Washington Post: Start Drilling

[JohnLockesGhost]

JMS, I'd bet you $10,000 that after you achieve your goal of breaking up oil companies, prices remain unchanged.

[JMS]

JMS, I'd bet you $10,000 that after you achieve your goal of breaking up oil companies, prices remain unchanged.

Hell John, what do you base that on? intuition?

Answer me this johnLockesGhost. What did Exxon Mobil tip their retireing CEO in 2006 after 5 years in office? 400 million dollars.... almost 100 million a year over and above his salary and compensation leading up to retiremement..

I think prices will change. At the very least they won't go up 50% in any given year as crude oil prices remain relatively unchanged.

What's your thought? It's impossible to introduce competition into a retail sales model business? Or that competition doesn't supress prices?

Exxon Mobil Profits.. in millions of dollars

1998 - 6,440.0

1999- 7,910.0

2000 -15,990.0 +100%

2001 -15,105.0

2002 -11,011.0 -20%

2003 -20,960.0 +90%

2004 - 25,330.0 +20%

2005 - 36,130.0 +42%

2006 - 39,500.0 +10%

2007 - 40,610.0

2008 first quater earnings.. up 17%

[JMS]

The competition died a horrible death during the oil bust and the years after because of staggering debt and was consolidated or bought out.

There was many a millionaire that lost his shirt while ya'll enjoyed 1.50 or less gas,now we have declining domestic sources and NOC's to deal with(that have attained large shares in what 'used' to be domestic oil companies) and they insist on a tidy profit...and since the NOC's control most oil reserves and the US will not expand they will get it.

When exactly was this oil bust? there were what 2600 mirgers from the mide 1990's into early 2000's. I don't remember many gas companies declairing bankrupcy.... ( other than Texico because of lawsuits. ).

Of course you may invest a few billion of your own and get in on the game.

According to the GAO the consolidation has locked competiton out of entering the market.

In fact I happen to own a old gas station...Want to buy it?

Send me a perspective. I might.

[twa]

When exactly was this oil bust? there were what 2600 mirgers from the mide 1990's into early 2000's. I don't remember many gas companies declairing bankrupcy.... ( other than Texico because of lawsuits. ).

Not surprising you don't recall it , but it was hard to ignore here.

http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=23322

But Americans, who have famously short memories, had it easy at the pumps back then – precisely because oil companies had it hard. Depressed prices led to record financial losses – and layoffs (speaking of victims).

In fact, no industry – including auto manufacturers – suffered more layoffs in the last recession than U.S. oil and gas producers – nearly 70,000 from July 1991 to July 1992 alone.

And from 1982 to 1992, the oil industry had to cut more than 450,000 jobs – roughly the population of Austin, Texas – according to the American Petroleum Industry.

Most of the cuts came during the bust of the mid-1980s, when crude prices plummeted to $9 a barrel. Then employment bottomed in 1989 and even picked up in 1990, as both independent wildcatters and major producers were lured back into the oil fields by Gulf War-led prices that got as high as $40 a barrel.

But demand proved short-lived, thanks to the sluggish economy, and prices returned to low levels.

Where was the press when independent producers were going out of business and the industry was losing money? There were few such sob stories then.

In 1992, moreover, domestic oil production sank to the lowest level in more than 30 years. And drilling activity hovered around 650 rigs nationwide – down from more than 3,000 in 1982, the industry peak, and the lowest level since 1940, according to Baker Hughes Inc.

It wasn't just low demand that slowed drilling – and, in turn, the nation's supply of oil and gas. It was also a rash of environmental restrictions, and consumers can blame that for much of today's "price gouging."

Companies paid a lot of money for leases to drill off the West Coast, primarily California, but a moratorium prevented them from producing anything.

They also had to close or downsize refineries because of new regulations requiring them to meet costly standards for reformulated gasoline and other clean-burning fuels. (The rules were OK'd, ironically enough, by President Bush's father under the Clean Air Act of 1990.)

So capacity has fallen, and demand has rebounded and is now at a summer peak, leading to an energy shortage that once-beleaguered oil companies are now capitalizing on.

[BigDaddyShoo]

Answer me this johnLockesGhost. What did Exxon Mobil tip their retireing CEO in 2006 after 5 years in office? 400 million dollars.... almost 100 million a year over and above his salary and compensation leading up to retiremement..

