"What To Do With Big Oil Profits?"

 Exxon Mobil reported the fattest operating profit in U.S. corporate history Thursday but took a beating anyway — from politicians railing against Big Oil, drivers bleeding cash at the pump and investors who expected more.

The world's largest publicly traded oil company turned a profit of $11.7 billion for the second quarter, lifted mostly by meteoric crude prices. Its earnings were up 14 percent from a year ago.

Total sales: $138 billion — roughly the gross domestic product of Hungary.

Henry Hubble, Exxon Mobil's vice president for investor relations, said the record profits "highlight the quality of our integrated business model and disciplined investment approach."

For the most part, the plaudits ended there.

Despite their heft, Exxon's profits were a disappointment on Wall Street, and the company's stock slumped nearly 5 percent. Almost the entire energy industry was walloped by investors Thursday.

Growing investor apprehension can be found at the heart of what the oil industry does — finding and producing oil and natural gas.

Exxon Mobil's overall output fell 8 percent in the second quarter from a year ago — a significant blow for a company that generates more than two-thirds of its earnings from oil and gas production.

For Exxon Mobil, which produces 3 percent of the world's oil, finding new deposits of hydrocarbons is getting harder and harder. State-run oil companies like those in Saudi Arabia and Venezuela control about 80 percent of known global oil reserves. It's difficult if not impossible for Exxon and its competitors to get any part of that oil.

"It all comes down to production," said Brian Youngberg, an analyst with financial services firm Edward Jones. "This is the second straight quarter production came in below expectations. Investors are going to be questioning when they can turn that around."

Exxon Mobil was not alone in the industry in posting massive profits over the past week.

The reward? A broadening backlash from a public that is getting squeezed on fuel prices from every front.

While the oil companies insist they're trying to find new oil that might bring down gas prices, the money they spend on exploration pales compared with what they've spent in recent years on stock buybacks and dividends.

In the most recent quarter, Exxon Mobil said it spent $8 billion buying back stock, versus $7 billion on capital and exploration expenditures. The company has said it expects to spend $25 billion to $30 billion on capital and exploration projects each of the next five years.

In a letter to the five largest international oil companies released Thursday, some House and Senate Democrats demanded the companies spend more of their profits on U.S. production and renewable energy and less buying back their own stock.

"Given today's strong market incentive for expanding exploration and production, we can only believe that reinvesting your vast profits into the production of more oil and natural gas in the United States is a profitable strategy that will help our country decrease its dependence on foreign oil," said the letter from Sens. Charles Schumer, D-N.Y., and Robert Menendez, D-N.J., and Reps. Rahm Emanuel, D-Ill., and Ed Markey, D-Mass.

"The oil and natural gas industry is massive because it has to be to effectively compete for global energy resources," said John Felmy, the API's chief economist. "The industry's earnings make possible the huge investments necessary to help ensure America's future energy needs are met."

He noted about two-fifths of publicly traded oil and gas company stock is owned by tens of millions of investors through retirement accounts and pensions.

"Big Oil is more interested in pumping up prices and pumping up their own profits rather than pumping more oil," said Rep. Edward Markey (D-Mass), who has co-sponsored a bill to charge oil companies a fee for land they hold that's not producing oil. "We should not even begin discussing handing over more public land to the oil companies until they first use [the land] they already hold."

But the oil industry says it pays millions of dollars for these leases, and that it would not make sense to purposely leave the areas untapped.

Rather, years of exploration is required before drilling can even begin. In some cases, no oil is found on leases they hold. In others, drilling the wells and building the pipelines takes years. It is especially hard now that a worldwide boom in oil exploration has pushed up the prices - and timelines - for skilled workers and specialized equipment.

"No one is sitting on leases these days," said Rayola Dougher, senior economic advisor for the American Petroleum Institute. "Those making those assertions don't understand the bidding and leasing process."

Gheit agrees that it's unlikely that hoarding is going on.

With prices at $135 dollars a barrel, everyone is trying to pump as much as they can, he said. But fearing oil prices will eventually fall, the industry is leery about making too many investments in the fields it has - many of which are in deepwater areas that can be pricey to develop.

Instead, they're holding out, hoping the government will open areas closer to shore that would be cheaper to work on.

