If you owned an oil company today, you would not plan for today, but for the next 10 years and farther. Now if you sell gas, you need to make sure you have a product to sell next week, month, year, and so on. As a business man, you see the world today, Iran, N. Korea, Israel, Nigeria, India attacks, etc. etc. Al these may disrupt your ability to get the oil you need to sell. So, you buy a lot of oil when the price is at $65 thus raising demand, betting you will pay more than that next year, or five years from now, even though you don't need it today. Supply goes up as you store and save. When price goes up next year to $77 a barrel where it is today, you have big profits Exxon because you bet the market price would go up, (everyone understands betting here I think). If oil drops because they find a new source and price per barrel drops to $50, the oil company loses big. This is when the subsidies where created last time. Lately the Oil companies are winning big because of the threat of oil production being stopped if war happens in Middle East, or whatever. Supply and demand plays a role, the threat of supply interuptions is the big problem now causing prices to run up, and bigger profits for the oil companies.
Oil/Gas Prices
- Thread starter djv
- Start date
I know this is complicated and there is no simply answer to this stuff. You can explain it a few ways.
Yeah, I don't even try to understand how it works, but it's always interesting to read theories.
kosar said:
another example of our great leaders failing to do their jobs. a nation like ours should never be relying on the actions of other gov'ts to survive.
Well I think we have proven we can't control the world let alone individual governments as much as we may try. With oil so high though there is plenty of incentive now to find alternatives. This may be the best for the long haul, if we turn away from fossil fuels which pollute the envionment to something more (green). Time will tell :shrug:
dr. freeze said:
I agree with the good doctor. What has happened in the last year that makes the "war for oil" argument dead?
BobbyBlueChip said:
I don't think anything has happened in the last year regarding that. I never bought into the 'war for oil' argument in the first place.
Freeze is right, in general, that if there was no oil in that region we wouldn't give a shit about anything over there (see Africa), but specifically going to Iraq to steal their oil? I don't think so.
we needed stability in the region because of the oil just as we need stability in the region now because of the oil so that American Company A, B, and C can do their jobs
Our leaders thought that letting Mr. Hussein make a mockery of us would destabilize the region...whether they were right, we will never know
Now we have more problems as the hornets nest is stirred
Some would think that this would be good, as it gives us a chance to buy time and resolve our immigration and border problems while Islamofasciist is focused on Iraq, but with today's gutless congressional leadership and the leftist media seemingly at odds with the defense of our country, we are failing to do this
We are also failing to start our own "Manhattan Project II" in regards to getting rid of our oil dependency
I would like to see someone run on these two issues -- defending our borders and investing money into 1. fuelcell/ethanol/etc. etc. technology and 2. borders/defense (including Star Wars defense). I would not be opposed to the current outrageous 40% tax rate if that money would be spent properly in defense of the Union.
If a party would pick up on these and stick to it, I would vote for them no matter who it would be. However, neither will as these should be Republican issues but they are weak and not conservatives in the least but instead country club catering establishment speaking out of both sides of their GI tract.
Where are Reagan, Ike, and some real leaders with vision when we need them?
Our leaders thought that letting Mr. Hussein make a mockery of us would destabilize the region...whether they were right, we will never know
Now we have more problems as the hornets nest is stirred
Some would think that this would be good, as it gives us a chance to buy time and resolve our immigration and border problems while Islamofasciist is focused on Iraq, but with today's gutless congressional leadership and the leftist media seemingly at odds with the defense of our country, we are failing to do this
We are also failing to start our own "Manhattan Project II" in regards to getting rid of our oil dependency
I would like to see someone run on these two issues -- defending our borders and investing money into 1. fuelcell/ethanol/etc. etc. technology and 2. borders/defense (including Star Wars defense). I would not be opposed to the current outrageous 40% tax rate if that money would be spent properly in defense of the Union.
If a party would pick up on these and stick to it, I would vote for them no matter who it would be. However, neither will as these should be Republican issues but they are weak and not conservatives in the least but instead country club catering establishment speaking out of both sides of their GI tract.
