Tuesday, July 15, 2008

Where "Does" Exxon Mobil Get It's Oil?

If you listen to our Democratic politicians, the Big Oil Companies have 68 million acres of oil leases on Federal lands that they aren't drilling on. The implication by the Democrats is that a company like Exxon Mobil is buying up Federal leases and, then, avoiding any drilling in order to keep prices high.

That argument just shows how uninformed our lawmakers are about the oil industry. Exxon Mobil, our largest oil company, has only 5 percent of the world's oil reserves. The majority of oil it refines and sells is "bought" from major oil producing countries like Venezuela, Saudi Arabia, and Mexico. Sometimes these oil companies are subject to complete disruptions of any access to that oil because of contract disputes and the current political environments (Click to see an example). This kind of uncertainty makes doing business very difficult and seriously affects the bottom line. Any time a company can add stability to its business, like drilling on the Federal Lands in this country, it will. That's point one.

Point two. When a company like Exxon Mobil finds its own oil and processes it, it makes a lot more money than when they have to "pay" another entity (Venezuela, Saudi Arabia, Mexico, etc) for that oil. And, making money is why they are in business! More often than not, the price they pay for that "purchased oil" is at the current "spot price" (See Definition); and, these are some of the highest prices an oil company can pay. This is usually the case when an oil company is forced to buy it's oil in a less-then-friendly business environment as in the case of Venezuela. So, the concept that they would "avoid drilling" their own wells on more "friendly" Federally leased lands and in a more price-controlled environment (especially at today's prices) is just bogus and shows a complete lack of "business sense" by a lot of politicians.

Point three. High oil prices will make "alternatives" to oil more attractive. Oil companies risk their own survival if they were to keep oil prices high by limiting supplies. It is to their benefit and, most importantly, their survivability that they keep oil prices down by drilling when and wherever they can.

Apparently, these same Democrats think that Americans are "so" stupid that they will buy their lame argument that the oil companies are not drilling on 68 million acres of Federal land for selfish interests. (Given the educational system in this country - the one that the Democrats built or, better yet, tore down -- they are probably right!) As I have outlined above, drilling, as opposed to not drilling, would be in any oil company's best and "selfish" interest.

The Democrats argument against any new drilling in this country is really intended to satisfy their "political base" and provide "political payback" to the environmentalists and environmental groups in this country. (That includes Barack Obama's position against domestic drilling!) These are the groups who contribute a lot in terms of direct votes, campaign volunteering and canvassing, and money to the Democrats. Over and above the legislative "blocking" actions being done by the Democrats in Congress, there are over 8,000 lawsuits pending in Federal courts to block any drilling on Federal lands. Those lawsuits have all been filed by the friends-of-the-Democrats: the environmental groups and organizations in this country. This begs the question: Is it "Big Oil" -- or -- just "Big Environmental Special Interest and Politics" that have us importing over 70% of our oil from other countries and that has Americans paying over $4/gallon at the pump?

Let's face it, an oil company drilling it's own oil well is a fixed cost. That price doesn't float around as the price of oil rises or falls. If, based on the current price of oil, it makes sense for an oil company to drill for its "own" oil, they will "jump" at the chance. And, that cost to drill is a one-time expense that will either be written off or depreciated over time and won't have any substantial effect on the bottom line unless oil prices completely fall through the bottom. Then, of course, you can watch the oil companies go under along with the price of oil. My guess is that will never happen with the current and future supply-to-demand imbalances that are causing today's high prices.

For reference, here are some examples of the ongoing and uphill battles that the oil companies face against the environmentalists over Federal oil leases.

"Groups sue over oil leases in Shoshone"(See Full Story)

"Environmental Groups Sue to Stop Alaska Wilderness Oil Leases"(See Full Story)

"Beaufort Sea Oil and Gas Leases in Alaska"(See Full Story)

"Utah Lawsuit Over Tar-Sands Leases"(See Full Story)

"A coalition of conservation groups file lawsuit challenging Forest Service and BLM leases of prime wildlife habitat near Yellowstone National Park for oil development."(See Full Story)

"Groups Try to Block Oil, Gas Leases"(See Full Story)

Colorado: "A coalition of 10 environmental groups has filed a lawsuit"(See Full Story)

One last note: It doesn't take years to drill an oil well. To echo-sound a potential well and drill takes weeks to months. When some politicians quote 7 to 10 years, that is the time it takes, quite often, to do the environmental impact studies (for final Federal approval) and to ward of the lawsuits from conservation and environmental groups.

image in the public domain and royalty free

3 comments:

EverMom said...

I found this blog post very informative. I wonder, though, what your response would be to this Snopes report - it greatly undermines the supposition that most of our crude oil comes from OPEC countries, and the like. I am not challenging you, but asking for your perspective.

EverMom said...

http://www.snopes.com/politics/gasoline/saudigas.asp

George B said...

As a country, we consume about 6.9 billion barrels of oil per year. 3.1 billion of that oil is imported. Only about .8 billion comes from the Persian Gulf. Or, in other words, only about 11% of the oil consumed in the U.S. comes from the Middle East. But, more importantly, new oil finds (like the Bakken formation and East Texas fields) and the new drilling techniques (like sideways drilling and fracking) are putting us on track to be almost independent of Middle East oil by 2035. According to the latest Oil Energy Outlook ( http://www.worldenergyoutlook.org/pressmedia/recentpresentations/PresentationWEO2012launch.pdf )from the International Energy Agency, by the year 2035 the amount of oil imported from the Middle East should be less than 200,000 barrels a day. As a point of reference: In the year 2000, we were importing 2.5 million barrels a day from that region of the world.