

Why Exxon Mobil won't produce more [oil] - wumi
http://www.businessweek.com/bwdaily/dnflash/content/mar2008/db20080319_269345.htm?campaign_id=rss_daily
Linkin Park, "Hands Held High"<p>Like they understand you in the back of the jet
When you can't put gas in your tank<p>These fuckers are laughing their way to the bank and cashing the check
Asking you to have compassion and have some respect
======
vitaminj
Disclosure: I work in the oil industry and have worked for ExxonMobil in the
past.

ExxonMobil may be the world's largest publicly traded oil company, but it is
nowhere near the largest oil producer, nor does it have the the largest
reserves. These honours go to the state-owned oil companies eg. saudi aramco,
PDVSA (venezuela), NIOC (iran), CNPC (china), kuwait petroleum, etc. To give
an example, in 2004, saudi aramco had proven oil reserves of 261 billion
barrels, iran, iraq had around 130 billion each. Meanwhile exxon had 22
billion. Even the state-owned comapnies in nigeria, qatar and libya have more
proven reserves than exxon.

My take on this: the rhetoric seems to be about return on capital, and betting
on high future oil prices. But I strongly suspect the real reason for
ExxonMobil not producing more oil (and the story alluded to this) is that
there haven't been any major new fields discovered to grow beyond replacing
their existing depleted fields. Also, the large new discoveries have typically
been deepwater, which is difficult and expensive with current technology.

In my experience with Exxon, they are astute managers when it comes to their
investments, but ultimately they are an oil company. Unlike most of the other
big oil players (BP, Shell, Chevron, Total), Exxon has openly said that it is
in the oil and gas business only and won't diversify to alternative energy
sources (eg. BP has started tagging their brand Beyond Petroluem with
investments in ethanol and other renewables). So I certainly don't think they
are holding off on projects simply to leverage higher prices in future.

~~~
wumi
My friend's dad is Exxon Mobil manager for the Balkans.

My dad has worked in oil & natural gas industry for 28 years, including a long
standing working relationship with Exxon Mobil.

While what you are saying sounds nice ("So I certainly don't think they are
holding off on projects simply to leverage higher prices in future.") ...

I know for a fact it is certainly not true. Some people wouldn't touch the
company with a ten-foot pole, including relatives of country managers.

------
noonespecial
HHhmm lets see.

There are x barrels of oil left on earth, Exxon gets most of them. Would it
rather sell them at $50/barrel or $100/barrel.

Whatever else they say about production, there's always this.

~~~
moog
They'd rather sell for $200/barrel. Their plan to hold volume production flat
is a good a reason as any to break up the company for the benefit of
consumers. I wouldn't let them near 'green' energy development either as their
interests aren't served by viable alternatives to oil.

~~~
nradov
This is silly. First of all, ExxonMobil doesn't control "most" of the oil
reserves; they have only a very small fraction. And if the US federal
government forcibly broke the company into several pieces (like Bell
Telephone) the resulting smaller companies would still have no greater
incentive to increase production.

~~~
noonespecial
I meant it as a critique of OPEC in general. They will control production to
get the most money per barrel because when its gone, its gone. Exxon is the
largest publicly traded energy company in the world (from tfa). They do better
when prices stay high. While they may not be the biggest player in the whole
oil game, they do play a significant role in oil's path to the end consumer.
Lets just say they have a lot more to gain form $200/barrel oil than from
$50/barrel oil and leave it at that.

~~~
nradov
Huh? ExxonMobil is not a member of OPEC. What are you proposing they do
differently?

------
dhimes
What I don't understand is how they always escape investigations into price-
gouging. It happened also with the first Iraqi-American war (Bush 41). Sen Al
D'Amato (sp?) was supposed to lead an investigation into why the companies
have record profits in stressful times.

They always claim it's "volume"; their percentage profits are reasonable, but
they sell a lot. Last year I don't think that held--I believe (but am not
certain) that usage fell because the prices were so high.

But that may just be civilian usage--perhaps total usage increased. I'd love
to see info on that, because I am skeptical and in this election year we may
have a shot at changing things.

