Big oil companies using little of record profits to find new oil: AP IMPACT: Big Oil profits steered to investors
The five biggest international oil companies plowed about 55 percent of the cash they made from their businesses into stock buybacks and dividends last year, up from 30 percent in 2000 and just 1 percent in 1993, according to Rice University's James A. Baker III Institute for Public Policy.
The percentage they spend to find new deposits of fossil [LOL] fuels has remained flat for years, in the mid-single digits.
The issue has become more sensitive as lawmakers and Americans frustrated by high gas prices have balked at gaudy reports of oil industry profits. ConocoPhillips is scheduled to kick off the latest round of Big Oil earnings reports Wednesday.
Oil prices are set on the open market, not by the oil industry. But that hasn't stopped public protests, a series of congressional grillings for top oil executives, and a failed attempt by lawmakers to slap Big Oil with a windfall profits tax.
In the first three months of this year, Exxon Mobil Corp., the world's biggest publicly traded oil company, shelled out $8.8 billion on stock buybacks alone, compared with $5.5 billion on exploration and other capital projects.
ConocoPhillips has already told investors that its stock buybacks for April to June of this year will come to about $2.5 billion — nine times what it spent on exploration.
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4 comments:
THE "PUZZLE" OF THE OIL MAJORS NOT INVESTING IN EXPLORATION AND PRODUCTION
(a beautiful picture of the surf breaking from the backside in a tropical setting, the colors are magnificent -- kudos, OilIsMastery)
There are several theories as to why the oil majors are behaving as such:
The Mathew Simmons theory is that the oil majors know oil is running out and so in effect are liquidating their companies to squeeze out as much value to the stockholders as possible before the real cruch of "Peak" oil hits, and the stock takes a big dive based on the expectation of a lack of future income and profits.
Kind of a "get while the getting is good."
I don't subscribe to the above theory.
I suspect that for many years in the late 90's and early 2000's oil majors weren't making huge profits, so are making up for that lost period of time to their shareholders.
Or, it could be that the oil majors know the current high price of oil is a bubble that will pop with increasing supplies from the "new frontier" of offshore exploration in the continental margin areas of the world. So, again, want to repatriate profits to shareholders while they can.
In a related twist, the oil majors expect exploration "costs" to come down, so are waiting for that price correction in the cost of exploration.
Not a bad strategy if you ARE convinced costs will come down -- a stinker strategy if costs keep going up.
Also, traditionally, oil stocks have been "coupon" stocks where people were encouraged to hold the stocks by getting substantial "returns" on the stocks by way of dividends.
Or, the oil majors are weary of getting bought out in "hostile" takeovers, so want to build up the value of their stock prices, so as to prevent hostile bidders from being able to offer a premium to stockholders in a takeover bid.
It could be a little bit of "all of the above." (minus the Simmon's theory)
Also, it could reflect that "oil wells do replentish over time" so that oil majors know they have a steady income for the future and are quite comfortable with that level of profit.
There are many pieces of evidence which shows oil wells don't deplete as rapidly as projected when the oil well or field is first brought into production.
Most oil fields are like the "Eveready battery bunny -- they keep going on and on and on..." At diminished production after a time it is true, but rarely do they completely dry up.
"The percentage they spend to find new deposits of [Abiotic] fuels has remained flat for years, in the mid-single digits."
This can suggest the oil majors feel no real pressure to find new oil deposits -- which suggests they have no great concern with being able to procure new supplies when the time becomes necessary.
Also, remember while the percentage of profits invested in finding new deposits has remained flat for many years -- in absolute Dollar terms, the amount invested in new exploration and discovery has gone up substantially, so this article is slightly misleading in that respect.
The oil majors may have concluded that their previous investment rates have kept them in good stead over the years, so why break from traditional practice and increase the percentage directed at finding new supplies.
After all, the last thing the oil majors want to do is create an oil glut. There has always been a "just in time" philosophy in terms of "proven" reserves.
When that has been violated -- the oil majors were "rewarded" with an oil glut.
