Posted on 04/27/2008 11:37:41 AM PDT by Kenny Bunk
The Left has one thing right. The oilcos are screwing America.
What they have wrong is the method they allege. The Left trots out its marxist litany of greed, monopoly, speculation, oppression of the poor, etc. and inf nauseamque. That's where they're dead wrong.
Here's exactly how we are being screwed, Left, Right, and Oilco:
The United States is the world's third largest oil producer, pumping from established wells that were bought and paid for many times over, and operating steadily with what amounts to federal subsidy in the form of tax incentives and depletion allowances, etc. etc.
That oil, produced in the US, costs perhaps $25 per barrel to produce (and that is a very generous estimate). Once produced it is then "sold" to the oilco's refining company (an independent entity, of course) at the world price.
The refining company passes that on to the consumer. Business as usual. Except that the oilcos are now making up for a few lean years with an unholy vengeance. They are not wrong. They are operating legally and these huge profits are completely legitimate. Of course, they need a lot of money to buy the foreign oil they need to meet domestic demand from their foreign operating companies, too. Tidy profit there.
Of course, the leaders of the Left know this, and purposely obscure the actual issues with a cloud of truly boring marxist rhetoric, which by now every literate person on Earth knows as well as they do.
The Right has done very little to address these wrongs. When in the majority, there was no concerted effort to increase domestic production, which requires massive investment from the oilcos. Ditto, the tragic case of our refining capacity. The oilcos have been spared the expense of investing in sorely needed refining capacity increases by a complacent Right, and a shrill "environmentalist" Left. Members of both camps have no problem accepting huge contributions from their friends in Big Oil. The oilcos have no problem with these artificial restrictions. They limit supply and allow massive price increases, without real investment.
In 7 years of the second Bush Administration, not one (1) new nuclear powerplant has come on line. Even more shocking, considering the guy I voted for twice (no, not in the same election)is an oil man, is that not one (1) uno, ein, new refinery has come on line. Yeah, they have boosted production at, and enlarged existing refineries ... not quite the same thing. What the hell happened to the plan to put new refineries at closed military base sites?
So right and Left are complicit with Big Oil in strangling supply at the domestic refining level, and at the domestic production level. The subsequent rise in oil costs has severely dented our economy, and we haven't seen the worst, by a long shot. This is simply an inexcusable situation.
Simple. We need oil. We'll need it for at least the remainder of this century and longer. Thank goodness there is plenty of it! The oil companies have to be incentivized one way or another to plow back a substantial portion of their profits into more exploration and production, (we know where it is already ... test wells is what I mean to say), increased production, and above all in an increase in refining capacity.
What we are doing is allowing our domestic oil companies behave as if they were OPEC mmembers. Folks, it ain't their fault, and as businessmen, more power to them. We need leaders that are capable of changing the domestic oil playbook. McCain just announced that if FL and CA don't want to develop their offshore oil resources, that's fine with him. OK, FL and CA, stop using oil. He didn't ask anyone in Maine, where exploitation of the fields in our Gulf could put our poverty-stricken potato-exporting backwater back on the economic map. And somebody please explain to the technically benighted Left that offshore oil drilling doesn't mean pollution. Scotland and Norway are as clean as ever. And Beverly Hills is a producing field ... has been pouring royalties into movie star pockets for nigh on a 100 years! Look polluted to you?
Now immediately, alternative energy people are going to be jumping down my throat ..."Wind Power, Hydrogen, Hydro, Carbon Foot Prints, methanol, ethanol, bio-fuel, ..... Gotta get off our addiction oil, etc. etc." Fabulous. Let's use the oil we have as we transition to all these brave new worlds. What are we supposed to do? Starve in the dark, while our Chinese and Indian graduate students cook up something over in their lab at OSU or MIT?
Answer number 1: use domestic oil to meet domestic needs. It's not an overnight answer, and we have just wasted 7 years. Let's get this on our priority list as citizens and force action from our elected officials.
Just FYI: It is AGAINST the law to drill off the Atlantic coast. It is AGAINST the law to drill off the Pacific coast. It ia AGAINST the law to drill in ANWR. All the choice US drilling spots are ILLEGAL. New US refineries? AGAINST the law!
Marker
And how did that come about? Did Democrats and Republicans have anything to do with it?
You’re not too familiar with the petroleum industry are you....If you can produce a barrel of oil for $25.00 domestically then you need to share your expertise with the oil companies. Refineries have expanded, however, one of the largest expansions, BP’s Whiting, Indiana refinery, was brought to a quick halt by the two US Senators from Illinois. BTW, less than 40% of the producing wells in the USA are owned by the large multinational companies.
If you pass a law to make it illegal for me to do my job, (but in reality my job is “essential” for America's well being) how is it that I'm screwing America by obeying the law?
This sounds more like how the environmental movement is screwing America, not big-oil. They'd be happy to bring a few new refineries online if they were only allowed to.
Yes. That's what I am talking about.
Now in regard to "$25 barrel," oilco accountants evidently study with film industry accountants. I am sure that they could "prove" that they were losing money on every last barrel they produce.
Less than 40% of the producing wells in the USA are owned by the large multinational companies.
OK. Who buys the oil, and for how much?
We have a huge problem here PW. Let's figure out how to solve it. You know, think outside the old box? We both know this country's production can be greatly increased. How? Laws and policies that are harmful or that are outmoded can be changed. What's missing is leadership. Looking right and left. None around.
