Disgusted with the Oil Companies

[AliceInWonderland]

Taking Aim at Oil's Riches By Tom Petruno Times Staff Writer
Wed Oct 26, 7:55 AM ET



Even for Big Oil, the numbers have never been as big as this.

When major U.S. energy companies including Exxon Mobil Corp. and Chevron Corp. announce their third-quarter earnings in the next few days, the results are certain to be staggering.

Pumped up by soaring prices of oil, natural gas and gasoline in August and September, Exxon Mobil alone is expected to report quarterly profit of about $8.7 billion. That would be more than what such titans as Coca-Cola Co., Intel Corp. and Time Warner Inc. earn in an entire year.

For the energy companies, the record results amount to an embarrassment of riches — an invitation for attack by foes and even by some traditional allies.

"The question increasingly is going to be, what is the industry going to do with this money?" said Amy Jaffe, head of the James A. Baker Institute Energy Forum at Rice University in Houston.

On Tuesday, House Speaker J. Dennis Hastert (R-Ill.) called on the companies to spend more to build refineries and boost production to help "ease the pain" of high energy prices.

"It's time to invest some of those profits," Hastert said at a news conference in Washington.

With oil holding above the $60-a-barrel mark, double the level of two years ago, some Democrats in Congress have another idea: Slap the industry with a windfall-profit tax like the one imposed in 1980.

Some consumer advocates, meanwhile, want Congress to mandate that a share of oil and gas earnings be plowed into alternative-energy research.

The sheer size of the industry's profit mountain makes it a tempting target. Together, the 29 major oil and gas firms in the Standard & Poor's 500 stock index are expected to earn $96 billion this year, up from $68 billion last year and $43 billion in 2003.

Yet the industry disputes critics who say it is failing to invest enough of that money to find new sources of oil and gas.

Energy companies will spend an estimated $86 billion on capital expenditures in the U.S. alone this year, the American Petroleum Institute says, citing Oil & Gas Journal data. That's up from $76 billion in 2003.

Exxon Mobil said its capital and exploration expenditures were projected to be about $17 billion this year, up from $14 billion in 2004. The company plans to spend $17 billion to $18 billion a year from 2007 through 2010, spokesman Robert Davis said.

Chevron is involved in more than 20 exploration projects worldwide that would involve outlays of about $1 billion or more, compared with a handful of such projects a few years ago, a spokesman said. The company this month gave the go-ahead to a deep-water drilling project in a Gulf of Mexico field where Chevron believes more than 100 million barrels of oil may lie.

But as gasoline supplies have tightened this year and pump prices have topped $3 a gallon, many industry critics have focused their wrath on the refining business. The last new U.S. refinery was completed in 1976.

Jamie Court, president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights, alleges that the industry has "intentionally reduced refining capacity to pump up profits to world-record levels."
The industry, however, contends that it has been hamstrung by environmental laws and other restrictions on refinery construction and expansion.

Nonetheless, existing U.S. refineries have been expanding capacity by about 1% a year for the last decade, mainly by facility upgrades, said Rayola Dougher, an economist at the American Petroleum Institute.

Some analysts question whether, even with federal help, the industry could justify the cost of new U.S. refineries. If gasoline prices were to fall sharply, perhaps because of stepped-up conservation, such projects could be financial albatrosses.

"Building a refinery is a 30-year commitment," said Nick Cacchione, an analyst at energy research firm John Herold & Co. in Norwalk, Conn.

Meanwhile, energy companies' owners — their investors — have their own idea of what to do with the avalanche of cash: They'd like much of it paid to them in the form of dividends and stock buybacks.

Many shareholders and industry executives have a far different perspective on current oil, natural gas and gasoline costs than do their consumers. They remember how the oil price surge of the late 1970s, amid turmoil in the Middle East, went bust in the early 1980s.

What followed were nearly 20 years of mostly depressed prices, which also depressed the industry's earnings and stock prices.

San Ramon, Calif.-based Chevron, for example, earned no more in 1998 than it had in 1985.

Coca-Cola, by contrast, earned nearly five times as much in 1998 as it had 14 years earlier.

What also went bust in the 1980s were many of the diversification moves the energy giants made with their then-record earnings of the 1970s. Mobil, then an independent firm, bought retailer Montgomery Ward in 1976, only to dump it 12 years later.

Exxon invested in an office-products business; Gulf Oil, since merged into Chevron, mulled over buying Ringling Bros. and Barnum & Bailey circus, although its board ultimately vetoed the idea.

