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Author
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Topic: Let's Investigate "Big Oil"
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DoctorDepends
Open Line Veteran
Member # 1576
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posted August 10, 2007 09:18 PM
In the past when there was a rapid rise in oil prices, people demand an investigation. Many people, even on this board, suggest that Big Oil raised the price of oil to get greater profits. They say the oil companies set the price at the pump. The markets have nothing to do with commodities pricing. It's all George Bush's buddies in Big Oil, the story goes.
This week, the price oil fell 9%! We need to investigate how prices can move so quickly. Gas prices are about 25 cents below where they were a year ago and about 50 cents below where they were in the spring. We need to investigate! Prices rise, we investigate and make charges so when they fall we need to investigate, call Congressional hearings and make charges!
I guess Big Oil must be scheming to lower prices, lull the public into a sense of security and then stick it to them again!! Or maybe it just doesn't feel like making as much money this week since Big Oil controls the price of oil and refined products and not free and open markets.
[ August 10, 2007, 09:20 PM: Message edited by: DoctorDepends ]
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Grumpy
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Member # 15673
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posted August 10, 2007 09:22 PM
Can we blame Bush? Oh, I forgot, only prices going up get the Bush treatment.
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ewink
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Member # 4460
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posted August 10, 2007 10:22 PM
I'm still waiting for the $4 a gallon people were saying we would hit.
Two summers in a row and no $4.
California doesn't count as everything in that state costs about 60% more than it would anywhere else.
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rawhead rex
Senior Member
Member # 12152
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posted August 10, 2007 11:09 PM
I read an interesting premise several years ago that one major consideration is the oil companies are not going to bring fields into production that they no not have existing rigs to drill and facilities to refine the product.
The last CIA review I saw showed known world reserves are more than double known since 1970, or so, but it makes no economic sense for the producers to create a surplus because that would drive prices lower, if the refineries had the capacity to create a surplus. And you cannot drill it and store it very long before it deteriorates.
The earth is a marvelous storage system for this and many other products, the sanctity of which we as stewards should be careful to protect.
More than half of the profits the oil companies report each quarter go back into exploration and development, but with fewer refineries in America than 1975 and those working at full capacity as much of the time as possible with little appreciable upgrading and downtime for maintenance, refinery fires, hurricanes that take offshore rigs and refineries off line and often damage them, changeovers for different seasonal fuel demands, EPA mandated production of 34 different oxygen level gasolines to meet differing air quality standards in metropolitan areas during the summer, regressive government tax policy on fuels at every level(the federal government alone gets at least 18 cents on every gallon and takes far more than the after taxes and expenses the producers make) and edgy commodities bidders who get spooked at their own shadows, it makes no sense to pump the product the industry can't deliver to the pump. America is also importing gasoline because refineries can't meet needs. That is why the one thing that has worked unfailingly is when consumer demand slows and the supply grows, prices fall.
If you want to ask a question, maybe it should be why taxpayer subsidized milk tops $4 per gallon? I have seen video of dairy farmers pouring milk down sewers because of low prices for their subsidized products. I have never seen an oil producer doing same for his unsubsizied, heavily taxed product. Remember, dairy products are already subsidized and you may realize why so many school districts get real breaks on the costs of commodities for their free breakfast and lunch programs. But when you encourage a grain based ethanol program, you decrease the availability for grains for livestock feed and other huuman consumption. That means the prices increase for all grain based products, i.e. wild bird seed has increased 33%.
The "dismal science" may bore people, but that does not diminish its impact and it is really quite easy. Americans, as usual, want to make it a conspiracy.
Maybe we should investigate big agriculture?
One of America's biggest exports is tobacco. It is poison for Americans, yet ATF knows every tobacco plant growing in America. It is a tax issue. Maybe it is not poison for foreigners.
[ August 10, 2007, 11:13 PM: Message edited by: rawhead rex ]
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buckpasser
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Member # 2932
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posted August 11, 2007 12:13 AM
I agree with you about subsidies. That truly is an outrage. Forget Ward Churchill. Farmer Fred got a paid, while our grocery tab just went up by a buck and a half. And beef prices in the last two years? Ouch.
And milk subsidies? Again...farmers. They are getting paid on the backs of the American taxpayer, and consumer. It has to do with Senators being the same numbers (2) no matter what the population of the state. And earmarks. In other words, rural Senators bringing home the bacon.
I disagree with you on the idea that Oil Companies don't make as much money per gallon than the feds.
For Example, Exxon Mobile Sold about 50 Billion Gallons of gas in 2005.
Their EBITDA this year comes in at around 80 Billion Dollars.
Roughly speaking, they are making at least a buck. Maybe if you add exploration, and such, it can get down to fifty cents or so. But no way 18 cents. You would have to buy into some serious Texas Bull to believe these guys aren't doing as well as the feds.