Where are Reagan, Ike, and some real leaders with vision when we need them?
kosar said:
OK - We're back on the same page. Since you've been a little "Liebermanish" over the past few days, I wasn't sure if you were now thinking that we actually did go into Iraq to stop a real and imminent threat to our national security, to spread democracy for a people yearning to be free, or to stop governments that give comfort to terrorists or whatever was the reason that we finally decided to go to war.
Of course, we were never going to steal the oil, we were just going to assist the Iraqi people by pairing up their state-run oil co's with US- and UK-based multinationals in order to get the oil out of the ground and into American SUV's and not Chinese manufacturing equipment. but stealing? of course not.
dr. freeze said:
If you change Star Wars for port security, I couldn't agree more.
Finding a new fuel source and being the earliest adapters would benefit us for the next 200 years.
Wow Exon/Mobile over 10 billion in 2ND quarter. They are Making something like $1100 per minute. Here in my home town were at $3.06
Big Oil: Booming Profits, Climbing Costs
Oil companies are raking it in?and spending it, too
Oil companies' financial results look great this year, thanks to high prices. But those healthy profits are masking costs that keep getting worse. A raft of companies trotted out stunning earnings in late July for the three-month period ended in June. Some increased their multibillion profits by more than 30% year over year; the Irving (Tex.) oil major Exxon Mobil (XOM ), for example, announced on July 27 that it had a record net income of $10.36 billion during the second quarter, up from $7.64 billion during the same period of 2005.
One day earlier, Houston's ConocoPhillips (COP ) reported second-quarter net income of $5.19 billion during the same period, compared to $3.14 billion for the second quarter 2005. European oil giant BP (BP ) on July 25 said it had net income of $7.27 billion in the second quarter, from $5.59 billion a year earlier.
HARDER WORK. Profits are booming, but energy outfits have to work harder?and spend lots more?to keep pulling ever-pricier oil out of the ground. That has fueled a spending competition for services such as drilling equipment, driving up companies' business costs for the past couple years.
And developments in recent months?such as higher taxes and new investment projects?are not the kind that will go away if oil prices fall. Meanwhile, experts are debating whether the global economic demand that's been boosting prices this year can be sustained.
"If oil prices go down or stay the same and you still have cost inflation, then there's the risk that margins will get squeezed in that environment" says Craig Pennington, global-energy portfolio manager at Schroders in London. Although high prices continue helping oil companies so far, Pennington noted that in a weaker environment, high-cost operators experiencing the biggest cost inflation will be among the first to suffer.
Are oil companies using their windfall to grow their businesses?or merely wasting it on inefficient projects? Credit Suisse (CSR ) found in a July 19 report that almost all of the global integrated oil companies had higher return on gross invested capital, or ROGIC (i.e., money earned as a percentage of that invested), in 2005 compared to 2004. The companies that excelled in getting the most bang for their buck included the Austrian oil and gas group OMV and Houston's Marathon Oil (MRO ), which increased their ROGIC year over year by 6% and 5%, respectively.
On the other end of the spectrum, Oslo's Norsk Hydro (NHY ) and San Ramon (Calif.) Chevron (CVX ) both decreased their ROGIC by 2%. (Chevron didn't respond to a request for comment by press time.)
IT WON'T LAST FOREVER. To be sure, oil company executives aren't assuming they'll always rake in more than $70 per barrel, as they have been this month on West Texas Intermediate crude oil contracts for delivery in September.
Norsk Hydro's spokesman Tor Steinum says that even if oil prices drop back to the $30 to $35 per barrel range, recent investments will remain "marginally" profitable. (One of the company's major recent purchases was Houston-based Spinnaker Exploration. Hydro expects to produce more in the Gulf of Mexico in the coming years as a result.)
Steinum pointed out that until two years ago, Norsk Hydro had assumed long-term prices of $18 per barrel when deciding to make new investments.
