Why Exxon Mobil won't produce more [oil] | Hacker News Reader

Why Exxon Mobil won't produce more [oil]

businessweek.com

11 pointswumi18 comments

Linkin Park, "Hands Held High"

Like they understand you in the back of the jet When you can't put gas in your tank

These fuckers are laughing their way to the bank and cashing the check Asking you to have compassion and have some respect

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Disclosure: I work in the oil industry and have worked for ExxonMobil in the past.

ExxonMobil may be the world's largest publicly traded oil company, but it is nowhere near the largest oil producer, nor does it have the the largest reserves. These honours go to the state-owned oil companies eg. saudi aramco, PDVSA (venezuela), NIOC (iran), CNPC (china), kuwait petroleum, etc. To give an example, in 2004, saudi aramco had proven oil reserves of 261 billion barrels, iran, iraq had around 130 billion each. Meanwhile exxon had 22 billion. Even the state-owned comapnies in nigeria, qatar and libya have more proven reserves than exxon.

My take on this: the rhetoric seems to be about return on capital, and betting on high future oil prices. But I strongly suspect the real reason for ExxonMobil not producing more oil (and the story alluded to this) is that there haven't been any major new fields discovered to grow beyond replacing their existing depleted fields. Also, the large new discoveries have typically been deepwater, which is difficult and expensive with current technology.

In my experience with Exxon, they are astute managers when it comes to their investments, but ultimately they are an oil company. Unlike most of the other big oil players (BP, Shell, Chevron, Total), Exxon has openly said that it is in the oil and gas business only and won't diversify to alternative energy sources (eg. BP has started tagging their brand Beyond Petroluem with investments in ethanol and other renewables). So I certainly don't think they are holding off on projects simply to leverage higher prices in future.

My friend's dad is Exxon Mobil manager for the Balkans.

My dad has worked in oil & natural gas industry for 28 years, including a long standing working relationship with Exxon Mobil.

While what you are saying sounds nice ("So I certainly don't think they are holding off on projects simply to leverage higher prices in future.") ...

I know for a fact it is certainly not true. Some people wouldn't touch the company with a ten-foot pole, including relatives of country managers.

HHhmm lets see.

There are x barrels of oil left on earth, Exxon gets most of them. Would it rather sell them at $50/barrel or $100/barrel.

Whatever else they say about production, there's always this.

They'd rather sell for $200/barrel. Their plan to hold volume production flat is a good a reason as any to break up the company for the benefit of consumers. I wouldn't let them near 'green' energy development either as their interests aren't served by viable alternatives to oil.

This is silly. First of all, ExxonMobil doesn't control "most" of the oil reserves; they have only a very small fraction. And if the US federal government forcibly broke the company into several pieces (like Bell Telephone) the resulting smaller companies would still have no greater incentive to increase production.

I meant it as a critique of OPEC in general. They will control production to get the most money per barrel because when its gone, its gone. Exxon is the largest publicly traded energy company in the world (from tfa). They do better when prices stay high. While they may not be the biggest player in the whole oil game, they do play a significant role in oil's path to the end consumer. Lets just say they have a lot more to gain form $200/barrel oil than from $50/barrel oil and leave it at that.

Huh? ExxonMobil is not a member of OPEC. What are you proposing they do differently?

What I don't understand is how they always escape investigations into price-gouging. It happened also with the first Iraqi-American war (Bush 41). Sen Al D'Amato (sp?) was supposed to lead an investigation into why the companies have record profits in stressful times.

They always claim it's "volume"; their percentage profits are reasonable, but they sell a lot. Last year I don't think that held--I believe (but am not certain) that usage fell because the prices were so high.

But that may just be civilian usage--perhaps total usage increased. I'd love to see info on that, because I am skeptical and in this election year we may have a shot at changing things.

How do you define price-gouging? Are you suggesting that oil companies should voluntarily sell their products at a price lower than what their customers are willing to pay? What are stressful times? Times are always stressful for someone, somewhere. What are unreasonable profits? Do you think the government should arbitrarily limit total net profit for any particular company? Or perhaps they should limit profit margins or return on capital? And any profit limits that apply to oil companies should also apply to software companies, right? You can find consumption statistics here. http://www.eia.doe.gov/

In certain situations where an anticompetitive monopoly exists, the government does and should regulate. Take, for example, the birth of cable tv in the US. The cable companies were granted monopoly in regions because otherwise it was senseless to commit the funds to build the infrastructure necessary to develop the industry. In this case, the trade-off is; yes, you get a monopoly but we're going to regulate the prices.