Advice often given by academics to the oil companies in the 1970s was to diversify away from the energy business because oil was running out, said Michael Lynch, president of consulting firm Strategic Energy & Economic Research Inc.

"Not only did they do all these dumb things, but they did so on the advice of damn near everybody," Lynch said.

Even companies that eschewed venturing into non-energy businesses were slammed if they invested heavily in high-risk exploration and development projects in the '80s, only to find that tumbling oil prices made the investments uneconomical.

By the early 1990s, "It looked like money down a rat hole," said Severin Borenstein, director of the University of California Energy Institute in Berkeley. "I can certainly see why they'd be cautious now. Just because you're making an extra $35 a barrel doesn't mean you should be pouring that into exploration."

Today, any aggressive capital spending program by an energy company probably would face much more severe review by its shareholders, given fears that the boom of the last few years could quickly give way to a bust.

David Dreman, a veteran investor who heads Dreman Value Management in Jersey City, N.J., believes that energy companies' smartest use of cash may be to increase their stock dividends, buy back shares or buy other oil and gas companies outright.

"The cheapest way of getting oil now is to do it by acquisition" of other firms, said Dreman, who owns shares in Chevron, which recently bought Unocal.

Yet mergers may just further anger critics who say energy firms are failing to invest heavily enough in potential new energy sources. That is seen as one justification for a windfall profit tax.

Sens. Jack Reed (D-R.I.) and Byron L. Dorgan (D-N.D.) are pushing a bill that would essentially levy a tax surcharge on oil firms when oil's market price exceeds $40 a barrel. The money would be rebated to consumers.

The industry contends that such taxes would be unfair and would restrain exploration.

"We should learn from history. The [1980] crude oil windfall profit tax reduced domestic oil production and increased imports of foreign oil," said Exxon Mobil's Davis. That tax was repealed in 1988.

Borenstein said he also considered a windfall tax a flawed idea. Although high oil and gas prices are unarguably a wealth transfer from consumers to the energy industry, it was the opposite in the 1980s and 1990s as prices fell, he said.

"Unfortunately, sometimes you see big wealth transfers occur when something becomes scarce," Borenstein said.

May they burn in hell!

[AliceInWonderland]

um I can't beleive this doesn't piss more people off enough to post anything!
where is everyone and your anger???

[EvilMonkey]

Flipside is higher prices reduces the amount of time people drive.

People now opt for walking, public transport and hybrid cars.

Reduces greenhouse emissions and may help slow polar icecaps melting.

Is it a blessing in diguise?

[SVZ]

No, it's a huge ass raping disguising itself as a tylenol suppository

[buttmunch]

Well, now that it appears the Saudi's don't have as much oil as previously thought, we might actually have a shot at losing our dependence on big oil and staving off the environmental disaster everyone seems to be ignoring.

[Glasgow53]

Sometimes I wonder if it isn't a huge plot. People were in general driving smaller, more fuel efficient cars after those big cars from the 70'2-80's were out of fashion. Then came this SUV thing, where people became convinced they needed giant SUV's, mini vans, and the most ridiculous of all, Hummers. People ran out and bought them to the point where that is practically all you see on the roads now. So now that most everyone who is going to buy one probably has one, they jack up the gas prices. What are you supposed to do? Sell your vehicle that you owe 4 years on to buy another vehicle that is cheaper with gas? The oil companies have you hooked.

[AliceInWonderland]

HERE'S SOME MORE BULLSHIT!
Exxon's $10B net a U.S. corporate record
The oil company gains from soaring oil and gas prices, but falls short of estimates.
October 27, 2005: 1:25 PM EDT

NEW YORK (Reuters) - Exxon Mobil Corp. posted a quarterly profit of $9.9 billion Thursday, the largest in U.S. corporate history, as it raked in a bonanza from soaring oil and gas prices.

Record profits for Big Oil at a time when consumers are paying sky-high prices for gasoline have brought calls for a windfall profits tax or other penalties on oil companies.

The companies have been enjoying an unusually rosy environment for months. In the third quarter, oil prices and refining margins rose sharply after hurricanes Katrina and Rita ripped through the Gulf of Mexico, disrupting energy operations in the region.

While Exxon's quarterly profit was up 75 percent from a year earlier, and revenue rose 32 percent to more than $100 billion, the results fell short of Wall Street forecasts due to production outages caused by the hurricanes and sharply lower profit at the company's chemicals division.