Industry executives have spotlighted the dark clouds amid the blue skies of high profits.
NO WIGGLE ROOM. "We don't have wiggle room" in our budget for cost inflation, said Jim Mulva, chairman and chief executive officer of Houston's ConocoPhillips (COP ) during a conference call on Wednesday. Like other companies in the industry, escalating costs are pressuring every part of Mulva's business. Managing them is "difficult," he says.
During the past three years, ConocoPhillips has invested more capital into energy development than it earned in net income. After buying Burlington Resources earlier this year, the company's interest expense and other costs rose. Total debt amounted to $29.5 billion at the end of the second quarter, 27% of the company's overall capital, compared to only $12.5 billion total debt as of Dec. 31, 2005.
After adding in Burlington Resource's capital spending program to its own, ConocoPhillips expects to plunk down $18 billion for 2006. Despite its smaller overall earnings, ConocoPhillips' plans are now only $2 billion behind those of its rival Exxon, which announced on Thursday that it plans to hike capital spending for 2006 by $1 billion to $20 billion.
HIGHER TAXES. Capital spending isn't the only worry. Taxes are among the newer cost problems that many companies face. Venezuela's President Hugo Chavez has been playing hardball with foreign oil companies this year, hiking their taxes and encouraging other countries to do likewise.
But Chavez isn't the only one to write up a new bill for oil companies. In July, the United Kingdom enacted higher income tax-rates retroactive to the beginning of the year. Meanwhile Gennadiy A. Zlivko, mayor of Korsakov at the southern end of Russia's Sakhalin Island, has fought to charge higher rent for operating a liquefied natural gas site in the area.
The tax collector isn't the only one to blame. Several companies have seen glitches in projects that needed fixing. Hess (HES ), of New York, is saying that it faces higher costs due to "unique maintenance situations"?a spokesman declined to provide more detail to describe them. Earlier this year, Hess said it would cost between $17 and $19 to produce each barrel of oil in 2006. On July 26, execs said they thought production costs will be at the high end of the range for the year and more than $19 during the third quarter.
In another example, the Stavanger (Norway)-based Statoil has delayed by eight months to December 2007 the start of gas deliveries for its Sn?hvit project, the first offshore development in the Barents Sea. The company explained that after delayed engineering, deficient quality, and other problems, it had to transfer work to Melk?ya, where it takes longer and costs more to finish.
In their attempts to drill under the waters surrounding Russia's Sakhalin Island, oil companies have met with delays, heavy snow, angry environmentalists, protesting indigenous locals, and cost overruns. Royal Dutch Shell PLC announced in 2005 that it would have to double the price tag for the main phase of its Sakhalin II project, to $20 billion (See BusinessWeek.com, May 15, 2006, "Sakhalin Island: Journey To Extreme Oil").
HURRICANE DAMAGE. The hangover from Katrina isn't even done yet. BP continues repairing facilities where the hurricane had blasted in late 2005. It found two leaks this May in subsea equipment at Thunder Horse, an offshore drilling site southeast of New Orleans. The company expects to replace the damaged pipes and start production in 2007. The British company said on July 25 that it plans to spend $15.5 billion to $16 billion on its business, up slightly from previous guidance of $15 billion in February.
Meanwhile the ongoing cost problems arising from booming profits continue getting worse. BP's Chief Executive John Browne also said during the company's July 25 conference call that the maximum price for using a drilling rig in ultra-deep water amounts to around $500,000 per day right now, compared to $200,000 per day toward the middle of 2004.
Schroders' Pennington, who must invest his entire portfolio in energy companies but has the freedom to decide which ones, has been underweight in the integrated oil-and-gas sector for the past 18 months. Instead, he's been overweight in oil-services companies during the same time period. They're the ones who sell equipment such as drilling rigs to oil companies. He declined official comment on specific companies.
While it isn't time to break out the violins for the oil majors, investors should be aware that increasingly heavy costs are accompanying the outsize profits?and may stick around even if oil heads back down.