Same with utilities (water, sewer, electric,...).

Many times, however, the regulation is a farce (the regulators and the regulated are all friends). In some cases, the government steps in to see what the shenanigans are.

Usually the defending companies argue that their increased margin is needed for "future investment costs," or something. Sometimes the regulators agree, sometimes not.

So, yes, in certain cases where a few tightly-knit companies are committed to control essential resources, they are "forced" to sell at "reasonable" prices.

Interesting that you bring up software companies. In the 1992 presidential election, the deciding issue to me was the building of the internet. Bush (41) wanted to let the private companies do it all a la cable, sewer, etc. Clinton said, no, it was to be a vital infrastructure to our country and the government should build it (a la our interstate highway system).

I voted for Clinton.

I don't know why you're bringing up monopolies. ExxonMobil is not a monopoly. They have minimal pricing power. The only petroleum organization that is anything remotely like a monopoly is OPEC. US presidents have some influence over certain OPEC member countries, but in general it isn't subject to US antitrust laws. Attempting to regulate the prices they charge is tilting at windmills.

There seems to be little competition among US oil companies in prices at the US pump. You seem like you know quite a bit about this--much more than I do--why don't they fight for market share at the pump? The station owners can't do it without help from the "mother" company--their margins are too slim (at least on petrol). It doesn't seem like normal market forces are at play here. I would ordinarily expect one company to drop their margins to try to make more profit on volume.

Do you have any idea why we don't see this? Perhaps there is a brand-loyalty factor that makes it pointless to try.

Gas stations constantly fight for market share. Brand loyalty doesn't count for much when purchasing a commodity. Consider the area near the intersection of El Camino Real and Grant Rd. in Mountain View, CA.

http://www.sanjosegasprices.com/map_gas_prices.aspx?z=11&...

Prices per gallon of 87-octane gasoline in that small area range from $3.559 for "generic" to $3.649 for the branded product. If there was any brand loyalty then they would be able to charge more than a 2.5% premium.

Above the local station level, gasoline prices are largely driven by crude oil prices and refining capacity. Crude oil is a fungible commodity and prices are set at a variety of markets around the world in a way that can't be directly controlled by any government.

Refining capacity in the US is constrained and not really growing. There is little financial incentive to spend billions on a new refinery, plus no one wants to live near a refinery (NIMBY).

I would actually like to see much higher gasoline prices via something like a carbon tax. That would provide the revenue necessary to temporarily subsidize development of alternative energy sources. As a side effect it would also tend to reduce oil company profits. But unfortunately a carbon tax is probably not politically feasible in the US right now, plus there would serious implementation problems.

As I mentioned, the gas stations don't have the margin to fight. Those guys get killed in price wars. Chevron has to fight Exxon-Mobile has to fight Shell--and that doesn't seem to happen.

So you are claiming that we don't see this fight because everyone has all the market-share their refining capacity can handle? Perhaps you're right.

The problem I have with the carbon tax is that it heavily taxes those who can least afford it: people who have to live in cheap areas and commute to expensive areas for jobs.

Due to the invisible hand of the market, the oil majors are constantly fighting each other. If they were colluding instead of fighting then profit margins would be even higher than they are. But at current prices, customers are buying all the gasoline and diesel available so there is no pressure to cut prices.

The impact on poor people who live in suburban and rural areas is one of the problems with a carbon tax. But unfortunately in the long run those people are screwed anyway. Fossil fuels can't stay cheap forever, tax or no tax. Probably some of the tax revenues would have to go to subsidizing them through buying back inefficient vehicles, additional mass transit, housing vouchers near urban areas, etc.

If you charge more than someone else, it's gouging. If you charge the same as someone else, it's collusion. If you charge less than someone else, it's predatory.

Price-gouging during the first Iraqi-American war?

Feh.

From what I remember, gas was at 99 cents a gallon in Detroit at the time.

At the time, the jump in prices was huge. Congress conducted an investigation, led by Al D'Amato because the prices jumped a lot with seemingly little variation in the market forces. D'Amato didn't run for re-election to the Senate (something about having to face some ethics charges if he came back, as I recall). I tried to get the report from Congress, but couldn't find it (I admit, I didn't try that hard, but I was curious as to what it said).

Anyway, no matter. Interesting thread (but it cost me a ton of Karma!)

Back to work.

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