My solutions:
I say get rid of subsidies, and force farmers to fend for themselves. Many will continue to make a living, some will not. Those that won't make it will find something else to sell (organic produce, for example), or they will find work in another profession.
And we should drill in Alaska. If Alaskans want it, and they know their state the best, why shouldn't we?
And we should invade Pakistan. And go Packers.
[ August 11, 2007, 12:19 AM: Message edited by: buckpasser ]
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DoctorDepends
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Member # 1576
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posted August 11, 2007 10:48 AM
One item of note regarding accounting of oil companies. Many of the fields they developed 50 and 60 years ago continue to produce. They developed those fields at a cost of $10 a barrel, lets say. The oil they bring up now is sold at say $70 a barrel. From an accounting standpoing, that goes in the books as a $60 per barrel profit, or 600%. When you consider that, the fact that the profits are only about 10% which is extremely high, tells you that their margins on other aspects of the business are quite poor. Refining is not very lucrative and exploration is quite costly and not cost effective on the front end, unless you have big dollars coming in from old fields.
But forget all of that...the price on the open market moved 9% in one week! There must be something going on...the man behind the curtain, Dick Cheney, is up to something because he controls everything! Why, he's even responsible for John Edwards having to pay $400 for a haircut.
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Marty McFly
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Member # 1449
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posted August 11, 2007 10:59 AM
quote:
Originally posted by buckpasser:
It has to do with Senators being the same numbers (2) no matter what the population of the state. And earmarks. In other words, rural Senators bringing home the bacon.
In my opinion (not that anyone asked, but these are forums I guess), that has more to do with the 17th amendment rather than Senators bringing home bacon. Back in the day, the state legislature sent 2 people to go represent the best interests of the state. The state legislatures could recall their senators at any time. With the 17th amendment, Senators don't hold any accountability... until election time.
quote:
I disagree with you on the idea that Oil Companies don't make as much money per gallon than the feds.
For Example, Exxon Mobile Sold about 50 Billion Gallons of gas in 2005.
Their EBITDA this year comes in at around 80 Billion Dollars.
Roughly speaking, they are making at least a buck. Maybe if you add exploration, and such, it can get down to fifty cents or so. But no way 18 cents. You would have to buy into some serious Texas Bull to believe these guys aren't doing as well as the feds.
'Big oil' (I hate that term) also SPENDS a lot of money to make that money. Government? They do nothing except impose their taxes.
quote:
I say get rid of subsidies, and force farmers to fend for themselves. Many will continue to make a living, some will not. Those that won't make it will find something else to sell (organic produce, for example), or they will find work in another profession.
Got my vote!
quote:
And we should drill in Alaska. If Alaskans want it, and they know their state the best, why shouldn't we?
Amen!
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'No matter how disastrously some policy has turned out, anyone who criticizes it can expect to hear: "But what would you replace it with?" When you put out a fire, what do you replace it with?' – Thomas Sowell
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Vulcan
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Member # 49
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posted August 11, 2007 11:06 AM
quote:
Originally posted by DoctorDepends:
Why, he's even responsible for John Edwards having to pay $400 for a haircut.
Maybe he can help Edwards with his personal finances. I understand there's an expert who gets $55,000 to deliver a speech on poverty!
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Posts: 5535 | From: Free from the Island | Registered: Oct 2000
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s'news
Open Line Veteran
Member # 2664
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posted August 11, 2007 11:14 AM
In refinery news: A joint venture of Shell and Saudi Aramco now has the permits it needs to expand a refinery in Port Arthur, Texas. When they’re done, it’ll be the largest refinery in the country.
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kmfdmatt
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Member # 3003
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posted August 11, 2007 11:59 AM
I am no fan of conspiracy theories, but there was market research and television SOT's of people saying when gasoline hit $4 a gallon that would be the breaking point; there would be no more "what can you do, you have to buy it.".
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Spike
Open Line Veteran
Member # 3434
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posted August 11, 2007 12:26 PM
quote:
Originally posted by DoctorDepends:
Many of the fields they developed 50 and 60 years ago continue to produce. They developed those fields at a cost of $10 a barrel, lets say. The oil they bring up now is sold at say $70 a barrel. From an accounting standpoing, that goes in the books as a $60 per barrel profit, or 600%.
What the hell kind of crap is this you're spewing now?
From an accounting standpoint, that is not a 600% profit. Profit is revenues minus expenses. The initial cost of exploration of a field is not an expense, but an asset. Those costs are capitalized as an asset on the company's books.
As the deposit is depleted, the amount depleted in the CURRENT PERIOD becomes an expense in the CURRENT PERIOD, along with other current expenses. At no time do you look at just the original cost of developing the deposit when calculating profit. You look at the CURRENT PERIOD's income and subtract the CURRENT PERIOD's expenses from it.
