"Our earnings, although high in absolute terms, need to be viewed in the context of the scale and cyclical, long-term nature of our industry as well as the huge investment requirements..."I'd like to offer a few comments to add some perspective. First, the earnings. Indeed, though they made profits of $123 billion, their costs of doing business were a huge chunk of that amount. I heard on the radio that the profit margin on a gallon of gas is about 7.4%. That's right, for every dollar spent on gas, only $0.074 of that dollar is profit. So how does that compare to other industries? What's the national average profit margin for other businesses? 7.1%. That's hardly gouging, now, is it? The total profit is just so high because Americans buy such huge volume of it. And, to be honest, China and India are exploding with development, which is jacking up the demand an enormous amount.
"We depend on high earnings during the up cycle to sustain ... investment over the long term, including the down cycles..."
"We need access to all kinds of energy supply," replied Robert Malone, chairman of BP America, adding that 85 percent of the country's coastal waters are off limits to drilling.
[When asked about non-oil energy development, J.S. Simon, senior vice president of Exxon Mobil Corp. said that] "current alternative energy technologies 'just do not have an appreciable impact' in addressing 'the challenge we're trying to meet.'
And what about these oil companies spending big bucks on alternative energy sources? Conspiracy theorists say that they're not serious about finding sources of energy other than oil, but common sense would tell us just the opposite: don't you think that if any company finds any more efficient energy source, they'd jump all over it? Of course! They'd rake in the dough! And, it's laughable to call the billions of dollars these oil companies are spending on alternative energy research anything other than a serious attempt at branching out. The physics just isn't there. Oil is the top dog when it comes to energy production.
Let's also remember exactly why 85% of coastal waters are off-limits for drilling: environmental concerns. I've taken some heat from readers before by making this statement, but I stand by it. Environmentalist wackos have done more damage to our energy situation than anyone else by making it so cumbersome to get authorization for new energy exploration -- not to mention expensive through vast over-regulation -- that it's not worth doing in many cases.
Neal Boortz offers a scathing critique of what Congress did to these oil executives, and offers a primer on how things actually work in the real world:
First...the big oil company tax benefits that our politicians remind us of virtually every day are tax breaks enjoyed by corporations across the board. So when the politicians cite those tax breaks as an excuse to tell the oil companies what to do with their profits they're laying the groundwork for a system in which politicians can dictate, to one or extent or another, how virtually all American businesses spend and invest their profits.It's not that hard to understand, if you're willing to stop and think about it. Fortunately, I'm still hearing that we're on the edge of an 'oil bubble', and that it will burst soon, dropping gas prices by as much as $.50-75 per gallon in the next few months. Can't wait to see that!
Let's say you sell widgets. It costs you 92 cents to make a widget, and you sell the widget for a dollar. You make eight cents on the sale of that widget. Your profit is eight cents – your profit margin is 8%. Now, let's say that your cost of business, comprised mostly of raw materials, goes up. Now it costs you $1.84 to make a widget. You respond by raising the price of your widgets by a dollar. They now cost $2.00 each. Subtract your cost of doing business ($1.84) from sales revenues for one widget ($2.00) and you have a profit of 16 cents. Wow! Your profit has doubled! But wait! What is your profit margin? How much is your company making for every widget it sells? Nothing has changed. Your profit margin is still 8%. Profits have doubled...the profit margin has remained the same. The only reason the profits doubled is that the price of your raw materials has gone up. Has anyone looked at the price of crude oil lately?
Now, what about the supply of oil? Are we running out? Absolutely not! Again, common sense can answer this one for you. Take a look at the countries that rely on oil revenues. Are they cutting back? Not one bit; in fact, most of them are spending more than ever before. Back in 1977, President Jimmy Carter predicted that we would be out of oil in just 10 years. Well, guess what? It's been 31 years since he said that, and we have found more oil than we ever have before! Two components of this are the fact that with oil prices being so high now, it suddenly becomes profitable to get oil that is in some places that are less accessible (and therefore more expensive) to go into. Also, we have much better technology to obtain oil in those less accessible places than we did back then.
So how much oil is out there in the world? I got these numbers from Jason Lewis while he was subbing for Rush Limbaugh a while back. According to the U.S. geological survey from the Bureau of Land Management, in terms of unrecovered oil reserves available to us:
- Pacific Ocean off-shore --- 11 billion barrels
- Gulf of Mexico off-shore --- 37 billion barrels
- Atlantic Ocean off-shore --- 4 billion barrels
- Alaska off-shore --- 26 billion barrels
- the lower 48 states --- 7 billion barrels
- interior of Alaska --- 18 billion barrels
- current provable reserves --- 21 billion barrels
That gives us a total U.S. reserve of 124 billion barrels of oil out there. That's more than Iraq, Kuwait, and the United Arab Emirates! If we drilled in ANWR (Alaska) alone, that would replace our entire import from Saudi Arabia. It's all just waiting for us to go get it...but we can't. Or won't.
Now I want to share some audio clips with you from Rush Limbaugh's radio program. As this topic has been in the news a lot lately, he's addressed it from a number of perspectives, and all of them are great.
If this is correct, that there are as many as 400-500 billion barrels of oil in North Dakota alone, we're talking about enough oil to make the U.S. a monster-sized player in the world of oil revenues, even bigger than many Middle Eastern countries. How do you think that would affect our energy independence? Now, the real question is: will we go get that oil?
The key thing to understand here is that even if Congress was to revoke the tax breaks for 'big oil', it wouldn't affect the price we pay at the pump. If Congress was truly interested in bringing down gas prices, they should just cut the taxes on gas. That would do it in a heartbeat.
This is an excellent description of a lot of important issues. Feel free to listen as many times as you need to.
Limbaugh is excellent at simplifying complex topics into something understandable to normal people, and he does it again here. These are important things to understand, and they can really help put politics into the correct framework.
Hopefully this helps you understand a bit more of the fuss over oil, oil prices, and the politics surrounding oil.
There's my two cents.
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