Congress appeared deadlocked Wednesday on responding to the nation's energy problems amid a bitterly partisan rift over whether to open long-restricted offshore waters to oil and gas drilling.

A Democratic proposal to counter oil market speculation fell victim to the drilling dispute, failing 276-151. That was nine votes short of the two-thirds needed for approval because the measure had been offered under expedited rules imposed by the Democrats to avoid GOP attempts to attach an offshore drilling provision.

A Senate bill, also aimed at curbing abuses in the oil markets, has been stalled for two weeks as Republicans have insisted it be opened to votes on a variety of other energy issues, principally offshore oil and gas drilling in areas long under development bans because of environmental concerns.

"This is no substitute for a real bill on drilling," declared House GOP leader John Boehner of Ohio, who accused Democrats of using the oil market speculation measure to "divert attention" from their refusal to allow a vote on offshore oil drilling.

The House bill would have given new authorities to the Commodities Futures Trading Commission to oversee oil markets, increase the agency's staff and set new requirements on certain trading. Market critics have argued that excessive speculation has contributed to the soaring oil prices.

At the White House, President Bush for the second time in two days called for lifting the offshore drilling bans, saying the Democratic-run Congress was letting down the American people by refusing to allow votes on the matter.

"The American people are rightly frustrated by the failure of the Democratic leaders in Congress to enact commonsense solutions," the president said, even while acknowledging that access to oil and natural gas in off-limits coastal waters would be a long-term solution and would not lower today's soaring gasoline prices.

Bush has lifted an executive ban on offshore drilling signed by his father in 1990, but that has no effect until Congress lifts its prohibitions as well. Some of the moratorium along the Atlantic and Pacific coasts and in the eastern Gulf of Mexico have been in place for 27 years.

House Speaker Nancy Pelosi, D-Calif., has argued that oil companies already have vast areas available for drilling but have chosen not to develop the federal leases they already hold. She has given no sign of allowing a drilling bill to come to the House floor.

"The president has failed in his economic policy, and now he wants to say, `But for drilling in protected areas offshore, our economy would be thriving and the price of gas would be lower,'" Pelosi said Wednesday. "That hoax is unworthy of the serious debate we must have to relieve the pain of consumers at the pump and to promote energy independence."

Republicans "have one answer and one answer only — drill in places that are not now authorized" even as million of acres of federal land and waters are open for energy development in leases not being used, House Majority Leader Steny Hoyer, D-Md., said.

Sen. John McCain, the presumed Republican presidential nominee, has called for lifting the Outer Continental Shelf drilling bans and for working with states on more offshore oil and natural gas production.

His Democratic presidential rival, Sen. Barack Obama, has opposed lifting the current drilling bans.

     Though the profits of "Big Oil" are astronomical, so are the risks, operating costs,  stock investments and dividends.  Americans want "Big Oil" to use it's record breaking profits to pump more oil but many Americans are hesitant to allow them to drill in more easily accessible  oil reserves off the Gulf Coast and Atlantic ocean. Looking at the situation from "Big Oil's" perspective, all the other easy-to-get-to known oil reserves are owned by other governments. (Iraq wants open bidding for the rights to drill in their vast oil reserves, so Exxon and other American oil companies need "big money" to bid on Iraq's oil) Though now owning leases to millions of untapped areas in America, these areas are judged to be too risky and expensive to drill by Exxon and other American oil companies. On top of all that, people who have invested in the oil industry have to be paid their dividends and pensions. As I see it,"Big Oil" in America is "damned if they do and damned if they don't".

    Clearly the unethical "Enron loophole" in oil futures speculation, needs to be closed. This will bring prices down significantly in the short term. Because wind and solar energy are still a couple of decades away before they can have a real impact in America, the ban on off shore drilling needs to be lifted, to facilitate the transition from oil to alternative energy sources. ( This is a change from my previous opinion on the subject of off shore drilling) In my opinion, Congress should pass the compromise bill that will regulate oil speculation and lift the ban on off shore drilling. Such a compromise is necessary in the current American energy crisis, as I see it.

tags: big oil  exxon  congress  off shore drilling  america  energy crisis  bush  mccain  obama  democrats  republicans  takebackamerica  business  capitalism  the economy  

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