"They were a bit disappointing, but this a temporary phenomenon," said Paul Kuklinski, an analyst with Boston Energy Research/Soleil Securities. "This is largely attributable to hurricane effects."

Exxon (up $0.15 to $56.35, Research) shares fell slightly in midday trade.

The world's largest publicly traded oil company said net income jumped to $9.92 billion, or $1.58 a share, from $5.68 billion, or 88 cents a share, a year earlier.

Excluding a gain of $1.62 billion from restructuring its stake in a Dutch gas transportation business, earnings were $1.32 per share, six cents below the average forecast among analysts polled by First Call.

The record earnings topped the $9 billion net profit reported Thursday by Royal Dutch Shell PLC and were well above the best quarterly performances by Citigroup Inc. (Research), the world's largest bank -- $7.2 billion -- and conglomerate General Electric Co. (Research) -- $5.6 billion -- according to Reuters Fundamentals.

Expansion of capacity
In addition to calls for a windfall profits tax or other penalties, lawmakers and consumer advocates have been urging oil companies to expand refining capacity and take other steps to help bring down gasoline prices.

Energy Secretary Sam Bodman said Thursday that oil firms have a responsibility to boost refining capacity in times of record profits. Marathon Oil said it would do just that, announcing a $2.2 billion expansion of its Garyville, La., refinery.

"We're already seeing some companies yielding to pressure," said Oppenheimer & Co. analyst Fadel Gheit. "But everybody is waiting for the big lady to sing, which is Exxon."

Exxon said it did not see the point of a windfall profits tax.

"Frankly, if you're trying to encourage supply growth, it seems odd to put in place disincentives," Henry Hubble, vice president of investor relations for Exxon, said on a conference call with analysts.

Production falls
Exxon's oil and gas production fell 4.7 percent in the third quarter from a year earlier as outages caused by Katrina and Rita, maintenance activities, and maturing fields more than offset higher production from new fields in West Africa.

Excluding the impact of the hurricanes, divestments and entitlement effects, output fell 1 percent.

Still, record crude oil prices -- which touched $70 a barrel in the quarter -- pushed earnings at its exploration and production unit to $5.73 billion, up $1.8 billion from a year earlier.

At its refining and marketing operations, profit rose to $2.13 billion, up $727 million from a year earlier. Stronger refining margins outweighed weak marketing margins and lower petroleum product sales.

Earnings at its chemicals division tumbled to $472 million, down $537 million from a year earlier, due to higher feedstock costs and lower margins.

Exxon's capital expenditures jumped to $4.41 billion from $3.63 billion a year earlier.

Shares of Exxon, the largest of the so-called "super-major" oil companies, were little changed at midday on the New York Stock Exchange. The shares rose more than 10 percent in the third quarter but underperformed the broader Standard & Poor's integrated oil and gas index, which climbed more than 13 percent.
AND OF COARSE ITS A HUGE CONSPIRACY; AGAINST US! THE CONSUMER!!

[Glasgow53]

Do you think it is a coincidence that all this is happening when we have a president who counts Texas oil men as his friends?

[Sojiita]

Do you think it is a coincidence that all this is happening when we have a president who counts Texas oil men as his friends?

If it is a coincidence then get your skates on because we are all going to go ice skating in hell.

[ourmaninBusan]

um I can't beleive this doesn't piss more people off enough to post anything!
where is everyone and your anger???

I hope this makes you angry. It's a political cartoon that says
in four panels what nobody in the mainstream media can bring
themselves to say:

[THUMB]http://images.ucomics.com/comics/trall/2005/trall050808.gif[/THUMB]

That cartoon was from earlier in the spring.
Cut and paste if you must. You'll be alarmed.

The Bushites have been using a Clinton lie about Iraq.
If a soldier is killed in Iraq, and dies on Iraqi soil, they tell the media.
If a soldier is wounded in Iraq, and dies while being airlifted to
Germany, ...well, technically he didn't die in Iraq, so they don't
report it in with the official death toll.

Let me put it bluntly: in the Iraq occupation,
Your death toll is really at 9,000+.
9,000 US Soldiers have been killed in Gulf War II.
Iraqis have killed 9,000+ US soldiers.
You have more than 9,000 combat deaths in Iraq since 2003.


...geddit?

[AliceInWonderland]

-mostly over the 30,000 + Iraqi CIVILIANS murdered in Iraq FOR NOTHING!

[ralphycnan]

Did you read about the fake flu shots?