"Meanwhile, Back at the Ranch....."

Big Oil's big 'problem' - excerpts from msn.Money
5/21/08
By Michael Brush

"US giants Conoco and Exxon have more money these days than they know what to do with, so they're handing it out to shareholders. What they aren't doing with it is much that will reduce the oil crunch."

“While many Americans struggle to fill their gas tanks, big U.S. oil companies are making so much money that they literally don't know what to do with it.

Instead of reinvesting more of their newfound wealth to increase supplies or develop emerging technologies that might one day reduce energy costs, they are giving much of the loot to shareholders already enjoying outsized gains.”

So writes Mr. Brush, forwarded to me by Sara Sleuth Sayer. I think she’s tired of my epic style of prose. “Shorter, Dad, shorter. Punch it up. Make it, ah….. shorter.”

Well, for anyone that remembers the whole reason we got into the whole moratorium, Mora Torium, Non-Moratorium Moratorium, business in the first place, we started (royal we, here) the Open Space Pilot Project to ‘encourage’ ConocoPhillips to drill new wells off of existing locations (well pads). Which they can do, it just a little more…….expensive. Or, as Conoco likes to say, “uneconomical.” Have to drill directionally in some instances; have to shut-in (turn off) the existing well while the new well is drilled and, darn it, these things all cost money. Neighboring oil company Devon, however, drilled 21 of 24 wells directionally in 2007. EnCana, and even Conoco, drill as many as 28 wells of the same location. But not here. Way over in Colorado, which is almost, uh, 17 miles away.

“The company (Conoco) made $11.9 billion in net income last year, and it will do even better this year. It plans to give it all back to shareholders, paying more than $3 billion in dividends and spending $10 billion to buy back shares.

That's a lot of cash, enough to take 9 cents off the price of every one of the 141 billion gallons of gasoline consumed in the United States in a year.

Michael LaMotte of JPMorgan Chase (JPM, news, msgs) questioned why ConocoPhillips wasn't devoting more than $15 billion to its capital budget. After all, ConocoPhillips production volumes declined in the last quarter, even without counting production lost when it got booted out of Venezuela.

Citing the juicy returns that energy companies get from finding and producing oil with crude prices are so high, LaMotte expressed exasperation. "I mean, clearly excess cash goes to buyback, but if I look at returns of a buyback program versus (capital spending), what's the thought process there?" he asked.

Conoco chief James Mulva, who places a big emphasis on cutting costs as a way to raise his company's stock, brushed off the protest. "We like the discipline of the share repurchase," he said. "If we find that we have more cash flow, it's not really going to be going toward capital spending."”

I just cannot understand finance, I guess. I’d rather talk about alternative energy, environmental responsibility, “Good Neighbor” initiatives.

“BP spent $688 million, or 4.5% of its capital budget, on renewable energy in 2006 (including a few other activities lumped in to this budget line). ExxonMobil spent nothing that year, says Juhasz. ConocoPhillips spent only 0.5% of its capital budget, or $80 million, on "emerging businesses," which includes alternative energy along with many other projects, says Juhasz.”

Never mind. I just cannot understand alternative energy, environmental responsibility, “Good Neighbor” initiatives, I guess. I’d rather talk about compensation.

“ConocoPhillips' Mulva earned $50.5 million last year, the bulk of which was performance-related. The top seven execs at ExxonMobil got $93.7 million last year including $16.7 million for chief Rex Tillerson.”

Now, don’t you just feel bad for Mr. Tillerson? I’d rather talk about politics.

“ExxonMobil spent more than $15.5 million on federal lobbying in 2006, says Juhasz, and ConocoPhillips spent $4 million last year -- no doubt a reason the two companies enjoyed the billions of dollars in federal tax subsidies the energy industry gets each year.”

Hmmm. Proportionally, it doesn’t really seem like they are overspending here, does it? That $4 million bears about the same ratio to them as a 42 cent stamp does to you when you write your congressman. Feel better?

“One problem is that so much of the world's rich oil reserves are in the hands of national oil companies, says Tom Nelson, a London-based energy sector analyst with Guiness Atkinson Global Energy Fund (GAGEX). Another is that much of known U.S. reserve is off limits for environmental reasons, says Charles Drevna, president of the National Petrochemical and Refiners Association. "Where do you want ExxonMobil or ConocoPhillips to put that money?" he asks.”

Well frankly, Mr. Drevna, I was thinking they could put it into drilling new wells from existing locations in the Open Space Pilot Project here at the Devil’s Spring Ranch – our original proposal. That is, if it’s not just too – uneconomical.

http://articles.moneycentral.msn.com/Investing/CompanyFocus/BigOilsBigProblem.aspx