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Are We Seeing the End of Big Oil?
Hugh Pickens writes "Cyrus Sanati writes in Fortune Magazine that up until now, it has been widely accepted that being bigger was better for oil companies, but the announcement that ConocoPhillips plans to break up into two separately traded companies, separating its exploration and production unit from its refining and marketing units, took Wall Street by surprise, raising uncomfortable questions about the future of Big Oil. 'That's because the exploration side and the refining side of the oil business have little to do with one another,' writes Sanati. 'Contrary to popular belief, Big Oil has almost no control over the price of oil these days. That power squarely rests with oil-rich nations that hold most of the world's oil reserves and the Wall Street banks and hedge funds that speculate and make markets in the oil trading game. So even though ExxonMobil pumps oil, it can't guarantee that its refining unit will be able to profitably process a barrel into gasoline or heating oil.' ... 'If the ConocoPhillips story is a success for shareholders, there will be calls to break up Big Oil just in time for the annual meetings in the spring. So by this time next year, it is possible that Big Oil will go the way of Rockefeller's once gargantuan Standard Oil — with the markets, not the government, forcing a break up this time.'"
Who would need to be bigger? Seriously huge profits, and most exploration is already done. These companies have been exploring for years now for deposits. It is probably just a crafty way to hide the hordes of money they are making...
to anyone besides investors?
What I got from the article is that one really big company is becoming two merely large companies for market purposes. How does this impact any of us down here?
I was however relieved that this wasn't another "year of the electric car" type article and it had a fair amount of substance!
Any conglomerate should be split up. It just make sense. Like modular programming does.
The output of any division of a conglomerate should be accessible to the whole market, not just the big encompassing company that holds the division.
Letting companies grow bigger and bigger only leads to near-monopolistic situations, and eventually less choice for the consumer. :)
If, for example, Apple were split into two companies, one for software, one for hardware, this would probably lead to a much richer variety of products. And, also important, more opportunities for users to tinker
If Pandora's box is destined to be opened, *I* want to be the one to open it.
we do use hydrogen as fuel. It just currently brings carbon along for the ride. you want to pay extra to separate the two first? go right ahead. you can't get it for free.
Sounds like a good way to limit exposure to unexpected costs associated with drilling. Sell the crude to the refining unit at cost of production and the drilling unit accumulates no profits that would be paid out as a result of a large spill. It would just go bankrupt, sell off any equipment it owns (if it owns any at all) and reform under a new corporate charter. Profit!
How about:
<sarcasm>Wait, the market is providing the exact same solution as the government. How is that possible?</sarcasm>
Fanatically anti-fanatical
exploration and production unit from its refining and marketing units, took Wall Street by surprise, raising uncomfortable questions about the future of Big Oil.
The economist podcast discussed it some last week, as they discussed their previous weeks issue. I've noticed a disturbing trend where /. bifurcated around March and now some stories are fresh but the late ones are actually going further back in time as time goes on. Wasn't this a ST:TNG plotline?
Anyway, the ominous BS makes no sense. I've been following this market for, well, decades, now, and all it boils down to is the oil majors are extremely competent at exploration and production, both directly and indirectly by financing other companies exploration and production work. The refining operations are almost meaningless now because every nation either wants to shut them down to prevent pollution (although the hypocrites still want gas for their SUVs) or they want massive overproduction capability for strategic warfare reasons. So refining is a dead market. As for the marketing units, yeah, they're real geniuses alright, look how everyone loves BP, for example.
So all it amounts to is focusing on what makes a net positive on the income statement and casting off the deadwood that is a net negative to the income statement. Its the oil industry equivalent of joe average non-IT focused business outsourcing their IT department, just like they've outsourced their electrical production and (mostly) their "business standard uniform" production and maintenance.
The reason its spun as doom and gloom, is they have no empathy and only see the effect on themselves. The marketing unit sponged off the profits of the production unit to make CNBC commercials that were beyond stupid. Now they are cast off like the debris they are, so they won't have the cash to pay to CNBC... So, MSM is going to get less advertising bucks from the oil majors. Hmm, I wonder how they feel about that? Expect some attack stories in the near future along with the doom and gloom, and then the MSM will find someone else to attack and it'll all be ignored.
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
So "Big Oil has almost no control over the price of oil these days. That power squarely rests with oil-rich nations that hold most of the world's oil reserves" is NOT the government (actually many foreign governments) controlling the price of oil?
So the power of governments of Saudi Arabia, Venezuela, and Russia becomes a triumph of libertarian free market ideology?
Yes, in the same world where the high economic growth of the communist-run, government controlled economy of the People's Republic of China demonstrates the triumph of "economic freedom"
If your children ever found out how lame you are, they'd murder you in your sleep
And yet, Federal tax revenues increased by 30% from 2000 to 2007 (and then began dropping in 2008 as the Housing Bubble burst).
And this in spite of the recession immediately post-9/11, which saw tax revenues drop 10% over a two year period.
"I do not agree with what you say, but I will defend to the death your right to say it"
And yet, Federal tax revenues increased by 30% from 2000 to 2007 (and then began dropping in 2008 as the Housing Bubble burst).
And this in spite of the recession immediately post-9/11, which saw tax revenues drop 10% over a two year period.
Sorry, the Bush tax cuts are not a good example of the idea that tax cuts supposedly lead to greater revenues.
First, adjusted for inflation (2005 dollars), revenues were about $2.3 trillion in 2000 and $2.4 trillion in 2007. That's only 5% growth, less than 1% annually. If we hadn't cut taxes, revenues would have grown much more.
Second, most economists don't credit the Bush tax cuts with more than a small part of the growth in GDP. There's a lot more going on in the economy than tax rates. The total revenues collected over that time period would have been much greater without the tax cuts. And our national debt would be trillions of dollars less.
Finally, why stop in 2007? That's an arbitrary number that you picked because it fit your argument best. Inflation-adjusted tax revenues in 2009 were BELOW levels in every year since 1997. 2010 was only slightly better.
I'm all for reducing budget deficits, and for tax policy reform. Almost everyone should be paying higher taxes right now.
Source: http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200
And yet, Federal tax revenues increased by 30% from 2000 to 2007 (and then began dropping in 2008 as the Housing Bubble burst).
And this in spite of the recession immediately post-9/11, which saw tax revenues drop 10% over a two year period.
Insightful? Really? When the poster literally makes up a non-existent recession to explain the drop in tax revenues when the rates were cut?
Look at the data folks: www.bea.gov/national/xls/gdplev.xls (or if you prefer a graphic representation - http://static.seekingalpha.com/uploads/2010/2/26/saupload_gdp2000_2010.jpg ). There was no post "9-11 recession"; in fact there is not a single quarter after the Bush tax cuts went into effect when the GDP did not increase, until the crash of 2008.
In real terms (inflation adjusted) there was no "30% increase". U.S. tax revenues fell sharply (18%) with the Bush tax cuts going in to effect, and recovered their former level only in 2006 (see second column, 2005 constant dollars: http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/hist01z3.xls). But the country had grown in population by 6% over the interim so this was still down from previous levels. It never recovered to the previous level on a per capita or GDP fraction basis 9http://www.deptofnumbers.com/blog/2010/08/tax-revenue-as-a-fraction-of-gdp/).
Second class citizen of the New Gilded Age