Little bit of Kenny, Lots of Bunk.
Must be magic law, if it wasn't passed by democrats and republicans.
Wrong. As good businessmen, oilcos are very happy not to have to make this huge investment. Big increases in supply lower profits. They are also very happy to fund foundations that support environmentalist wackos.
Point is, this is a very strange and dirty deal all around. Nowhere do I maintain that this is the oilcos' fault. They don't make the law. They just follow it and do the best they can. Can't blame'em for that, now can we?
Je suis bien touché la!
John D Rockefeller was light years ahead of what is going on now. His oil company was broken up and many competitors have appeared all over the world, although Rockefeller is still used to scare children. The process has gone so far that the oil business is fractured into atomic pieces. Not much else needs to be done to vaporize what little remains.
Well, if it ain't magic, how come we can't change it?
Which was precisely how, if you were an oil-company manager in the 90's, you got fired.
The incentives in the '80's and '90's were all about keeping down finding and development costs by not spending on finding and spending as little as possible on developing. Budgets were starved, budgets were attacked repeatedly by F&A types wielding analytical tools, staff were bagged and tagged and set out by the curb to reduce G&A. In one case I know about, the "Jack Welch" cure was applied: geologists and geophysicists were fired en masse on Tuesday, and on Wednesday consultants were brought in to replace them, because as consultants, their contractual rates could be applied to specific project costs and receive more favorable tax treatment than general and administrative costs represented by salaries. Plus: No employment taxes, no withholding, no retirement cost, no health cost (unless it were negotiated with the consultant; but usually not). Perfect employee: no taxes, no expenses other than his salary, which you get to take off your income taxes. Brilliant. Now, if only you could find a bunch more from a low-cost talent source like, say, India......
Rising product prices (determined by open-outcry trading, by the way) have allowed more projects to go forward. But the incentive structure for starving organizations of people and blowing people out as soon after (or even before) age 50 because of ERISA legal requirements remains in place; and Gen "Y" is in no hurry to rush down into the same salt pits that ate their forerunners. Nobody wants to go to college for six, seven years in order to enjoy a 12-year, stretch 20-year, career.
Oil company lobbyists, you need a bigger check book than they have. Are some honest politicians that actually care for the country, but those seem to be in real short supply.
What I am saying is that big oil is not much saddened by that preposterous situation, which our elected leaders have allowed to continue. As sound businessmen, they are playing the hand they were dealt, and playing it well.
So, a weird way, the oilcos and the environmentalist are in a symbiotic relationship. When's the last time you heard an oilco exec publicly state that the environmentalists are very largely unscientific wack jobs?
Read BP's ads. Read as if they are in the frickin' Sierra Club!
As the industry analyst tried (unsuccessfully) to tell O’Reilly, the oil companies do not set the price of oil. O’Reilly kept demanding, “Tell me the name of the one guy who sets the price of oil!” It was the stupidest thing I've ever heard him say, and that's something. The price is set by the commodities market, based entirely on what somebody is willing to pay. If nobody was willing to pay $117 for a barrel of oil, or $3.59 for a gallon of gas, prices would fall. That's supply and demand in a free market.
If you could eliminate the speculators, gamblers, parasites, and crooks in the futures market, you could lower the price of oil a little. If you could eliminate the many taxes on gasoline, you could lower the price a little. If you could increase domestic production, you could lower the price a little, and at least keep the trade deficit lower. But as long as there's a world wide demand for oil, the prices will be as high as the markets will bear. It's a Gordian knot that will only be cut by increased production, decreased demand, and alternative sources of energy, which ties in with decreased demand for oil.
And of course, bribing the dealer has been known to help.
That would, of course, be Kennybunkport. George HW Bush and the one-worlders are everywhere! It's all a giant conspiracty, dontchaknow.
Seriously, were I the CEO of, say, ExxonMobil, I wouldn't lift a finger -- under present-day circumstances -- to bust my chops to produce more oil. Why bother when A) prices are perfectly satisfactory, and B) All I'd get for producing more would be a ration of shjt from the enviroNazis and their fellow-travelers in the goobermint?
Oil industry profits are about 10 or 11 cents per dollar of invested capital, which is not a particulary high return for a business. That means that they have invested 9 or 10 times as much capital as as their yearly profits in order to produce the oil they provide.
It is the scale of the business that is hard for most to comprehend. They make a big profit because they are a huge industry that has made huge investments. If the profits are cut, where will the money come from to find and develop future oil fields, let alone maintain existing ones?
That oil, produced in the US, costs perhaps $25 per barrel to produce (and that is a very generous estimate). Once produced it is then "sold" to the oilco's refining company (an independent entity, of course) at the world price.
For integrated companies like the majors, profits are reported for the entire company including refining subsidiaries.
The refining company passes that on to the consumer. Business as usual. Except that the oilcos are now making up for a few lean years with an unholy vengeance. They are not wrong. They are operating legally and these huge profits are completely legitimate. Of course, they need a lot of money to buy the foreign oil they need to meet domestic demand from their foreign operating companies, too. Tidy profit there.
Please feel free to invest in oil company stock and share in the profit.
By the way, the bulk of profit for most foreign operations goes to the producing country. It is the same here, except at a smaller scale. Our government adds a tax at the pump that exceeds oil company profits per gallon, yet government makes no investment and takes no risk of being nationalized overseas or of drilling dry holes.
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