~~~
nradov
How do you define price-gouging? Are you suggesting that oil companies should
voluntarily sell their products at a price lower than what their customers are
willing to pay? What are stressful times? Times are always stressful for
someone, somewhere. What are unreasonable profits? Do you think the government
should arbitrarily limit total net profit for any particular company? Or
perhaps they should limit profit margins or return on capital? And any profit
limits that apply to oil companies should also apply to software companies,
right? You can find consumption statistics here. <http://www.eia.doe.gov/>

~~~
dhimes
In certain situations where an anticompetitive monopoly exists, the government
does and should regulate. Take, for example, the birth of cable tv in the US.
The cable companies were granted monopoly in regions because otherwise it was
senseless to commit the funds to build the infrastructure necessary to develop
the industry. In this case, the trade-off is; yes, you get a monopoly but
we're going to regulate the prices.

Same with utilities (water, sewer, electric,...).

Many times, however, the regulation is a farce (the regulators and the
regulated are all friends). In some cases, the government steps in to see what
the shenanigans are.

Usually the defending companies argue that their increased margin is needed
for "future investment costs," or something. Sometimes the regulators agree,
sometimes not.

So, yes, in certain cases where a few tightly-knit companies are committed to
control essential resources, they are "forced" to sell at "reasonable" prices.

Interesting that you bring up software companies. In the 1992 presidential
election, the deciding issue to me was the building of the internet. Bush (41)
wanted to let the private companies do it all a la cable, sewer, etc. Clinton
said, no, it was to be a vital infrastructure to our country and the
government should build it (a la our interstate highway system).

I voted for Clinton.

~~~
nradov
I don't know why you're bringing up monopolies. ExxonMobil is not a monopoly.
They have minimal pricing power. The only petroleum organization that is
anything remotely like a monopoly is OPEC. US presidents have some influence
over certain OPEC member countries, but in general it isn't subject to US
antitrust laws. Attempting to regulate the prices they charge is tilting at
windmills.

~~~
dhimes
There seems to be little competition among US oil companies in prices at the
US pump. You seem like you know quite a bit about this--much more than I do--
why don't they fight for market share at the pump? The station owners can't do
it without help from the "mother" company--their margins are too slim (at
least on petrol). It doesn't seem like normal market forces are at play here.
I would ordinarily expect one company to drop their margins to try to make
more profit on volume.

Do you have any idea why we don't see this? Perhaps there is a brand-loyalty
factor that makes it pointless to try.

~~~
nradov
Gas stations constantly fight for market share. Brand loyalty doesn't count
for much when purchasing a commodity. Consider the area near the intersection
of El Camino Real and Grant Rd. in Mountain View, CA.

[http://www.sanjosegasprices.com/map_gas_prices.aspx?z=11&...](http://www.sanjosegasprices.com/map_gas_prices.aspx?z=11&lat=37.379688&long=-122.073799)

Prices per gallon of 87-octane gasoline in that small area range from $3.559
for "generic" to $3.649 for the branded product. If there was any brand
loyalty then they would be able to charge more than a 2.5% premium.

Above the local station level, gasoline prices are largely driven by crude oil
prices and refining capacity. Crude oil is a fungible commodity and prices are
set at a variety of markets around the world in a way that can't be directly
controlled by any government.

Refining capacity in the US is constrained and not really growing. There is
little financial incentive to spend billions on a new refinery, plus no one
wants to live near a refinery (NIMBY).

I would actually like to see much higher gasoline prices via something like a
carbon tax. That would provide the revenue necessary to temporarily subsidize
development of alternative energy sources. As a side effect it would also tend
to reduce oil company profits. But unfortunately a carbon tax is probably not
politically feasible in the US right now, plus there would serious
implementation problems.

~~~
dhimes
As I mentioned, the gas stations don't have the margin to fight. Those guys
get killed in price wars. Chevron has to fight Exxon-Mobile has to fight Shell
--and that doesn't seem to happen.

So you are claiming that we don't see this fight because everyone has all the
market-share their refining capacity can handle? Perhaps you're right.

The problem I have with the carbon tax is that it heavily taxes those who can
least afford it: people who have to live in cheap areas and commute to
expensive areas for jobs.

~~~
nradov
Due to the invisible hand of the market, the oil majors are constantly
fighting each other. If they were colluding instead of fighting then profit
margins would be even higher than they are. But at current prices, customers
are buying all the gasoline and diesel available so there is no pressure to
cut prices.

The impact on poor people who live in suburban and rural areas is one of the
problems with a carbon tax. But unfortunately in the long run those people are
screwed anyway. Fossil fuels can't stay cheap forever, tax or no tax. Probably
some of the tax revenues would have to go to subsidizing them through buying
back inefficient vehicles, additional mass transit, housing vouchers near
urban areas, etc.

