Oil: Risky Investment

YOu have a lot of history, but poor math skills. A billion for the physical plant is chump change when you can pump a billion barrels. SO unless oil goes to under $10/barrel, the return is there.

Besides, the physical plant is unfortunately only a small part of the cost. The litigation necessitated by the Greens make up as much if not more of a the cost. And then of course there is the Pelosi tax.

Not to mention new wells don't always mean new oil rigs. The old ones are moved and reused. Amazing how information can be bent to help promote the entire "it's hopeless" agenda.

I don't have an agenda: No one's promoting a hopelessness, but I am saying that there is much involved even in reusing rigs and moving on to other treacherous areas. Not to mention the shortage of manufacturing new rigs.


Optimistic, but even so it's going to take a heck of a long time.

That is why private companies capitalize, and dont expense. They do not look to earn back their investment immediately, but over the long term. A return of 10% is outstanding! But most companies settle for returns of 2-8% annually, and invest based upon those numbers.

And don't forget the fact that it's cheaper, in the long run, to pump your own oil out of the ground (or ocean) than it is to buy oil from another country.  Either way you cut it, it is definitely in the oil companies best interest to move rigs or build new ones to pump out domestic oil.

And some of the numbers that I've heard is that if the OCS and/or ANWR were opened up for drilling tomorrow the oil companies could be pumping out oil within 2-5 years not 10 years.

I'm not suggesting it's your personal agenda, just "this" is an agenda that is being promoted (your facilitating its promotion, that's fine if that is what you believe). One just has to turn on the TV, radio, or open the newspaper. It goes like this, "it takes too long to drill, so why start", "we won't see any oil for ten years" and "you must not support alternatives if you want to drill", it goes on and on. Sounds like hopelessness to me (on this issue). When did this turn into a nation of whiners as opposed to the "We can do it" society you often blog about (30's and 40's)? Instead of why "we can't (or won't)" how about a little "let's try". If this is the change that the Dem's are offering this November, keep it,because IMO it's a change for the worse.

Not so. In the seventies we heard the same story that domestic oil would fix the problem; yet the oil companies never took the lead because Arabian reserves were brimming in oil and kept prices stable after thy had gotten their 10-15 bucks per barrel, still making it unprofitable for domestic oil. To expect oil moguls to drill at the prices of yesteryear is ridiculous. Gas prices will not go down much because of domestic production--all we can expect is pride and peace of mind. With our huge stretch of roads and highways we are dependent on the automobile more than other nations, but the automobile of today is based on prices of yesterday and that's why we must look for alternative fuels and at much lower prices and cars that have greater mpg. 

You are right, but miss a critical piece.  OPEC did wise up in time, and kept the price at a level that would maintain their monopoly, but the other half of the equation was equally as damning.  In order to "punish" the oil companies, Congress passed the windfall Profits tax - effectively supporting OPEC in keeping the price high.  More so than OPEC or any other institution, Congress caused the Energy problems today with their desire to be punitive and the law of unintended consequences. 

Did they learn?  Did you hear Hillary and Obama?  The only difference is that Obama wants the higher prices in order to promote alternatives.  It is a good strategy, but unfortunately bad politics.

When the Congress brought about the wind fall profits tax it became profitable to get oil from overseas. We hurt ourselves three times with that tax. First we made ourselves vulnerable to blackmail from other nations. Second we charged the oil companies an additional tax that kept the money from being used to get more oil. Third, the oil companies passed the tax on to the consumer raising the price of gas making everything more expensive because we use trucks to move goods around the nation so everything that gets trucked or shipped costs more and people need more money so they ask for a pay raise to compensate for the higher prices so we are all paying two or three times the amount given to the government to punish evil big oil.

Nonsense; oil companies knew where the profits were since the 40s; piddling tax never was a disincentive to drill here--it was just too costly in comparison to OPEC's.  

That was the disincentive to the oil companies to drilling domestically, and you just made my point. Thanks.

While it is a favorite line of liberals who love taxes, it has been demonstrated to be false countless times.  The simple fact of the matter is that taxes are costs to businesses.  Nothing more, nothing less.  If they can pass the costs onto consumers, then no big deal, they do.  And the consumer loses.  If they cannot, the business avoids the cost by looking for ways not to pay the tax - buy overseas.

Most people do the same thing with their purchases - look for the better value - yet cannot then believe that a company would be so smart.  They are actually smarter, but since they are not a "buddy" people then assign the intelligence to some other nefarious practice - usually greed.  They are no more greedy than the guy who buys sodas on sale at the store across town instead of down the street because they are cheaper.

