Oil Transportation Ltd.

Case Study
 Corporate Finance Institute Oil Transportation Ltd. Case Study

Table of Contents

03 The Case
03 Instructions for the Case

04 Company Overview
04 Company Background
05 Scott’s Business Strategy
05 The Competition
06 The Management Team

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 Corporate Finance Institute Oil Transportation Ltd. Case Study

The Case

Instructions for the The Case

Case Study

Oil Transportation Ltd. Is looking to renew existing facilities of $524,000. As part of

the credit analysis process, the local bank has to look at the company’s
background as well as the industry data to analyze whether Oil Transportation Ltd.
has a potential for growth.

Instructions for the Case

1. Read through this Oil Transportation Ltd. Company Brief to learn about OTL’s
internal and external operating environment. This document describes the
company’s credit history and the new credit it would like to extend in order to
renew its existing facilities.

2. Download the document named Industry Report – US General Freight Trucking,

which contains important industry information, key statistics, risk analysis, and
revenue drivers of the trucking industry in the United States.

3. Analyzing and consolidating all the available information, as well as using the
tools introduced in the Assessing Drivers of Business Growth course, assess Oil
Transportation Ltd.’s growth opportunities. Use the SWOT table to summarize the
strengths, weaknesses, opportunities, and threats of the business.

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 Corporate Finance Institute Oil Transportation Ltd. Case Study

Company Overview

Oil Transportation Ltd.

Company Background
Oil Transportation Ltd. (OTL) has been in operation for over ten years and has a solid
customer base of 20 to 25 customers in the oilfield industry. OTL owns 20 trucks and
45 flatbed “highboy” trailers. It leases a further two trucks and 10 trailers from
Mountain Deliveries Inc. (a related company). It has been consistently profitable.

OTL also owns two parcels of land in an industrial area just outside of Houston, TX.
One parcel has an old shop and a large yard that is leased to an oilfield company for
pipe storage. OTL and Mountain Deliveries share the second parcel of land (included
in attached documents). This is a fully serviced and fenced 4.25-acre parcel located on
the Interstate 45 Freeway. The parcel also includes a 4,875 square foot building of
block construction with a small office area and three bays with 14-foot ceilings. The
bays are used for repair and maintenance of the trucking fleet.

Oil Transportation Ltd. is owned and operated by the Hill family. Ownership of the
company breaks down as follows:

Hill family Title Ownership Relationship

Scott Director Father
Sofia Shareholder 52% Wife
Stella1 Shareholder 16% Daughter
Sebastian 1,2
Shareholder 16% Son
Serena 1
Shareholder 16% Daughter
1
Children’s stakes are co-owned with their father Scott
2
Sebastian also owns and operates Mountain Deliveries Inc.

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 Corporate Finance Institute Oil Transportation Ltd. Case Study

Oil Transportation Ltd. The last year, Scott tried to sell the company. Unfortunately, the deal fell through.
Scott still wants to sell the business, but he refuses to obtain a valuation.

A new company, Oil Field Freight Company Ltd. (OFFC), was established in November
2012 to act as the operating company of Oil Transportation Ltd. It is 100% owned by
Oil Transportation Ltd, and its assets have been maintained by Oil Transportation Ltd.
If the business is eventually sold, Scott intends to transfer the assets to Oil Field
Freight at which time debt secured by the equipment will be paid out.

Scott’s Business Strategy

Scott has built up a solid reputation in the oil field services industry for getting the job
done right. He is an expert in oil field service hauling requirements, required permits
and oilfield safety. He offers his customers 24/7 service and has a demonstrated
ability to get his trucks on the road quickly.

Over the past few years, Scott has begun to hire more drivers as sub-contractors (flat-
rate fees) than as salaried employees (hourly wage). This allows the company to more
effectively manage its wage costs by only hiring drivers when OTL is busy. Scott also
found that many salaried employees were regularly padding their hours. Flat-fee
contracts prevent this. Besides drivers, Scott employs several full-time mechanics.

The Competition
OTL has many competitors in the local area. The Houston Yellow Pages have over five
pages of listings for trucking companies. Many of the trucking companies do not own
their own trucks. Instead, they lease them from smaller owner-operators. This limits
their ability to respond to customer needs quickly.

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 Corporate Finance Institute Oil Transportation Ltd. Case Study

Oil Transportation Ltd.

The Management Team
Both Scott and Sebastian work full time at OTL. However, Sebastian also owns his
own trucking company – Mountain Deliveries Incorporated (MD). MD Inc. is a bank
client with an authorized operating credit of $50,000. MD Inc. rents 10 trailers and 2
trucks to OTL and Sebastian takes his personal income through MD Inc. OTL work
generated $308,010 in revenues for MD Inc. in 2012.

Scott has been in the trucking business for all his adult life. The local bank manager
has commented that Scott is definitely not a people person. Scott has been described
by bank staff as both abrupt and gruff. Scott believes he knows best and refuses to
take advice from his banker, lawyer or accountant.

Financial management is poor. There are no budgets or formal projections. Scott

believes next year will take care of itself. The local bank manager has stressed that he
has seen no evidence of any form of planning with cash management, and receivables
collection is particularly poor. For example, Scott has a track record for purchasing
capital assets out of operating cash flows rather than with external financing. As a
result, the business has encountered several tight cash flow situations. There have
been NSF (non-sufficient funds) cheques written by both Oil Transportation Ltd. and
Oil Field Freight Company Ltd.

Originally, Sebastian was expected to take over the family business. A couple of years
ago, Scott pursued semi-retirement and moved to Phoenix, Arizona. Sebastian took
over the firm’s day-to-day operations. However, Scott found it difficult to stay out of
the business and recently came back full-time.

Scott’s daughter, Stella, works part-time as the bookkeeper. Stella is an unemployed

schoolteacher, but she has a temporary job teaching summer school until mid-August.
She expects to work full time at Oil Transportation Ltd. until she finds a suitable
teaching position.

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