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Pumping Cash, Not Oil

General discussions of the systemic, societal and civilisational effects of depletion.

Pumping Cash, Not Oil

Unread postby KevO » Sat 19 May 2007, 16:48:53

With gas prices hitting record highs, Exxon Mobil (XOM ) Corp. ought to be drilling like mad and refining more of that black gold, right? As it turns out, the world's largest oil producer thinks it is smarter to use more of its resources to buy back stock. The indirect result: increased pain at the pump for consumers.


[And not building more refineries.] Why would that be? coz they know it's all over.

It's Big Oil's new formula for making money. Last year, Exxon pumped out $49 billion in operating cash flow on sales of $365 billion. It's the world's most profitable company, but Exxon is plowing a smaller percentage of its spare cash back into the business. Although capital expenditures have risen from $11 billion at the start of the decade to nearly $20 billion, that spending amounts to roughly 40% of cash flow, down from 50% in 2000. Meanwhile, overall production has barely budged since its megamerger in 1999.

Instead, Exxon is bingeing on buybacks to help boost profits,



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Re: Exxon's profits go to build a 100 new refineries

Unread postby Tyler_JC » Sat 19 May 2007, 18:47:59

Well, they can't build refineries because of environmental regulation and NIMBY-whining.

Why waste 5 years and hundreds of millions of dollars fighting lawsuits in order to build something that for most of your company's history has been only somewhat profitable?

Additionally, the current bottleneck is a boon to the company, allowing it to extract extra profit from the same number of barrels of oil.

For society, the bottleneck would help to stretch out the current plateau in oil production/consumption for another X years.

The refinery shortage is actually a form of conservation. We will consume less gasoline despite having a surplus of crude oil. Over time, consumers will become more efficient in their use of oil products in order to match the level of production.

Thus, when oil production itself starts to fall, consumers will be able to do more with less.

The alternative scenario, produce as much as possible, as fast as possible only invites a crash.
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Re: Exxon's profits go to build a 100 new refineries

Unread postby lawnchair » Sat 19 May 2007, 19:46:57

Tyler_JC wrote:Well, they can't build refineries because of environmental regulation and NIMBY-whining.


Did I just miss something about who was in control of the White House, Congress, Courts, Governorships, and state Houses for the last six years while refinery capacity shrunk? A bunch of anti-business environmentalist NIMBY pants wetters?
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Re: Exxon's profits go to build a 100 new refineries

Unread postby Jack » Sat 19 May 2007, 19:56:22

Tyler_JC wrote:Well, they can't build refineries because of environmental regulation and NIMBY-whining.


Hmm. WWJD? (What Would Jack Do?)

1) Find a poor Caribbean, Central, or South American company.

2) [s]Bribe[/s] Develop strong rapport with local rulers.

3) Get investors to do the heavy lifting for the investment in an independent subsidiary, perhaps with a public limited partnership. Arrange to be general partner, thus guaranteeing a good slice of profits with minimal financial risk.

4) Build the refinery, operate same. Export product to the U.S. Make big profits.

5) If locals make trouble, let the local rulers deal with them. Otherwise, contact Blackwater.

6) If all else fails, let the limited partners hold the bag.

No doubt the major oil companies are far too compassionate to do such a thing. Surely that is why they haven't done it.

Too bad Mother Theresa isn't around anymore. ExxonMobile could have recruited her as its new CEO!
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Re: Exxon's profits go to build a 100 new refineries

Unread postby Tyler_JC » Sat 19 May 2007, 20:16:06

lawnchair wrote:
Tyler_JC wrote:Well, they can't build refineries because of environmental regulation and NIMBY-whining.


Did I just miss something about who was in control of the White House, Congress, Courts, Governorships, and state Houses for the last six years while refinery capacity shrunk? A bunch of anti-business environmentalist NIMBY pants wetters?


I was talking about the local population.

Go ahead, try to build a refinery next to the ocean in this country.

Watch the lawyers lines up to sue you for 20 years.

