the ups and downs of the oil market. More recently, however, net income has been weaker.
The payout leaves a small cadre of traders personally benefiting from the boom and bust in oil prices over the last decade. Led by Chairman Ian Taylor, Vitol is the world’s largest independent oil trading house. Each day, it moves 7 million barrels of crude and petroleum products -- enough to meet the demand of Germany, France, Italy and the U.K. combined.
The company distributed $1.62 billion to its employee-shareholders last year, up almost 45 percent from 2016, according to the annual accounts of Vitol Holding II SA, a Luxembourg entity that’s the holding company for the group. The 2017 buybacks -- made on top of salaries and regular bonuses -- surpass the previous record set in 2010, when about $1.45 billion was distributed to the shareholders of Vitol.
Vitol declined to comment.
While energy-rich nations from Saudi Arabia to Kazakhstan and oil majors such as Exxon Mobil Corp. and Royal Dutch Shell Plc suffered from the oil crash in 2015 and 2016, energy traders including Vitol benefited from market volatility and opportunities to lock in profits that come from market fluctuations. They arrange to store oil during times of surplus and sell futures contracts for delivery at higher prices. Vitol has also made money by selling investments in oil terminals and pipelines.
The profitability of the trading house has nonetheless declined over the last year as the Organization of Petroleum Exporting Countries and its allies cut output to reduce inventories -- scaling back opportunities for traders like Vitol.
Vitol’s profit fell 25 percent in 2017 as weaker trading results overcame an increase in income from asset sales. Net income dropped to $1.5 billion in 2017 from a little more than $2 billion the year before.
“It is pretty bloody tough,” Taylor said in an interview in March. “And I don’t think anybody is making a lot of money.”
Earlier this year, Vitol named Russell Hardy as chief executive officer, replacing Taylor who retained the chairman’s role.
Taylor, an Oxford-educated trader who led the firm for more than 20 years of impressive growth, has delivered profit increases on par with those enjoyed by Silicon Valley tech companies. Under his tenure, net income climbed from $22.9 million in 1995 to as much as $2.28 billion in 2009.
Although a trader at heart, Vitol is also emulating private-equity players by using its energy-industry expertise to buy, restructure and revive unloved assets.. So far this year, the trading house has sold shares in two ventures via initial public offerings: Viva Energy Australia Ltd., which runs fuel stations and a refinery in Australia, and Vivo Energy Plc, an African fuel station business.
(Updates with details about private equity-like deals in last paragraph.)
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