Oil companies are raking it in?and spending it, too
Oil companies' financial results look great this year, thanks to high prices. But those healthy profits are masking costs that keep getting worse. A raft of companies trotted out stunning earnings in late July for the three-month period ended in June. Some increased their multibillion profits by more than 30% year over year; the Irving (Tex.) oil major Exxon Mobil (XOM ), for example, announced on July 27 that it had a record net income of $10.36 billion during the second quarter, up from $7.64 billion during the same period of 2005.
One day earlier, Houston's ConocoPhillips (COP ) reported second-quarter net income of $5.19 billion during the same period, compared to $3.14 billion for the second quarter 2005. European oil giant BP (BP ) on July 25 said it had net income of $7.27 billion in the second quarter, from $5.59 billion a year earlier.
HARDER WORK. Profits are booming, but energy outfits have to work harder?and spend lots more?to keep pulling ever-pricier oil out of the ground. That has fueled a spending competition for services such as drilling equipment, driving up companies' business costs for the past couple years.
And developments in recent months?such as higher taxes and new investment projects?are not the kind that will go away if oil prices fall. Meanwhile, experts are debating whether the global economic demand that's been boosting prices this year can be sustained.
"If oil prices go down or stay the same and you still have cost inflation, then there's the risk that margins will get squeezed in that environment" says Craig Pennington, global-energy portfolio manager at Schroders in London. Although high prices continue helping oil companies so far, Pennington noted that in a weaker environment, high-cost operators experiencing the biggest cost inflation will be among the first to suffer.
Are oil companies using their windfall to grow their businesses?or merely wasting it on inefficient projects? Credit Suisse (CSR ) found in a July 19 report that almost all of the global integrated oil companies had higher return on gross invested capital, or ROGIC (i.e., money earned as a percentage of that invested), in 2005 compared to 2004. The companies that excelled in getting the most bang for their buck included the Austrian oil and gas group OMV and Houston's Marathon Oil (MRO ), which increased their ROGIC year over year by 6% and 5%, respectively.
On the other end of the spectrum, Oslo's Norsk Hydro (NHY ) and San Ramon (Calif.) Chevron (CVX ) both decreased their ROGIC by 2%. (Chevron didn't respond to a request for comment by press time.)
IT WON'T LAST FOREVER. To be sure, oil company executives aren't assuming they'll always rake in more than $70 per barrel, as they have been this month on West Texas Intermediate crude oil contracts for delivery in September.
Norsk Hydro's spokesman Tor Steinum says that even if oil prices drop back to the $30 to $35 per barrel range, recent investments will remain "marginally" profitable. (One of the company's major recent purchases was Houston-based Spinnaker Exploration. Hydro expects to produce more in the Gulf of Mexico in the coming years as a result.)
Steinum pointed out that until two years ago, Norsk Hydro had assumed long-term prices of $18 per barrel when deciding to make new investments.
Industry executives have spotlighted the dark clouds amid the blue skies of high profits.
NO WIGGLE ROOM. "We don't have wiggle room" in our budget for cost inflation, said Jim Mulva, chairman and chief executive officer of Houston's ConocoPhillips (COP ) during a conference call on Wednesday. Like other companies in the industry, escalating costs are pressuring every part of Mulva's business. Managing them is "difficult," he says.
During the past three years, ConocoPhillips has invested more capital into energy development than it earned in net income. After buying Burlington Resources earlier this year, the company's interest expense and other costs rose. Total debt amounted to $29.5 billion at the end of the second quarter, 27% of the company's overall capital, compared to only $12.5 billion total debt as of Dec. 31, 2005.
After adding in Burlington Resource's capital spending program to its own, ConocoPhillips expects to plunk down $18 billion for 2006. Despite its smaller overall earnings, ConocoPhillips' plans are now only $2 billion behind those of its rival Exxon, which announced on Thursday that it plans to hike capital spending for 2006 by $1 billion to $20 billion.