If the oil majors thought oil was "running out" wouldn't they want to "corner the market" when prices would be even higher?
After all, as long as there have been markets -- traders have tried to corner the market and make the preverbial "killing."
The above 'cornering' I suggest is at least partly responsible, right now, for the high oil prices. With talk of "Peak" oil running around the market like crazy, no wonder some think the market can be "rushed" into higher prices.
(Almost all the oil bulls repeat like a parrot that "Peak" oil is a reality.)
So, do I have the one answer written on the tablets from Mount Sinai: No.
(There could be a reason I haven't even thought of.)
This is just a menu of possible reasons for the lack of investing.
I lean towards some reasons more than others, but to "get inside the head" of the oil majors is not easy.
Hey, I got a task for some intrepid reporter that wants to make a name for himself: Why don't you ask the oil majors why they aren't investing more in new exploration and production.
Now that would be original!
Life in the Deep Biosphere
A DISTURBING SENARIO: MAKING A THEORY OF THE CASE AGAINST THE OIL MAJORS
My previous comment laid out a menu of possible reasons for the "puzzle" of why with record prices (since settled down) the oil majors would not raise investment in the increase of production of petroleum -- which would seemingly make them oodles of money.
I am loath to promote conspiracy theories. Accusations are all too easily made with little or no supporting facts, yet a credible case can be made.
Are the oil majors holding back exploration and production of petroleum?
Now is the time to make that case.
First, let's tease out of my preivious menu statements and facts supporting this serious accusation. And, second, present additional pieces of evidence that shred light on the subject.
"...[I]t could reflect that "oil wells do replentish over time" so that oil majors know they have a steady income for the future and are quite comfortable with that level of profit."
"This can suggest the oil majors feel no real pressure to find new oil deposits -- which suggests they have no great concern with being able to procure new supplies when the time becomes necessary."
"The oil majors may have concluded that their previous investment rates have kept them in good stead over the years, so why break from traditional practice and increase the percentage directed at finding new supplies."
"After all, the last thing the oil majors want to do is create an oil glut. There has always been a "just in time" philosophy in terms of "proven" reserves."
"If the oil majors thought oil was "running out" wouldn't they want to "corner the market" when prices would be even higher?"
A Voice from the Oilpatch Comment #1, 5/31/08.
The linked comment is an anonymous "tale" from the oilpatch of oilwells being "capped off" until the price is right.
Now we have a signed statement of roughly the same thing.
09-04-05 03:07 PM
In 2000 I worked in the Gulf of Mexico for two different OSV companies that provided support services to the "oil patch". The two companies did very different work for the oil companies so I got to get an eye full.
The first thing that I'd like to expose is the fact that nearly all of the new wells in the gulf are immediately capped off and forgotten about. I saw well after well brought in only to see them capped off and left. Oil or natural gas it didn't matter. I asked a couple of petroleum engineers what exactly was going on and I was told by both (they worked for different companies) that there was no intention of bringing that oil to market until the "price was right".
That wasn't the only bogus thing that was happening. Seismic technology had developed to the point that they could not only tell the companies where the oil was but how much oil was there. All they had to do was go out and stick a straw in and suck it out. They didn't. Once again, the oil prices weren't right. When they are ready and want it they know right where to go get it...
Everything that we hear about oil from the oil companies is a big fat lie. Have we hit "peak oil" as a good many insist that we have? I'll make a wager with anyone who would care to take the bet. I bet that when oil hits $100 a barrel (I have a hunch that's the target price) there will be no shortage. Any takers?
Denny Meredith
Louisville, Ky.
USA
Another startling "tale" from an identified source involves the North Slope of Alaska.
Lindsay Williams is the author of The Energy Non-Crisis: Which suggests there is more oil in Alaska's North Slope than understood by the general public.
Here is a quote from the opening chapter entiltled, The Great Oil Deception:
Senator Chance's first question was, "Mr. X, how much crude oil is there under the North Slope of Alaska, in your estimation?"