Have you ever met Bill Stavropoulous? I have...pretty charming guy. Mebbe they gave him that bonus because of his magnetic personality? *sarcasm now off*

[PeterMP]

You got me there. I should have said Oil/Gasoline did not become inelastic in 2001 when Bush took office and prices began to rise after 20 years of moderate increases.

Because need isn't what set's the price in the presence of competition. The price is set by the competition of multiple independent operators all competing against each other to provide the commodity at the lowest price. The market then rewards the lowest cost, most effcient compeditor with more market share and more profits.

One of us has incorrect veiw of what an inelastic commodity is. This isn't my expertise, but if we agree that oil is an inelastic commodity, my understanding is that (I'll use Exxon just as an example), what determines Exxon's market share isn't the demand for their product vs. other companies, but essentially, how much oil they can get their hands on because the demand is so much larger than the supply accross all the companies.

Exxon could (essentially) charge as much as they want for their product (oil/gas) and they would still sell all of it they can get their hands on, and how much they can obtain is really the only thing (not effecientcy or price) that determines their market share.

[Midnight Judges]

Not surprising you don't recall it , but it was hard to ignore here.

http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=23322

But Americans, who have famously short memories, had it easy at the pumps back then – precisely because oil companies had it hard. Depressed prices led to record financial losses – and layoffs (speaking of victims).

In fact, no industry – including auto manufacturers – suffered more layoffs in the last recession than U.S. oil and gas producers – nearly 70,000 from July 1991 to July 1992 alone.

Hell, why not just get your information straight from Exxon.com?

How many of those laid off workers could they have kept on board with the pay of a few high level guys? Exxon just paid one guy $400 million on top of his base pay. I'm sure he was well worth the 8,000 middle class workers that will be laid off in the next recession.

[sjinhan]

When I saw the first posts of this thread I knew its probably gonna be just bashing the oilfield industry but I decided to read through it all to see what people said.

You guys really do make this a simple problem when you are talking about someone else's money.

Corcaigh have it right. The real problem is what he stated here.

From what I understand, one of the reasons why we rely on Middle East oil so much is production costs and the long term cost of exploration.

If I recall correctly, production costs for a barrel of oil in the Middle East are around $15/barrel. Costs for the other local sources, such as US offshore deepwater, are much higher. close to $70 per barrel. Estimated reserves if you are prepared to spend that kind of money are much greater than the Middle East supply.

The dilemma for an oil production company is how long priced will be at a certain level to justify the exploration and higher production costs.

Given that we have been north of $100 per barrel for some time now, I wonder if there's merit in the US government providing a contract for say 100 billion barrels of oil at $90 a barrel over the next X years so that the oil production companies could exploit these local resources knowing what their financial risk is.

People are mad because the oil companies are breaking records for profits for past few years without really understanding why. The oil companies performe an economic analysis when they are investing into new fields or projects like any business would. The major problem is that as many of the posters already stated is that from investment in a new field now will only result in actualy production 3-7 years down the road.

So the key to the economic analysis is determining how much the oil and gas will sell for on the market in the future. So basically when Exxon, Shell, ConocoPhillips were developing the current producing fields back in the 1990's they were most likely performing their economical analysis based off $15-20 per barrel oil to ensure that the companies were making NET for the shareholders. NO ONE would have predicted that the oil would be selling for $100-$120 per barrel 10 years later. Maybe someone did but I know for sure they were not going to bet BILLIONS of their companies money that the oil and gas prices will raise as quickly as it did.

The people I talk to in the industry today DOES NOT BELIEVE in $100 per barrel oil. It is tempting for us to think that the good times will continue and we will get paid premium prices for oil and gas but if you think that the people in the oilfield will gamble their entire company on a development of a new field that will cost $80 per barrel for us to produce you people really are delusional. I am sure none of you on this board is crazy enough to bet your life savings buying up oil futures on the stock market today but you are expecting the oil companies to essentially to do the same by investing billions and billions of dollars on an investment that will not pay out for 5-7 years in all seriousness is crazy.

You just have to accept the fact that even now at $100 per barrel oil is still the one of the cheapest form of energy the world has enough quantities of. Although it might be more expensive than what the world is used to but alternate form of energy still quite few years away and we just have to live with paying more for oil and gas.

Also almost every major oil and gas companies are leading the research in looking for alternate form of energy because its true that in the very near future the National Oil Companies will completely dominate most of the known reserves and for companies like Exxon to survive they need to find a new form of revenue to develope and bring to market in next 20-30 years so they will be done.