At NO TIME will the difference between the initial development cost and the final revenue be entered on the books as profit. From an accounting standpoint, it's clear you have no idea what you're talking about.
quote:
Originally posted by DoctorDepends:
When you consider that, the fact that the profits are only about 10% which is extremely high...
That's BS. A 10% margin is NOT high. I don't know too many people who would be willing to go into business if they had to spend half a million dollars every year to take home $50K.
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DoctorDepends
Open Line Veteran
Member # 1576
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posted August 11, 2007 12:56 PM
Sorry kid. In general thats how it comes out. Their cost in the example was $10. They sell it at $70. Most of of the most profitable portions of an oil company comes from the production of old fields and the incentive for producing new fields in spite of high front end capital expenditures is from the long term profit potential. The real reason why there are not new refineries is not so much because of EPA regulations as many conservatives try to say, but instead its because the high capital cost up front cannot be justified by low profit margins in the actual refining. Remember, sale after expense is profit. And 10% is high for oil companies. Exxon was just a tad over 10% for their "record" profits. Typically, most profit margins for oil companies run about 4.5% to 8%. You can look it up if you like. That's the rub about the reports you hear on TV. Most broadcast companies have profits of about 15 to 25% and these days corporate profits in general are around 20%,yet the evil oil companies make 10% and that is high for them but in comparison with other corporations, its poor.
Here are some examples:
Exxon 11% profit margin, 16.49% operating margin
Shell 8.54% profit margin, 11.77% operating margin
Chevron 9.95% profit margin, 13.99% operating
These numbers are historically high largely due to the gap between the costs involved with old fields versus the price which those fields now get for the volume of oil produced, which has risen dramatically.
[ August 11, 2007, 01:04 PM: Message edited by: DoctorDepends ]
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Bill Lumbergh
Member
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posted August 11, 2007 01:22 PM
Paging Michael Moore...
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Spike
Open Line Veteran
Member # 3434
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posted August 11, 2007 02:13 PM
quote:
Originally posted by DoctorDepends:
Sorry kid. In general thats how it comes out.
No, it isn't. Accrual accounting doesn't work like that. You're making sh*t up as you go.
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Always watch television in a bright room with a dark heart.
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Fargin Icehole
Open Line Veteran
Member # 3239
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posted August 11, 2007 02:48 PM
quote:
Originally posted by buckpasser:
I agree with you about subsidies. That truly is an outrage. Forget Ward Churchill. Farmer Fred got a paid, while our grocery tab just went up by a buck and a half. And beef prices in the last two years? Ouch.
And milk subsidies? Again...farmers. They are getting paid on the backs of the American taxpayer, and consumer. It has to do with Senators being the same numbers (2) no matter what the population of the state. And earmarks. In other words, rural Senators bringing home the bacon.
I disagree with you on the idea that Oil Companies don't make as much money per gallon than the feds.
For Example, Exxon Mobile Sold about 50 Billion Gallons of gas in 2005.
Their EBITDA this year comes in at around 80 Billion Dollars.
Roughly speaking, they are making at least a buck. Maybe if you add exploration, and such, it can get down to fifty cents or so. But no way 18 cents. You would have to buy into some serious Texas Bull to believe these guys aren't doing as well as the feds.
My solutions:
I say get rid of subsidies, and force farmers to fend for themselves. Many will continue to make a living, some will not. Those that won't make it will find something else to sell (organic produce, for example), or they will find work in another profession.
And we should drill in Alaska. If Alaskans want it, and they know their state the best, why shouldn't we?
And we should invade Pakistan. And go Packers.
Wow! I agree with buckpasser on something for once. Yikes!
Well...everything except that part about the Packers. Best of luck with old fart Favre calling the turnovers...er...."plays" for another year. ![[Big Grin]](biggrin.gif)
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Posts: 1836 | From: The Club 25, you corksucker! | Registered: May 2003
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rawhead rex
Senior Member
Member # 12152
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posted August 11, 2007 04:30 PM
"Many of the fields they developed 50 and 60 years ago continue to produce. They developed those fields at a cost of $10 a barrel, lets say. The oil they bring up now is sold at say $70 a barrel. From an accounting standpoing, that goes in the books as a $60 per barrel profit, or 600%."
Few, if any, of the oil companies control oil fields they developed 50 and 60 years ago because many of them have been nationalized. The Middle Eastern nations and Venezuela, for instance. The Baku in Russia was never privately owned. Mexico gets as much as 85% of its oil from one deposit and the rest sit idle because Mexican law prohibits development by foreigners. I am not certain about the Canadian situation, but I know the shale fields in the west may be a tremendous asset to America, if it plays fair with Canada. I don't begrudge people who risk their lives and fortunes to bring us energy, even if they make a killing. But then I don't drink bottled water or attend professional sports or concert with performers whose politics probably offend me and all of the aformentioned are incredibly overpriced when compared to motor fuel, so I am willing to spend some of that discretionary income on a necessity and am damned glad I am not paying what Europeans pay.
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