Peak Oil Principal Savages Oil Majors' "Profits from Scarcity"
By Adam Porter
Dr. Colin Campbell, founder of the Association for the Study of Peak Oil & Gas (ASPO), has criticised the amount of profits made by the oil majors. The mauling comes, as the majors look set to stun markets with record revenues.
“The oil majors are profiting from scarcity,” Campbell told Resource Investor. “They are raking in the profits because oil is at $60 a barrel and, materially, their costs have remained the same.”
BP [NYSE:BP], Royal Dutch Shell [NYSE:RDS], Exxon-Mobil [NYSE:XOM] and Chevron [NYSE:CVX] are all set to announce their results for the second quarter 2005 this week. Market makers expect a cash bonanza. BP estimated to see its profits balloon to $5.6 billion, up 44% year on year. Newly merged Royal Dutch Shell is expected to trump that, up 46% at $5.4 billion.
Exxon-Mobil and Chevron report on Thursday and Friday. Their share dividends are forecast to jump from 87 cents per share to $1.27 and from $1.53 to $1.69, respectively.
“It’s a windfall for the oil majors,” said Campbell. “An irony about the current situation is that in any normal market a price rise gets people producing more. In this case there is every incentive to do the opposite, so that the majors can make their reserves last longer. In the oil market we have now, high prices actually seem to dampen output.”
Campbell pointed out that the oil majors’ reserves “show no sign of increasing. In fact as they are raking in record profits…it becomes a golden moment to start up a lot of dubious projects, in exploration and drilling. So many of the holes being drilled now are dry ones. Yet so many of these dry holes being drilled mean a reduction in taxes paid by the oil companies. Of course they are offset as running costs against profits,” he claimed.
“As a result if you want to look for good places to invest then the companies that drill and explore are in a great position,” said Campbell. “Those companies profit on both success and failure. The contractors are in a fabulous position. But as far as finding more reserves go, it is not happening. The downward trend is relentless with no sign of it changing.”
Despite forays into more difficult territory, both physical and political, oil majors are still unable to significantly add to their reserves, he says.
“Of course you can always find smidgens here and there, no doubt about that,” he admits. “But you can see by the way the oil companies have been merging and are merging, that this has been the main way they have added to their reserves. By snapping up those of the weaker partner [in the merger].”
“[The oil majors] also thought they would do well in Russia but [President] Putin has been stopping that game,” said Campbell. “He realises that Russia will need its reserves for its own future use. Russia is already making a bundle on exports, but it seems they have planned ahead and see what is happening. They want to keep their oil.”
“As far as the major western companies go, as an example, why would they drill in 6000 metres of water if there were easier, cheaper, deposits to find on land? Again this comes down to being a geological issue.”
But Campbell reserved his harshest criticism for the way that oil executives remunerate themselves, especially at such a volatile time in the oil marketplace.
“It is obscene what these people pay themselves, absolutely obscene. And of course once again these huge payments to executives are included in the balance sheet as running costs, offset against tax. So who is really paying these wages? The company or the taxpayer?”