[Rhodes22-list] Excess Oil Profits

[Brad Haslett]

Stan, this is for you.  A poster retired from the oil business gave
this short explanation on the Beech board.  Brad

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"redistribution of wealth from all of Americans to oil companies that
have posted world record quarterly profits (Exxon/Mobile 14+billion,
BP 10+ billion)"

A couple of basic points from someone who was in the business.

The people making the (so called) excess profits are those who own the
resource.

Who are whose people? In the U.S. individuals can and do own mineral
rights. A tiny, tiny bit may still be owned by the oil companies. In
almost all cases those owners lease their rights to oil companies. For
that the oil companies pay owners bonus money up front, all costs
associated with exploration and production, and then a share of any
resulting production. These days that share (royalty) is often in the
20%-25% range or higher. That means that the lessor (owner) gets to his
credit that percentage of what comes out of the ground. Most take it as a
direct payment from the lessee (oil company) without the burden of any
associated costs.

The other, and single largest owner, is the U.S. Government (theoretically
us). It owns the minerals under all federal lands onshore and offshore.
Think about that for a minute. It's a tremendous amount of area and
production. The offshore area goes out to ~200 miles from the coastline
of the entire U.S.  Almost all the entire oil producing area in Alaska is
owned by the government. All national park land in the Western U.S. is
government owned.

All of the above regarding royalty payments still apply. That means when
the price of oil recently shot up who was making a lot of the resulting
profit? You got it, the U.S. government. No additional costs, all profit,
all in that great big piggy bank only Congress can tap.

Oh, by the way, those same oil companies and all other individual royalty
owners must pay the U.S. Government taxes on any profit/income they
derive. Add up the total funds transferred to the U.S. Government from
all of the above to get an idea of how much risk free wealth is already
transferred and redistributed by Congress. Ever wonder why it was so hard
to get Congress to do something to reduce prices? Now you know 'the rest
of the story'.

Other point. Outside the U.S. almost no individuals own any mineral right.
Governments own all of it. Most producing agreements allow the oil
companies to earn a share of any reserves found. That share is constantly
changing based on current price. As price goes up, the number of barrels
an oil company is entitled to (reserves) actually declines. The profit
margin is very small. It is also common internationally that binding
contracts structured prior to the discover of oil are some how almost
always subject to change after oil is discovered. How can this be? The
government controls the law. The law changes at will. Sort of what we
seem to be seeing increasingly in the U.S. (deep water royalty
percentages for example.

Sorry for the wordy reply. I'm just hoping to slightly illuminate a
subject upon which to many are totally ignorant.

Don Lawrenz
'82 58P Baron
KDWH