jump to navigation

Proof The Oil Has Dried Up? June 27, 2008

Posted by davidzweig in Uncategorized.

Amidst all the posturing about oil prices, it’s easy to assume no one saw $130 $135 $140 oil coming. Politicians urgently demand we open up drilling off coasts and in Alaska so that we can have a little more oil…10 years from now..maybe…and if OPEC doesn’t take a countervailing amount of oil off the market. In the meantime?

Now, here’s something really scary and it comes not from the sheiks, but from the accountants. The US Securities and Exchange Commission is seeking to classify oil sands as oil reserves, according to the Financial Times. ($) Why would they do this? The obvious reason is that ExxonMobil, ChevronTexaco, and ConocoPhillips don’t have enough real oil in the ground, so they have to find something else to gussy up their balance sheets.

In the 1960’s, 85% of the world’s proven reserves were open to exploration by the Big Oil. Today, with nationalization and other lockups, perhaps 10% remains. In 2004, Shell was caught playing games with its replenishment-to-production ratios, a key figure in an oil company’s long term sustainability and equity valuation. After Shell endured a management shakeup and restated its reserves downward by 20 percent, other majors adjusted their numbers downward as well

When they do find oil, it’s often in a bad place (e.g., Nigeria) or hideously expensive to extract (e.g., Jack Field, Gulf of Mexico) or clamped under an adverse production sharing agreement (e.g., Sakhalin), or some combination (Alberta oil sands). The absence of good drilling prospects has caused oil companies to invest their staggering profits profits in stock repurchases or just to pass them through as dividends.

For example, last year, ExxonMobil made $39 billion in profits; $34 billion went into share buybacks or dividends–neither of which produces a drop of oil. To give them the benefit of the doubt, if they could have used more to find oil, perhaps they would have.

Without access to reserves, oil is just a really tough long-term business, but one upon which our very civilization depends.

The new SEC action is in some ways encouraging, and in others, deeply frightening. Let’s get the frightening part out of the way: Alberta oil sands are a wretched energy source of last resort, and have been left alone (until now) for good reason. To get the oil, you have to scrape millions of tons of frozen muck out of the ground, spin it, and heat it. You have to extract heavy metals and dump them. You have to divert enormous amounts of water and pollute it, and then put it somewhere. The whole process may be causing epidemic cancer rates for those unfortunately enough to live downstream. The resultant oil from Albert has higher sulfur content than normal oil, so it’s even nastier when burned. The global warming consequences of this process are grievous. This is not light sweet crude. It’s horrible stuff that will almost certainly expedite planetary extinction. But it’s not under Arabia, there’s lots of it, and it’s all we got. So let’s count it!

Now that oil sands are counted as oil, it makes it may help to mask Big Oil’s predicament, at least to the uninformed, and perhaps to hasten and legitimize the extraction of oil from sands, at the expense of much more sensible renewable projects.

So much for the bad news, Mrs. Lincoln. The good news? Other proposed regulations “allow companies to disclose their ‘probable’ and ‘possible’ reserves to investors, compared to only “proved” reserves currently,” according to the FT. Perhaps this will facilitate greater transparency, as opposed to the byzantine extrapolations and calculations undertaken by Matt Simmons in his book Twilight in the Desert, which is perhaps the foundational book about peak energy.

The timing and rationale of the SEC’s action is curious. Why do it now? This benevolent change is being undertaken to counteract the pernicious influence of evil speculators, the Bad Guys of the Month. Says the SEC: “The more that precise, first-hand information from oil and gas companies is available to investors and the marketplace, the less that the marketplace is forced to rely solely (sic) upon information provided by speculators.”

There’s a piece of logic! Were it not for those speculators, the oil companies would have the courage to come forth and give us the whole unoiled truth! Thanks to these proposed regulations, Big Oil will discover gushers of valor and pony up the straight poop.

These days, it’s common when someone is looking to mete out responsibility for some misdeed, for those defenders of the accused to decry “playing the blame game.” While speculators are indeed probably contributing to the crisis, one cannot help but wonder about the oil companies and their politicians who, through acts of omission and commission, got us to where we are today–addicted to oil, but without a Plan B.

All in, coming just now, this is another disturbing development. What you measure, they say, is what you get. Now that we’re measuring oil sands, let’s hope we don’t get them any more than we are today.



No comments yet — be the first.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: