Big Oil's record profits attract attention and outrage, but an independent study has found that oil companies do exactly what economic textbooks say they should do with all that money: They invest it in oil exploration and development efforts that eventually should relieve pressure on prices.Ah, who'd want to work for an evil oil company?
The top 20 U.S. and Canadian oil companies actually invested 50 percent more than they earned in the past 10 years in efforts to produce more oil, but adverse geopolitical developments conspired to give them fewer opportunities to expand production while fading oil fields in the U.S. and elsewhere forced them to spend substantially more just to maintain current production, according to the study by the Ernst & Young accounting firm.
The study found that the top companies -- including Exxon Mobil, ConocoPhillips and Chevron, among others -- took in a mind-numbing $5 trillion in revenue from sales of oil and related products between 1995 and 2005. After subtracting the cost of equipment, leases, labor and other operating expenses, the companies posted whopping profits of $336 billion.
Over the same time span, however, the companies spent even more than they earned -- $550 billion -- on oil exploration and development. Some of them went deeply into debt to finance new ventures, especially during times of lean profits.
A shortage of petroleum engineers has prevented some companies from expanding production. Worker shortages developed in recent years after drastic job cuts during industry downsizings in the early part of the decade. Moreover, most of the engineers available are baby boomers, with an average age of 49, and are heading toward retirement, said Jeff Johnson, chief executive of Cano Petroleum, an independent oil producer in Fort Worth, Texas.
Hat tip: Power Line.