BTW: Alot of people talk about how OPEC should really just drill more wells to produce more but that is also not going to happen over night either. A real state of situation in some counties in OPEC like Saudi Arabia people dont talk about is that they failed to maintain the infastructure needed in order to continue drilling and exploring within their country. So even if Saudi Arabia decide one morning to start drillinng for more oil in the volumes that will effect the world supply, it would take 2-4 years and billions of dollars to get the infastructure back into place in order to do that.

[JMS]

One of us has incorrect veiw of what an inelastic commodity is. This isn't my expertise, but if we agree that oil is an inelastic commodity, my understanding is that (I'll use Exxon just as an example), what determines Exxon's market share isn't the demand for their product vs. other companies, but essentially, how much oil they can get their hands on because the demand is so much larger than the supply accross all the companies.

I don't think that's accurate. Inelastic reffers to the commodity not the company. Oil we agree is an inelastic commodity because there is no substitute for it and it is necessary for the economy. So demand for the commodity does not go down significantly with an increase in price. That makes it inelastic.

That doesn't mean competition can't be introduced between companies. It also doesn't mean excess capacity among multiple compeditors can not be found to ensure competition and supress price.

Exxon could (essentially) charge as much as they want for their product (oil/gas) and they would still sell all of it they can get their hands on, and how much they can obtain is really the only thing (not effecientcy or price) that determines their market share.

Only in the absense of competition. Ineleastic reffers to the commodity not the company. Also America won't use as much oil as can be found, but it will use a certain amount of oil relatively independent of price. So in the absense of competiton you are right, Exxon can charge almost anything for their product and many people will have no choice but to pay it. Which is what is happenning simplistically. Effeciency and price point only come into effect to motivate Exxon when competition is introduced. If Standard oil can produce gasoline as 2$ a gallon and Exxon is charging 4$ a gallon, people will buy from Starndard oil. Exxon will have no choice but to lower their price or live with a shrinking share of the market. Even though gasoline is inelastic and people need gasoline.

If Starndard oil is not there to compete, then what you say is true. Exxon will have nobody to keep them honest, and consumers will have nowhere to go in the face of Exxon raising their prices.

Steel, alluminum, and oil are all inelastic commodities. Gold Silver and Coper too to a lessor extent.

[PeterMP]

If Starndard oil is not there to compete, then what you say is true. Exxon will have nobody to keep them honest, and consumers will have nowhere to go in the face of Exxon raising their prices.

Steel, alluminum, and oil are all inelastic commodities. Gold Silver and Coper too.

Not if there is more demand for oil than Standard Oil can supply/produce it. Standard Oil might sell all of its oil faster, but if demand out strips supply than Standard Oil will run out, and people will be forced to buy at whatever price Exxon sets.

[JMS]

Not if there is more demand for oil than Standard Oil can supply/produce it.

Exactly right. But the rising prices of gasoline at the pump are not because of a global shortage of Crude oil. Saudi Arabia has actually dropped production of crude oil in the last two years.

The reason gasoline prices are going up is because of refineries, of spot shortages of refined crude. Gasoline required for niche markets is in shortage. That's been the story from 2001-2007. Oil companies which own the refineries are just manipulating the production of gasoline to creat spot shortages to drive prices up. Since most of their refinery capacity is located outside the United States the US government can do little to legislatively change the behavior.

What left us vunerable to this repeat of the California energy crisis played out on a national scale is the same thing that left California vunerable 2001-2003. Deregulation and consolidation. 2600 mergers in the oil industry from the mid 1990's through 2003.

Some of the Corporate names given to the strategy of manipulating the energy market in California

• Fat Boy
  
• Death Star
  
• Forney Perpetual Loop
  
• Ricochet
  
• Ping Pong
  
• Black Widow
  
• Big Foot
  
• Red Congo
  
• Cong Catcher
  
• Get Shorty
  

We currently are experiencing the same phenomina nationally with gasoline that California experienced locally with electricity.

No competition to keep them honest, because deregulation, consolidation went too far.

Standard Oil might sell all of its oil faster, but if demand out strips supply than Standard Oil will run out, and people will be forced to buy at whatever price Exxon sets.

Again correct. but we don't have a shortage of crud oil. Opec has actually cut production 10% over the last two years Currently Saudi Arabia is sitting on 20% excess production capacity. The shortage is at the refineries. As I've said Big oil hasn't built a new refinery in this country in more than 30 years. They build them in central America and the Carribean because it gives them more flexibility and less oversite.

