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Valley Morning STAR (Texas): Editorial: ‘Obscene’ profits are reinvested

December 2, 2007 – 1:42AM

Readers frequently hear or read about the allegedly “obscene” profits that oil companies have been raking in, but precious little about where all that filthy lucre is going.
A recent article in the Houston Chronicle, which intensely covers the oil industry, provided a welcome glimpse into the other side of the story.

If you adhere to the Watergate-era adage and “follow the money,” looking beyond the envy-mongering rhetoric of the Big Oil bashers, you will see the flip side of the coin.
More than half of the cash flow generated by the Big Five oil companies (ExxonMobil, Royal Dutch-Shell, BP, Chevron and ConocoPhillips) went into paying stock dividends and stock buybacks, according to the paper.

And that’s good not only for investors, but for the entire economy, since most of those investors don’t horde the money. They plow it back into new investments and new ventures, creating new opportunities and new jobs, which keeps the economy growing and healthy.
Rewarding investors is a good thing, because it encourages investment, which creates more economic activity, more opportunity, more tax revenues and better circumstances for consumers.

Perhaps these profits look a little less “obscene” when viewed in this context.
The companies also are investing a good chunk of the profits in the search for more oil and new technology, which not only creates the conditions to generate the companies’ future profits, a necessity in a capitalist system, but will fall to the benefit of oil consumers, given that finding and developing new supplies is critical to holding down consumer costs.

“Our 2007 capital and exploratory budget is $20 billion, up approximately 20 percent from 2006 and more than 40 percent from 2005,” Don Campbell, a Chevron spokesman, told The Chronicle. And that expenditure will help guarantee supply and boost production, potentially lowering costs. “We project our production to grow by an average of 3 percent per year from 2006 to 2010,” he said.

The Chronicle reports that BP has invested $30 billion in new energy development during the past five years — and that’s just in the United States. And Shell says it will invest up to $23 billion in capital projects this year, as part of an effort to broadening its energy portfolio.

“This will include investments in second-generation biofuels, wind energy and unconventional fuels, such as coal gasification, oil shale and tar sands,” a company spokesman said.

And what, we wonder, is obscene about that?
Isn’t the diversification of energy portfolios and investment in new technology precisely what the big-oil bashers are always calling for? And it’s being done not because the government ordered it done, but because the companies elected to do it, responding to world energy forecasts, market conditions and what’s in the long-term interests of their shareholders and customers.

Some companies also have had to write-off significant losses because Venezuela and Russia “nationalized” (that is, seized and stole) their assets. ExxonMobil and ConocoPhillips, for instance, were forced earlier this year to relinquish projects that they had developed to Venezuela’s state-owned oil company, under orders from Venezuelan dictator-in-the-making Hugo Chavez. That reportedly cost ConocoPhillips $4.5 billion.

BP and Shell similarly had to surrender interests in several Siberian oil projects to Gazprom, Russia’s state-owned gas company, under orders from Russian dictator-in-the-making Vladimir Putin. This state-sanctioned theft undoubtedly cost them (and their shareholders) billions of dollars.

Now that’s obscene.

http://www.valleymorningstar.com/opinion/oil_14970___article.html/new_companies.html

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1 Comment on “Valley Morning STAR (Texas): Editorial: ‘Obscene’ profits are reinvested”

  1. #1 Paddy Briggs
    on Dec 2nd, 2007 at 07:40

    Of course some of the profits go into Capex. But the critics would also point to:

    1) Continued failures to use profits to help improve Health and Safety performance.

    2) Failures to use the windfalls to make some capital investments more environmentally and socially acceptable (e.g. Corrib).

    3) Obsessive Revex reduction targets and ever more short term expenditure measurement in all areas of the business.

    4) Failure to invest in any project unless guaranteed returns are perceived to be available. Risk aversion.

    5) Inadequate efforts in marketing and a predilection for disposal of assets rather than investment.

    6) Insufficient willingness to explore new business areas and a preference for share buybacks rather than acquisitions or more speculative investments.

    7) A fondness for paying Board members ever increasing salaries and benefits which are justified by pointing to the profit performance (most of which is attributable to factors outside the control of the Board and/or to the efforts of others in the past).

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