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Oil companies' profits mask deeper troubles

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Oil companies' profits mask deeper troubles

Unread postby twofiftyfive » Thu 28 Apr 2005, 16:53:28

Oil-related commentary on yesterday's edition of Marketplace:

http://marketplace.publicradio.org/show ... 04273.html

The major point is that the non-OPEC, non-FSU fields are drying up, and OPEC countries and Russia tend to spurn Western investment. Food for thought for those who are considering buying oil stocks.
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Unread postby tdrive » Thu 28 Apr 2005, 17:11:23

$this->bbcode_second_pass_quote('', 'F')ood for thought for those who are considering buying oil stocks.


I beg to disagree. Your best move is buying oil stocks exactly for that reason.

With no viable prospects left, the oil majors will institute share buy-backs,
one-time dividents, M&A, etc., essentially becoming giant oil trusts
as time goes by. They will pump themselves out of existence, sure,
but make you rich in the process, because the oil price will go up
commensurately with the depletion due to the scarcity rent premium.

Remember, there will be no swing producer left, so OPEC will not be
able to counter that.

The first sign of this will be the oil market going into contango.
Right now the front running month trades into contango all the
way up to Dec. 2007, the assumed date when OPEC will increase
their capacity to 13 mbd. Aint life grand?

Cheers,
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Unread postby bruin » Thu 28 Apr 2005, 17:17:30

Seems like buying oil futures have the best play on PO. If oil at $50 will be a bargain 5 years from now, holding onto a bunch of options would be worth a ton.

Also, you don't need to guess which oil company is going to ride the profit wave the best.
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Unread postby pip » Fri 29 Apr 2005, 13:16:26

If the production drops by 20% but the price goes up by 100% the oil company will still be making more money than today.
The road goes on forever and the party never ends - REK
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Unread postby smiley » Fri 29 Apr 2005, 18:13:55

$this->bbcode_second_pass_quote('', 'W')ith no viable prospects left, the oil majors will institute share buy-backs, one-time dividents, M&A, etc., essentially becoming giant oil trusts as time goes by. They will pump themselves out of existence, sure,
but make you rich in the process, because the oil price will go up
commensurately with the depletion due to the scarcity rent premium.


Not necessarely. Imagine what would happen if the oil price would stay equal for just one year.

According to their latest quartely result Shell's production fell 8% this year, Exxon mobils production fell by 5%. Due to ageing of their fields the extraction costs are running up pretty fast. At this moment nobody cares. Due to the rise in oil prices they could still post record profits.

However if the oil price would remain equal for just one year they would have to post a substantial decline in frofits. A share buy back or a divident can not compensate for the shareholders reaction.

You would be much safer if you could buy for instance some shares of KOC or Aramco. But you can't.
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