But a question for all liberals.  If we are to beleive that we must raise taxes when times are tight and government revenues fall short - why dont we get a tax rebate when times are good and tax revenues exceed forecasts? (I dont say need as government has not had a problem needing every penny it gets).

By your  distortion, not the government's extortion. Nor am I arguing in behalf of windfall profits, but there will always be taxation on money-making or there'd be no infrastructure and targeted direction toward needs. Nor do you mention oil subsidies. 

Simplistic. No one "loves" taxes. The simple truth is that taxation is a necessary substructure to carry on business and labor to guarantee protection from exploitation and outright crime, not to mention national security. 

Then answer my other questions.  Why is the clown (who may be your next veep) crying because the GA will not raise taxes due to a budget shortfall, but found lots of ways to spend the money the last few years when the coffers were over flowing?

It works in this state and the nation.  The simple fact is that they HAVE taxes.  They just want more and more, but never less.

Well the answer is quite simple really. Give companies the option to undertake such drilling, and see if they do. If they think they will make a return on it, they will look to drill there. Hence the argument not to allow drilling because a return might not be possible is moot - if that's the case, you don't need to ban it, and if it isn't the case, then the argument falls flat by definition!

As for investing that money in alternatives, the companies will do that IF they feel the returns would be greater. That is where government policy could come in, introducing a tax on oil and/or subsidies on renewable+environmentally friendly alternatives, which could then make such alternative energy sources provide a better return for companies, but it still isn't a reason not to allow the drilling. The only reason to not allow the drilling that I can see is if the environmental costs of the drilling would be so ridiculously massive that a simple tax wouldn't be able to cover them, and a ban would prove more effective. I can't see offshore drilling resulting in nuclear scale disasters though...

A relevant term: simply a return to a fair marginal rate.  I give credit to Bush for lowering the floor to 10% for the poor; however, Congress should have raised the floor on EIC.   

When in the Clinton years the last time we had a "surplus" which was bogus.

Sensiblly stated. The so-called ban, however, is not really an event when in reality so many millions of square miles licensed have not even been explored. 

 

How do you know this?

It's common knowledge, but I'm not sure that the oil companies have yet applied for license, which incidentally I've said here or elsewhere that government should not be in the business of exorbitant licensing, particularly when domestic oil is critical. 

Not that common, I have not heard of this except from left wing nut jobs that have little or no understanding of the business. So, I will ask it a different way, where did you learn this?

I was speaking of the state, not clinton.  Although he was gleefully rubbing his hands when he saw the surplus at the end of his term.  And no talk about a rebate (from him) even tough that was one of his promises when initially elected.

And the EIC is welfare.  Face it.  That's all it is.

 

According to the MMS there were 7,457 active leases as of June. Of those only 1887 were classified as "producing." There are 68 million acres still to be explored. So where's the ban.?

August 19, 2008 11:47 AM
The US Department of the Interior's Minerals Management Service (MMS) Gulf of Mexico region announced that 423 bids were received from 47 companies on 319 tracts offered for Western Gulf of Mexico federal oil and gas Lease Sale 207 to be held on Aug. 20, 2008.
NEW ORLEANS -- The Western Gulf of Mexico Oil and Gas Lease Sale 207 attracted $487,297,676 in high bids, according to MMS. Fifty-three companies submitted 423 bids on 319 tracts comprising over 1.8 million acres offshore Texas. The sum of all bids received totaled $607,134,968.

They have a lease on my backyard, but they are not going to find anything.  Perhaps if they could explore areas, and if feasible, drill for it, that would be a statement.  Giving a lease in the middle of Manhattan makes for nice talking points (as you demonstrated), but hardly does anything for the issue at hand.

On this issue, the democrats are like the idiot who is crawling on his hands and knees.  A passerby asks him what he is doing. "I am looking for my car keys" said the idiot. "Where did you lose them?" asked the passerby. "Around the corner, but the light is better here."

 

Sorry sir but this proves nothing. Your logic is flawed. You are suggesting that because there are 7000 leases and only 1800 are producing that the others must be idle. In reality you don’t show how many have been explored and abandoned because they are not going to produce. You don’t show how many have been closed down because they no longer are producers but the lease has not run out yet. How many are being explored but have not reached the point where they can drill yet? How many are drilling but have not produced a drop of oil yet?

 

There are 68 million acres of land but you don’t know what has been explored to date. You don’t know of that acreage how many are used in the production of oil. a lease is not a single acre so you have mislead or tried to mislead us by saying the land is not being explored. It may be true but you have not produced any proof of this.