Big oil and decontrol: exploration slighted
When the United States was debating the size of the windfall-profits tax, the oil companies argued that they would need every extra dollar they could lay their hands on to find more oil. The money was required, they told Congress and the public, to increase the nation's energy independence.
"Hogwash," said the Skeptics. "The oil companies will have so much money it will be coming out of their ears."
Well, according to a new study by the Energy Action Educational Foundation, the skeptics were right. The study finds that the major oil companies are putting most of their increased cash flow into acquiring competing oil and gas companies, investing in nonpetroleum lines of business, grabbing land, or simply hoarding cash.
Energy Action director Edwin Rothschild says: "The results of this study repudiate not only the self-serving and misleading oil company pronouncements on profits, but also the claimed social benefits of their investment strategies. The facts show that when these companies got the extra cash from decontrol and higher OPEC prices, they chose to spend a tiny percentage of it on finding oil and gas here at home."
The study is relevant to two future decisions for Congress:
1. The proposed decontrol of natural gas prices.
2. Proposals to weaken the windfall-profits tax.
The authors of the study are opposed to both of these suggestions, reckoning that the extra money for the oil companies would do little to increase the nation's supply of gas or oil.
The resutls of the study may be challenged in some details by the petroleum industry. But it does once again show the dangers of industry exaggeration in trying to win a legislative battle. Fewer people will believe industry claims in the future -- even if they should be correct.
The study looks at 16 major oil companies and finds:
* Only 18 percent, or $5 billion, of the major companies' increased financial resources (marginal cash flow) were used to explore for and produce oil and gas domestically in 1980. Some $2 billion more, or 8 percent, was used to acquire land in the United States. And $3 billion, or 10 percent, was used to explore for and produce oil and gas overseas.
* The companies spent $11 billion, or 37 percent, to acquire competing oil and gas companies and to invest in nonpetroleum lines of business.
* Between 1978 and 1981, the oil companies will have increased spending to find and produce oil overseas as quickly as they will have increased spending to find and produce oil in the US.
* The nation's four largest companies, Exxon, Mobil, Texaco, and Standard Oil of California, reinvested an even smaller share of their increased financial resources in the search for domestic oil and gas than the 12 other concerns. Between 1978 and 1980, these four spent 6 percent on domestic exploration and production; 11 percent to acquire land in the US (including acquiring other companies); and 9 percent on foreign exploration and development.
It could be that the massive purchase of land in recent years by the oil companies, especially the majors, is to provide for future exploration and development. But Michael Podhorzer, and associate director of the study, maintains that this land acquisition is far in excess of the oil companies' needs in the near future and is "speculative."
Whatever, even if the 8 percent spent on land and the 18 percent used for US exploration and development are added together, the oil companies are using just over one- quarter of their extra cash flow to increase US energy independence.
The authors of the study don't argue that this may not be a wise decision, from the standpoint of the companies' stockholders. It is taking many more feet of oil drilling in the US discovery a new barrel of oil today than some years back. This would indicate that oil is becoming scarcer in the US. So the oil companies may be making better use of their extra money, from the stockholders' viewpoint, to explore abroad or acquire other companies or hoard cash and securities.
But the authors of the study ask whether the nation should give the oil companies ever more money to please their stockholders, or whether that money should be used for public purposes.
Mr. Rothschild points out that the $25 billion the 16 companies alone used for purposes other than petroleum investments and dividends could have been used to completely weatherize the homes of every low-income family in the nation, or to make $500 conservation grants to more than two-thirds of all the households in America. These measures could have reduced oil imports by 300 million barrels, saving $10.5 billion, he figures.
Next time the oil companies plead poverty compared with needs, they may find few believers.