Low oil production means more profit for Exxon
Recently we told you about oil execs explaining to congress how $123 billion in profits should entitle them to an additional $18 billion in the form of subsidies. I realize many of you out there have a lot of sympathy for their position and have spent the intervening time hounding your Congresspersons on their behalf. I mean, this is America and that means energy corporations have the right to do whatever they want - and if we don't like it we can buy a bicycle (I recommend a bicycle regardless. They are great for your health). One of the reasons these companys' hands are out-stretched beggar-like is because (they claim) they need money for further exploration and development. I don't know why they didn't have this part of the equation in their business model to begin with but hey, everyone makes mistakes. Year after year after etc. etc..
How my eyebrows did raise then when reading this article about Exxon (XOM) not increasing oil production so as to keep their record profits high, on Business Week. It is common practice now for oil companies to simply trade any capitol invested in new projects for the equivalent in oil so the countries are paying them to drill directly from their oil reserves. So why do they need our money again?
I know this may sound like a direct quote from Captain Obvious but oil companies like Exxon don't really care if Americans are struggling to keep their houses and buy food because of their desire to see higher profits which is reason number 643 why I intend my next new car to be electric. End rant.
[Source: Business Week]
Reader Comments (Page 1 of 1)
Throwback 9:05AM (4/04/2008)
I'm not defending oil companies, but most if not all, for profit companies don't care if Americans are struggling. Unless it impacts their bottom line. I'm sure Tesla is not any more concerned about Americans keeping their houses than Exxon, those folks are not their customers.
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mike 9:10AM (4/04/2008)
Good companies are Customer focused.
Apple cares if it's OS crashes.
Microsoft, in a monopoly position, doesn't. Microsoft cares about subverting standards to assure it's OS stays dominant. In doing that, it doesn't need to care about it's developer's or customers.
Exxon, as long as it's got congressmen like Dingell, in it's pocket also doesn't care. Not to pick on Dingell, our PA Senator Spector has received a good chunk of his campaign funds from Big Oil as well.
This is a Subversion of Democracy.
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BlackbirdHighway 9:45AM (4/04/2008)
Watch the documentary "The Corporation". It's very interesting.
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Tonik 9:46AM (4/04/2008)
Why don't you just move to Europe, Domenick?
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jeremie 10:46AM (4/04/2008)
Yet an other reason to by and EV...
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rgseidl 10:52AM (4/04/2008)
Let's not forget that the risk premium currently added to oil prices because of the continuing instability in Iraq. The US taxpayers did of course not pour $800+ billion down that rathole specifically to keep oil prices high, but the grossly incompetent pre-war planning for the post-combat phase IV has surely contributed greatly to Big Oil's present profitability - a consequence the Bush administration clearly approves of.
Iraq is the only Middle Eastern country other than Saudi Arabia that could cheaply and easily produce 10 million barrels a day, if only the political situation there were stable. It is currently producing around 2 million barrels, the difference would increase global output by roughly 10%.
On the plus side, high oil prices are fostering the development of alternatives to consuming yet more fossil oil, e.g. more efficient vehicles and renewable fuels. In both cases, results so far are modest and/or mixed, but another decade of expensive oil and we just might start to kick the habit. Unfortunately, history suggests there will be a glut of oil well before then in order to kill off these alternatives.
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A.Brien 11:57AM (4/04/2008)
By being horribly negative abouth hydrogen, a fuel that can be made at home, chatters are pusching the price of conventional gasoline to the top.
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Derek 12:14PM (4/04/2008)
Of course they are controlling the supply. GM didn't in the 80's and look where it landed them! If XOM simply pumped and refined as much as possible then gas prices would crash. Exploration and drilling expenses are not likely to go down, so that means their profit margin falls. Considering that their profit margin is already down in the range of 10% (compared to many other buisnesses up in the teens to 20% range) it wouldn't take much to push them to the edge of losing money.
If you simplify things and assume that XOM's profits are directly tied to the price of gas and their operating costs are roughly fixed, that means that a 10% fall in gas prices would take them from "ReCoRD ProFit$ OMG!1!" to just breaking even or possibly losing money. I am sure that it is not that simple, but I would not be surprised if XOM would have to make some big changes or start to lose money if gas only sold for $2.75/g.
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Cervus 12:44PM (4/04/2008)
You might have a point, but the vast majority--73%--of remaining oil reserves are under direct control of state-owned oil companies. Exxon and the other private companies have been progressively locked out of those reserves simply because those state oil companies have the resources of an entire country behind them. Record profits or not, they get outbid all the time.