American big oil started reaping record profits in 2000 when their profits jumped 100% in one year. Opec didn't start significantly raising the price of their crude until last year. OPEC has been taking much of the blame for the hikes at the gass pumps and they haven't been the big winners. Opec sees what big oil is doing manipulating the market, and they see what governments are doing putting huge taxes on gasoline to consumers, and they're pissed. Obviously their product is underpriced if everybody else is adding on record profits. That's why today crud oil prices are at record highs. That wasn't the case in 2000-2007.

[twa]

Hell, why not just get your information straight from Exxon.com?

How many of those laid off workers could they have kept on board with the pay of a few high level guys? Exxon just paid one guy $400 million on top of his base pay. I'm sure he was well worth the 8,000 middle class workers that will be laid off in the next recession.

The information was in relation as to how competition got absorbed(or how Exxon became the Exxon we know today) and the lack of competition.

There are some smaller players(like Apache Oil) that are going gangbusters simply by working harder and smarter,but if another bust happens they will likely be crushed.

There were plenty of high level guys kicked out in the bust as well,but just like any other industry the CEO's have better parachutes.

btw...did you see Exxon stock dropped since their profit wasn't as high as expected?...Life is rough :laugh:

[JMS]

Not surprising you don't recall it , but it was hard to ignore here.

http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=23322

But Americans, who have famously short memories, had it easy at the pumps back then – precisely because oil companies had it hard. Depressed prices led to record financial losses – and layoffs (speaking of victims).

In fact, no industry – including auto manufacturers – suffered more layoffs in the last recession than U.S. oil and gas producers – nearly 70,000 from July 1991 to July 1992 alone.

That must have really sucked. Seeing as how Exxon during those years continued to see profits rise faster than inflation.

In 1991 Exxon profits rose by 3.7%

Source: Mercury News Wire Services

Citing sharply higher profits in global refining that overcame sluggish U.S. demand for its products, Exxon Corp. reported on Thursday a 3.7 percent gain in third-quarter profits. Net income for the nation's biggest oil company rose to $1.12 billion, or 88 cents a share, from $1.08 billion, or 85 cents a share, in last year's third quarter.

Published on October 25, 1991, Page 10D, San Jose Mercury News (CA)

http://nl.newsbank.com/nl-search/we/Archives?p_product=SJ&s_site=mercurynews&p_multi=SJ&p_theme=realcities&p_action=search&p_maxdocs=200&p_topdoc=1&p_text_direct-0=0EB718C738EB6A7F&p_field_direct-0=document_id&p_perpage=10&p_sort=YMD_date:D&s_trackval=GooglePM

In 1992 Exxon profit were up 1.8% still a multiple of inflation and Mobil's profits were up 13.2%.

http://query.nytimes.com/gst/fullpage.html?res=9E0CE4DC123EF937A15753C1A964958260

Sounds like hard times.

[JMS]

btw...did you see Exxon stock dropped since their profit wasn't as high as expected?...Life is rough :laugh:

Yeah I liked it when the Exxon spokesman said record high crud oil prices were eating into our expected growth in profits. Crude oil prices doube and it's eating into their "growth in profits"....

On a more frusterating topic. Did you see where congress is proposing huge windfall tax hikes for big oil. That could be the worse thing they could do.

[twa]

On a more frusterating topic. Did you see where congress is proposing huge windfall tax hikes for big oil. That could be the worse thing they could do.

Yep, history does repeat itself and it will only further increase our reliance on foreign supplies....stupid ass Dems

The oil companies invest billions and are entitled to a decent return

http://www.taxfoundation.org/news/show/1168.html

Before rushing to create a new federal tax, lawmakers should ask two questions:

(1) Do oil companies currently pay too little in taxes compared to profits?

(2) What was the effect of the last windfall profits tax enacted in 1980?

The answer to the first question is that over the past 25 years, oil companies directly paid or remitted more than $2.2 trillion in taxes, after adjusting for inflation, to federal and state governments—including excise taxes, royalty payments and state and federal corporate income taxes. That amounts to more than three times what they earned in profits during the same period, according to the latest numbers from the Bureau of Economic Analysis and U.S. Department of Energy.

These figures do not include local property taxes, state sales and severance taxes and on-shore royalty payments.

The answer to the second question, according to the Congressional Research Service (CRS), is that the 1980s windfall profits tax depressed the domestic production and extraction industry and furthered our dependence on foreign sources of oil.1