NIMBY is already out-dated. Try BANANA.

Build Absolutely Nothing Anywhere Near Anything.

If our government is full of rightwing hacks, why can't they drill ANWR?

ANWR thousands of miles from anyone who gives a damn and yet it we can't even consider dropping a few test wells into a tiny section of the "nature park". They are dragging their feet about it because of public opposition. It's ridiculous.
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Re: Exxon's profits go to build a 100 new refineries

Unread postby Ludi » Sat 19 May 2007, 20:48:16

Yeah, god knows the environmentalists are so powertful in this country! That's why 95% pf the land is undeveloped wildlife preserve, all rivers and lakes are clean and full of fish, and none of our animals are endangered! The wolf, bear, cougar, and jaguar have all returned to their previous territory, and the bison is roaming freely from Canada to Mexico!
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Re: Exxon's profits go to build a 100 new refineries

Unread postby roccman » Sat 19 May 2007, 20:56:47

"Well, they can't build refineries because of environmental regulation and NIMBY-whining."

Precisely!!

Even under the current administration of slash and burn...large infrastructure projects take YEARs to get permitted through NEPA.

NEPA will go away in a few years...if not months.

EPA curtailed CAA regulations after Katrina for 60 days...a drop in the bucket for what is to come.

NEPA does account for emergencies...

CFR 40 Part 1500-1508

Sec. 1506.11 Emergencies.

Where emergency circumstances make it necessary to take an action with significant environmental impact without observing the provisions of these regulations, the Federal agency taking the action should consult with the Council about alternative arrangements. Agencies and the Council will limit such arrangements to actions necessary to control the immediate impacts of the emergency. Other actions remain subject to NEPA review.
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Re: Exxon's profits go to build a 100 new refineries

Unread postby MonteQuest » Sat 19 May 2007, 21:23:22

Tyler_JC wrote:Well, they can't build refineries because of environmental regulation and NIMBY-whining.

Why waste 5 years and hundreds of millions of dollars fighting lawsuits in order to build something that for most of your company's history has been only somewhat profitable?


So, peak oil is nowhere in sight?

Isn't it a better question to ask?:

Why waste 5 years and hundreds of millions of dollars building something that you may only use for a short time, or not at all?

Why do we need more refining capacity with declining or plateauing oil production?

To empty the SPR?

Seriously, if refining capacity for available crude supply was needed ( and it surely is a matter of national security, is it not?) would not the govt declare so and facilitate the expedition of such plants?

Either the govt is in the dark or they know it most likely will not be needed, especially with other refineries being built elsewhere in the world.

And the neocons are not in the dark about peak oil.
Last edited by MonteQuest on Sun 20 May 2007, 01:50:14, edited 1 time in total.
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Re: Pumping Cash, Not Oil

Unread postby retiredguy » Sat 19 May 2007, 23:13:12

Hey Monte,

I hear what you are saying, but don't count out the government just yet. I wouldn't be surprised to see a bill put before congress that offers heavy subsidies to have a refinery build on an abandoned military base.

K I Sawyer in the UP would be a prime location. In the middle of nowhere in an area with a depressed economy. Plus the base is close to rail lines and a port city on Lake Superior.
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Re: Pumping Cash, Not Oil

Unread postby pup55 » Sat 19 May 2007, 23:38:01

It's the world's most profitable company, but Exxon is plowing a smaller percentage of its spare cash back into the business


The writer conveniently uses gross sales to make this point, but "percent of spare cash" to make the point about reinvestment (sloppy logic). Of course XOM is the most profitable company in the world. Their sales, at 337 billion dollars, is about the same as the GDP of Norway.

On a percent basis, although they are doing moderately well now, Exxon's numbers are not exceptional. Their net operating margin (sales minus cost of goods sold) is 20% right now, making it much less profitable than google (33%) and microsoft (39%). If you want to go back to 2001, they were only making about 10% operating margin, and on the order of 6% after taxes, which is not even average for the SP500.