Now, add the fact that all commodities are rising. Copper alone is around $4/pound, over twice as expensive as a couple years ago. Basically, everything they need to build new oil rigs has gone up, up, up in price. That raises the cost of extracting that oil, necessitating a higher price to turn a profit.
One if the big reasons for the rise in gas prices recently are two fold: 1) The dropping dollar has pushed speculators into the oil market. 2) Gasoline demand is actually shrinking. Result: Refiners (like Valero, who pumps no oil directly) can't make any money. So they stop producing gas. Keep in mind that until recently gasoline stocks were at 15-year highs.
Look for a silver lining, though. The longer prices stay high, the faster we'll get those EVs you want so much.
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KarenRei 1:24PM (4/04/2008)
The author of the article seems amazed that they could start a lot of high dollar investments this year and have production remain flat for the next four years. Let me sum this up in three letters:
Duh!
When you start a brand new project, as opposed to just expansions to an existing field or whatnot, it usually takes 5-10 years, sometimes even more, before you have a drop of oil to sell from it. It's an unfortunate fact of the industry: it cannot respond to changes quickly.
Anyways, we all should be cheering for higher oil prices, because higher oil prices are driving increased CAFE standards, investment into EVs, and all sorts of things. We saw what happened in the 80s when oil prices plummetted. Do we want that to happen again?
As for Domenick's discussion of bicycles, that's just the problem, really -- there *aren't* any good options to gasoline on the market right now. Many companies are trying to *create* good alternatives (effective biofuels, EVs, etc), but whether we like it or not, this is what our economy has been built on this century, and we're stuck with it until we can mass-produce something better. It's ridiculous to blame companies for producing something that we insatiably buy, that we have almost no choice but to buy, that our society is built upon us buying. Once again, "duh". What do you expect them to do -- get together and decide to collectively stop producing it so that we can all go live as serfs in a neo-medieval society after 9/10ths of us die off?
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Ron Fischer 4:46PM (4/04/2008)
Exxon's position simply shows there is no longer a price competitive market for the sale of oil. Regardless of whether National Oil Companies control oil in the ground, the idea that the world economy is crucially dependent on a resource for which there is no longer price competition... should give those of us who believe in free markets pause to consider the good and bad outcomes to which this may lead.
It does put in better perspective support for the spate of recent EV announcements by automakers.
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Kevin Nugent 6:45PM (4/04/2008)
Ahhhhh i feel so bad . exon i am so sorry :( exxon Ceo's that you no longer can buy 10.6 million dollar investment houses in the hamptons or some of you guys cant afford the newest latest 20.1 million dollar house in Hollywood. Or even worse cut back and get that shabby 5.2 million dollar house in La. I feel so bad for you , especially since that you cannot make your annual profit of 71 billion plus dollars a year ,. HELL NO do you really think i give a flying fart about the fact that you so call "NEED" MORE MONEY . HELLO NO . I draw the line RIGHT HERE RIGHT NOW . There is no way in hell i am going to pay more for there lavish lifestyles and billions of dollars in profit all because they say so . The simple fact that they are making more than 20 billion a year is a serious issue and in that being said. If they are not making their 61 billion dollars a year and want to raise our gas prices then i am determined not to use gas and make my next vehicle purchase electric. . They want to whine and bitch because they are all money hungry bigots and are finding it increasingly hard to squeeze more money out of America and the rest of the world. Oh is that my fault ! . you don't want to drill for more oil in fear you cannot make record profit. GO TO HELL , YOU worthless old baggs of sh*T
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ug 7:20PM (4/04/2008)
"we're stuck with it until we can mass-produce something better."
Or the EROEI of oil production goes negative first, which looks pretty likely to me.
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stevefazek 11:39PM (7/31/2008)
Ironically the 5 Million barrels of oil that comes from US territory. The oil companies for any off shore dont pay a PENNY in royalties.
For Alaska its about 5 bucks a barrel.
and these f*****s demand subsidies. They expect us the tax payers to pay for their pipe lines, for their security. The money we pretty much pay for them to keep the pipelines up and running they pocket and let out pipelines remain in a sad state.
most businesses including green dont care about selling a product but how much money they can leech off the govermetn.
Roughly half our budget is simply a transfer of wealth. Dont think for a moment our income taxes fund the government.
its 2.5% minimum tarrif on all products we import.
its a couple of bucks in taxes for each pack of smokes
7 bucks a litter in tax for booze.
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