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Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: Mr. Whist who wrote (53079)	10/27/2000 4:34:44 AM
From: ColtonGang	Read Replies (3) \| Respond to of 769667

It's Time for Big Oil to Step Up Its Efforts to Find More Oil By FLOYD NORRIS he results are in on the first nine months of 2000 for Exxon Mobil, the oil behemoth created by the merger of two already huge companies. Profits are soaring, up 122 percent, to $12.5 billion, as high oil prices and rising profit margins for refineries create a torrent of cash. There is no complaint here about those profits. Exxon Mobil did not create the tight market and it has every right to profit from it. But there is room for concern about what the company is doing with all that money — or, to be more specific, what it isn't doing with it. While the cash was pouring in, Exxon Mobil embarked on a major share repurchase program. It cut back deeply on its expenditures to find more oil and natural gas. Spending there was down 24 percent. That is important. "Clearly, capital expenditure growth does not guarantee production growth," wrote Paul Ting, the oil watcher at Salomon Smith Barney in a report this week. But a lack of investment "practically guarantees lack of production growth." Exxon Mobil attributes this year's drop to completion of some big projects last year (when spending also declined), and notes that those projects have enabled it to raise production. But weakness in exploration spending has been common among the major oil companies. In the third quarter, most of them started to raise spending, but that came after more than two years of declines. Most are spending less than they budgeted for this year. Spending must surge this quarter if those budgets are to be met. Why is this happening? A conspiracy theorist might assert that the oil companies like raking in profits and have no desire to jeopardize them by looking for additional oil supplies that could push prices down. The more reasonable explanation is that the companies were traumatized by the 1998 collapse in oil prices and became hesitant to spend money on projects that won't be profitable if oil falls back to $15 a barrel. The assumption that high oil prices were a transitory thing has been widespread in the economy. Just as oil companies were hesitant to drill, consumers did little to conserve energy. The oil futures market has consistently — and wrongly — forecast an imminent drop in prices. That complacency has played into the hands of the hawks in the Organization of the Petroleum Exporting Countries. They recall that previous oil shocks led to recessions that cut demand and then to double-barreled efforts to increase conservation and energy production. With none of those things happening this time, why cut prices? Now, there are signs of change on all those fronts. Mr. Ting of Salomon Smith Barney thinks the third-quarter rise in capital spending may have been an inflexion point that indicates the trend will be up. Fred Leuffer, the oil analyst at Bear, Stearns, reports that while oil companies did very well in the third quarter, there were signs of slowing demand in Europe and parts of Asia. Weaker demand despite the lack of evidence of conservation efforts sounds as if recessionary forces might be building. That would bring down oil prices, but it is a movie we've seen before and did not enjoy. This is a situation that needs to be addressed. The new president needs to lead the way in conservation, although neither candidate has shown much inclination to do so. And the big oil companies must decide to spend their soaring profits on looking for more energy, rather than simply using the cash to buy back more of their shares.