HIGHER TAXES. Capital spending isn't the only worry. Taxes are among the newer cost problems that many companies face. Venezuela's President Hugo Chavez has been playing hardball with foreign oil companies this year, hiking their taxes and encouraging other countries to do likewise.
But Chavez isn't the only one to write up a new bill for oil companies. In July, the United Kingdom enacted higher income tax-rates retroactive to the beginning of the year. Meanwhile Gennadiy A. Zlivko, mayor of Korsakov at the southern end of Russia's Sakhalin Island, has fought to charge higher rent for operating a liquefied natural gas site in the area.
The tax collector isn't the only one to blame. Several companies have seen glitches in projects that needed fixing. Hess (HES ), of New York, is saying that it faces higher costs due to "unique maintenance situations"?a spokesman declined to provide more detail to describe them. Earlier this year, Hess said it would cost between $17 and $19 to produce each barrel of oil in 2006. On July 26, execs said they thought production costs will be at the high end of the range for the year and more than $19 during the third quarter.
In another example, the Stavanger (Norway)-based Statoil has delayed by eight months to December 2007 the start of gas deliveries for its Sn?hvit project, the first offshore development in the Barents Sea. The company explained that after delayed engineering, deficient quality, and other problems, it had to transfer work to Melk?ya, where it takes longer and costs more to finish.
In their attempts to drill under the waters surrounding Russia's Sakhalin Island, oil companies have met with delays, heavy snow, angry environmentalists, protesting indigenous locals, and cost overruns. Royal Dutch Shell PLC announced in 2005 that it would have to double the price tag for the main phase of its Sakhalin II project, to $20 billion (See BusinessWeek.com, May 15, 2006, "Sakhalin Island: Journey To Extreme Oil").
HURRICANE DAMAGE. The hangover from Katrina isn't even done yet. BP continues repairing facilities where the hurricane had blasted in late 2005. It found two leaks this May in subsea equipment at Thunder Horse, an offshore drilling site southeast of New Orleans. The company expects to replace the damaged pipes and start production in 2007. The British company said on July 25 that it plans to spend $15.5 billion to $16 billion on its business, up slightly from previous guidance of $15 billion in February.
Meanwhile the ongoing cost problems arising from booming profits continue getting worse. BP's Chief Executive John Browne also said during the company's July 25 conference call that the maximum price for using a drilling rig in ultra-deep water amounts to around $500,000 per day right now, compared to $200,000 per day toward the middle of 2004.
Schroders' Pennington, who must invest his entire portfolio in energy companies but has the freedom to decide which ones, has been underweight in the integrated oil-and-gas sector for the past 18 months. Instead, he's been overweight in oil-services companies during the same time period. They're the ones who sell equipment such as drilling rigs to oil companies. He declined official comment on specific companies.
While it isn't time to break out the violins for the oil majors, investors should be aware that increasingly heavy costs are accompanying the outsize profits?and may stick around even if oil heads back down.
If that article had a shred of truth to it then the oil companies profits would be flat or even lower than the previous years. Think about it. If their costs go up, as they say, and they raise their prices to make up for the added cost, then their profits would be flat, or the same as previous years. These terrorist oil companies are generating not only higher profits but record setting profits quarter after quarter.
StevieD said:
Costs are going up now b/c oil companies are starting to realize higher oil prices are here to say. Now, that doesn't peg them at 70+ dollars a barrel, but its hard to imagine oil falling out of the 40-50 dollar range. These sustained prices provide enough incentive vs risk exposure to go after the more labor intensive oil deposits (ie. Alberta Oil Sands, deep ocean drilling). Off-shore rigs and refineries can run into the hundreds of millions and that is before they even generate revenue (not profit). Oil is a big money business and there are high barriers to entry and the big boys and their shareholders are being rewarded at the present time. People tend to have a short memory, but what about the 99 cent a gallon gasoline we enjoyed in the last 90s?--I don't think those conference calls then were as criticized as they are now.