Mr. X answered, "In my estimation, from the seismographic work and the drillings we have already done, I am convinced that there is as much oil under the North Slope of Alaska as there is in all of Saudi Arabia."
Senator Hugh Chance's next question was perhaps an obvious one. "Why isn't this oil being produced, if there is an oil crisis?" He went on to point out that private enterprise has always come to the rescue of the American people when there have been times of need.
Mr. X then made the startling observation that the Federal government and the State government of Alaska had allowed only one pool of oil on the North Slope of Alaska to be developed.
Senator Chance then asked, "Mr. X, do you think that there are numerous pools of oil under the North Slope of Alaska?"
Mr. X replied, "Senator Chance, the government has allowed us to develop only one 100-square-mile area of this vast North Slope. There are many, many 100-square-mile areas under the North Slope of Alaska which contain oil. There are many pools of oil under the North Slope of Alaska."
So what does this tell us?
The fact that the oil majors are not "busting their buns" to ramp up oil production to "cash in" on "Peak" oil suggests there is no "Peak" oil.
That is the strongest indication that "Peak" oil is a hoax.
Rather, the oil majors know that with any increase in oil production, supply with tip the balance and prices will come off the fevered highs of the last month (as noted earlier, the price has dropped).
Yet even with prices at the pump near all-time highs, Exxon isn't planning on producing any more oil four years from now than it did last year. That means the company's oil output won't even keep pace with its own projections of worldwide oil demand growth of 1.2% a year. . . .
"We don't start with a volume target and then work backwards," Instead, he said, his team examines the available investment opportunities, figures out what prices they'll likely get for that output down the road, and places their bets accordingly. "It really goes back to what is an acceptable investment return for us."
-- Exxon Chairman Rex Tillerson
When you are reminded that the oil majors have largely "stood back" from contracts for deepwater, ultra-deep drilling rigs, it leaves a funny feeling in your gut.
So the oil majors are holding back -- it's a free country...
What to do?
The answer is simple: Competition.
New entrants and smaller players that want a "piece of the action" need to "muscle in" on the money and profit.
Let's face it, the oil majors are "fat and happy" with the current state of affairs.
But the Democrats' solutions are wrong for America and don't solve the problem.
What will help solve the problem.
Open up the Outer Continental Slope for oil drilling, which is the continental margin I've been writing about.
Decrease the regulatory barriers for entry into the oil industry.
New players are crucial to price competition in a mature industry.
Don't rely on "good faith" from the oil majors -- but "punishment" tactics are wrong and counter-productive.
Encourage oil majors to produce more oil, but don't wait for them to act.
Get "new players" into the game.
That can't be said enough.
Young players wanting to make a name for themselves are the cure for old players that don't want to or can't hustle anymore.
With that infusion of talent and energy the market will take care of itself.
Over regulation is not the answer to under production.
FOLLOW UP TO THE "PUZZLE"
The following is a quote from the anonymous "Voice" from the oilpatch:
"And since then, after being on litterly about a thousand well sites, I believe what he fold me. About every well head that I have been on, that was low on production, has always been brought back to original rates."
An intriguing "tale," to say the least. But because it's anonymous and can't be authenticated, it qualifies only as one of many "tales from the oilpatch," nothing more than rumors really.
But, is there any basis, in fact, that one can point to, in other sources, to collaborate this particular tale?
Yes there is, Russia Proves "Peak Oil" is a Scam. The article covers a number of topics, but one section has a direct bearing on the above claim, an interesting animated diagram, depicting a "roto-rooter" that opens clogged wellheads resulting in something similar to the quoted claim.
The caption to the animated graphic is as follows:
"In direct conflict with 'Peak Oil' myth, the underreamer shown in these photos restore an oil well's original production rate, using basically the same principle as changing the oil filter in your automobile engine"
The following discussion in the article describes in detail the processes involved. And there does seem to be a 'common sense' plausibility to the concept.
Another piece of evidence suggesting "Peak" oil is a scam that needs to be exposed for the dangerous hoax it is.
And one more reason "new players" need to get into the oil game for the sake of the American People.
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