XOM 2003 Annual Report

So the greedy stockholders of XOM are finally getting to do a little better. Over the last 5 years, they have been a pretty reasonable investment, roughly doubling the stock price. Nothing compared to google or some of the other high tech businesses.

More to the point, the management of Exxon is responsible for one thing, and one thing only, which is to increase the wealth of the shareholders. When they can accomplish this better by investing in more exploration, production, and refinery capacity, they will. Right now, they are not confident that the current pricing regime is stable enough to give them a predictable return on one or more of the above projects, so it makes sense to them to buy back stock.

It's risky, spending billions on refineries, giant offshore drilling platorms, huge tankers, and the like, and they are afraid that the oil prices will go back down to the 90's levels, thus leaving them holding the bag, and it's a pretty big bag.
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Re: Exxon's profits go to build a 100 new refineries

Unread postby lawnchair » Sun 20 May 2007, 01:06:19

Tyler_JC wrote:I was talking about the local population.

Go ahead, try to build a refinery next to the ocean in this country.


Don't know much about "by the ocean", or why said refinery should be next to the ocean.

I know that when the small, old, polluting (and recently aflame) Wynnewood, Okla. refinery was at risk of being shut down, the locals begged (via tax abatements and no-interest development bonds) someone else to keep it running.

I feel pretty confident that if you were to offer a 1000-job refinery to my hardscrabble hometown in central Kansas, environmental litigants would end up in shallow graves.
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Re: Exxon's profits go to build a 100 new refineries

Unread postby KevO » Sun 20 May 2007, 06:58:01

MonteQuest wrote:Isn't it a better question to ask?:

Why waste 5 years and hundreds of millions of dollars building something that you may only use for a short time, or not at all?

Why do we need more refining capacity with declining or plateauing oil production?

To empty the SPR?

Seriously, if refining capacity for available crude supply was needed ( and it surely is a matter of national security, is it not?) would not the govt declare so and facilitate the expedition of such plants?

Either the govt is in the dark or they know it most likely will not be needed, especially with other refineries being built elsewhere in the world.

And the neocons are not in the dark about peak oil.




100% agree Monte. It's not really debateable. They know it's pointless building new ones. Even if someone thought, they could maybe do it, they go to borrow the money and Simmons International says, 'not on your nelly' and so, without putting too fine a point on it.
This is it.
Demand is increasing by the day and refined products are stagnant, only to drop further with old, kanckered refineries finally breaking down and especially as they are being driven at full speed currently.

'We' sort of brought about peak oil before peak oil because of impending peak oil!

funny but true.
This really is it.

One hurricane in the Gulf or a (successful) attack on Saudi by OBL and it's Goodnight Kathleen.

I'm so convinced, I'm even going to sign my name..

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Re: Pumping Cash, Not Oil

Unread postby Newsseeker » Sun 20 May 2007, 08:55:53

Bush offered military bases for those that are willing to build refineries. My guess is there has to be at least one base that is remote enough that NIMBY and environmental concerns don't apply.
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Re: Exxon's profits go to build a 100 new refineries

Unread postby MonteQuest » Sun 20 May 2007, 11:23:51

KevO wrote:100% agree Monte. It's not really debateable. They know it's pointless building new ones. Even if someone thought, they could maybe do it, they go to borrow the money and Simmons International says, 'not on your nelly' and so, without putting too fine a point on it.
This is it.


Not quite. We are building one new refinery. Here in Arizona, as a matter of fact.

http://www.arizonacleanfuels.com/index.htm

http://www.cnbc.com/id/15840232?video=298013986#
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Re: Pumping Cash, Not Oil

Unread postby retiredguy » Sun 20 May 2007, 11:35:49

Purcatty,

Your logic is a bit twisted. Let's assume that your assumption that the vast majority of Americans are indeed ignorant. The various forms of mass media you cited are all reporting that the shortage of gasoline is due to refinery problems. So what is going to happen? The ignorant masses are going to demand that their congressman do whatever it takes to get those nasty oil companies to build more refineries.

Now the government and the oil companies know the real story, but are they going to inform the unwashed masses? Noooo. The government will offer generous subsidies, just like they have to the nuclear industry, to build more refineries, perhaps on old military bases. Like the one I mentioned in my previous post.

When peak sets in, one can bet the government will engage in all manner of illogical activities just to placate the ignorant populace.

By the time the ignorant begin to see the truth, it will be too late.
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Big Oil flush with cash again, but no party yet

Unread postby AdamB » Fri 26 Jan 2018, 12:43:29


The world’s top oil companies are expected to generate more cash in 2018 than at any other time this decade after three painful years of cuts, but it isn’t party time yet. The shift in sentiment has been rapid as crude prices have risen by more than 50 percent over the past six months to reach $70 a barrel, a level not seen since the crash year of 2014, thanks to global supply cuts led by OPEC. Only a year ago, many investors still fretted over the sustainability of the sector’s lavish dividend payouts in a weak energy market. Now the focus on company boards is gradually switching from slashing jobs and investment to boosting shareholders’ returns and growth. With memories of the 2014 price collapse still fresh and oil forecast to recover only slowly, frugality remains high on the agenda of boards


Big Oil flush with cash again, but no party yet
Plant Thu 27 Jul 2023 "Personally I think the IEA is exactly right when they predict peak oil in the 2020s, especially because it matches my own predictions."

Plant Wed 11 Apr 2007 "I think Deffeyes might have nailed it, and we are just past the overall peak in oil production. (Thanksgiving 2005)"
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Re: Pumping Cash, Not Oil

Unread postby Tanada » Sat 27 Jan 2018, 04:08:35

I predict more stock buy back programs and more dividends to maintain paper value. Unfortunately the paper manipulation management style seems to be pervasive in today's corporate America. Stock price is the main metric they use instead of actual physical output of any sort of product or service by their corporation.
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Moved earth and heaven, that which we are, we are;
One equal temper of heroic hearts,
Made weak by time and fate, but strong in will
To strive, to seek, to find, and not to yield.
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Re: Pumping Cash, Not Oil

Unread postby ROCKMAN » Sat 27 Jan 2018, 12:18:51

T - "...the paper manipulation management style..." More the just manipulation. Had Chevron bought X million shares of it stock at its recent low and sold today it would have made a 30% ROR in just 8 months. And the amount it could have bought would have been too small to impact the market. Who else would know better that the market overreacted to the oil price crash the folks who know exactly to the penny what its company is worth?
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Re: Pumping Cash, Not Oil

Unread postby rockdoc123 » Sat 27 Jan 2018, 13:19:49

I predict more stock buy back programs and more dividends to maintain paper value. Unfortunately the paper manipulation management style seems to be pervasive in today's corporate America. Stock price is the main metric they use instead of actual physical output of any sort of product or service by their corporation.


Publicly traded companies are there to serve the shareholder. Decisions made keep this in mind and stock buybacks should be no different. In the case of oil and gas companies, it is particularly important given investors and banks do not want to see companies sitting on large sums of cash, they want to see it redeployed to grow the company. If there are no good economic opportunities to invest for growth or the market timing is incorrect then share buybacks are sometimes preferred by shareholders and companies in comparison to increased dividends. Buying back shares reduces the number of shares on the market which in turn reduces the companies cost of capital as they have fewer dividend payments to make. Fewer shares results in share prices increasing which benefits shareholders and gives the company an opportunity in the future to reissue the same number of shares at the higher price which increases the corporations equity capital while not increasing share dilution. It also has a positive effect on the metrics that large investment houses use to determine where they will put their money whether it be equity or debt. Remember that shareholders don't really care what it is a particular company is making or selling, they just care about healthy dividends and increasing stock prices.

That is the theory and the way it should work. Unfortunately these days there are too many companies who use buybacks and the inherent inflated measures such as earnings per share to justify increased executive compensation. The solution to this to my mind is for shareholders to vote with their feet.
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