Should oil companies drill offshore? What about the leases they already hold?

Question

My friend thinks the oil companies have plenty of oil in the leases they already hold and won't drill there because they want to keep supply down (and prices up). That doesn't seem right to me. If I had a bunch of oil, I think I'd drill it all up and get more profit than sitting on it and keeping supply down. What's the deal?

Answer 1

I was just reading the Sierra Club FAQ on offshore oil drilling which made that exact point.

"In fact, oil and gas companies currently hold leases to 68 million acres of federal land and waters -- an area the size of Nevada -- that are producing nothing. Oil production on these lands could cut U.S. oil imports by more than one-third."

Oil companies aren't really motivated to increase drilling and bring prices down.  ExxonMobile just recorded the biggest profits in history for the last quarter.  The higher the price of gas, the bigger their profit margin.  So they don't really have much motivation to increase drilling in the land they already have leases on, let alone any more offshore land we give them.

Answer 2

Well the leases they have( which they bought with their own cash) contain little to no oil. Some of the areas within the leases do contain large quantities of oil like Destin Dome. However, after they found oil they were not allowed to drill their. Oil companies favor drilling. They want more oil so they can sell more. Think about it. Would you rather sell  5 barrels for 120 dollars or 10 for 60 dollars? Of course the latter becuase while you would be making the same mathematically, your product would get more recognition and more consumers.Drilling also reduces prices right away. The reason is speculation. The oil market is about futures. So if in the future they see more supply they will bid down the price of oil, causing lower prices today. Please understand this is not the only solution, as oil will run out eventually no matter what. But drilling can be a good start.

Answer 3

i personally think this oil business is ridiculous! why do we have to be sooo greedy? If we keep ruining our environment for money and profit we will be killing ourselves!

Answer 4

The more I read some of the answers that are being posted in these forums pertaining to oil prices the more I'm begining to realize how stupid a lot of people are. The reason oil companies are making record profits is not because the price of a barrel of crude oil. This is an expense for them and they pass that cost on to us by charging more for a gallon of gas. Almost all the oil coming from the oil wells out there is owned by someone else. From what I understand some states in the U.S. consider the crude oil to be the property of the state and sell it to the oil companies. I live in Alaska and all the oil up here is sold by the state at a price just below the price on the open market. So all that money is going to the state, not the oil company.

Added - I corrected one of the sentences in the above paragraph. It said "Almost all the oil wells out there are owned by someone else". That is wrong. What I meant (and changed to) is that the oil from the wells is owned by someone else. Sorry about that Heeltap and thank you for catching my mistake. And I guess I have you to thank for the negative as well. I appreciate it.

So why are the oil companies making so much profit? We, yes we, are responsible for that. Every year we are using more and more fuel. So when a company sells a lot more product they will make more in sales. It's called economics. Now why do so many people find that hard to understand? Or is it just easier for these people to keep yelling the same old "oil companies are ripping us off"?

As far as your question yes, the oil companies hold a lot of leases (for which the government is gettting paid for whether they use it or not) but that does not mean they will produce oil. If they survey the leased property and think it has a low chance of being a productive spot they will be less likely to drill on it. But if you give them a chance to lease an area that is a sure bet then they will be more likely to drill on it. Why should they spend 20 mil to drill in a place that may only have a 20 percent chance of having oil when they could spend the same amount on a known area that would give them almost a 100 percent chance of hitting crude? As I mentioned above they are not the ones making all the money for the high prices of crude oil.

One thing many people overlook is that the lower the price of crude the more money they can make. The profit margin on fuel is something like 8%. That means the oil companies only make 8 cents on the dollar. And with the high price of gas we are buying less. If crude oil prices were a lot less they would be selling a lot more fuel. Since their profit margin would still be 8% they would be making more money then before. So high oil prices hurts them too.

Added - One thing I forgot to mention was about refineries. At the rate we are going the biggest problem we will have won't be oil wells. While more oil wells in the U.S. will drop the price of crude at some point all the oil in the world will be worthless as our consumption will exceed the refineries capacity to convert that crude in to gas. That is when demand will exceed supply and the prices will go through the roof. So unless we build new refineries drilling additional wells in the future will just be a waste. The good part though will be the more oil we get from within our borders means less money going to foreign countries that don't like us.

I've added the last couple of paragraphs for Heeltap. Heeltap, you  asked "Also tell me you do not make money in any way from oil so I and others know there is no self-serving financial motive behind what I think are disinformation". well, here you go. Here's your answer:  No, I do not work for any oil companies but I do get some money from Alaskan owned oil. Since Alaska considers crude oil from here to be the property of the state it shares a portion of said profit with the residents of the state. It's an annual thing called the Perminent Fund Dividend (or Alaskan PFD for short). But since fuel up here costs just as much (if not more) as it does in the lower 48 what little I get is less then the extra I pay for fuel. So I don't really gain anything in the long run. So I don't really make any money, I just wanted to be honest since you asked if I got any money from oil. So, is that good enough for you or do I need to sign in blood?

And by the way Heeltap, have you ever heard of "oil futures"? It means what investors think will become of the oil in the future. This is what's jacking up the price of fuel. They (investors, not the oil companies) know the world is buying up more and more fuel every day yet we are not adding new sources for crude oil. So the price of oil futures will go up. This in turn leads to higher gas prices. But there is a delay in the process. Gas prices took a while to go up after futures went up. Now that oil futures are going down (which started the day after Bush removed his restriction against drilling in the OCS) the price of fuel is starting to go down too. Amazing how that works, isn't it? So I think your statement "Those who say "Drilling also reduces prices right away" are making a false claim and many "in-the-know" know it to be a false or ineffective mid-term solution to the long-term oil/energy situation but who selfishly push for it either out of ignorance or self-interest-ie for oil income or stock gains" is a crock of bull. Any steps taken right now to show we will do what it takes to improve the future of oil will have a drastic effect on the futures market and what Bush did about the OCS proves it. And OPEC knows it too. The last time OPEC jacked their price up we said we were going to drill for more oil ourselves. When they realized we were serious they dropped the price down so as to make it not profitable to do so. The bad news was we never followed through with the  threat and didn't do any drilling.

Well, I guess I will need to do some more explaining for the sake of Mr. Heeltap. Thank you for the lovely emails you sent me. Your first one said "you study my answer as it will dispell some of the brainwashing". Sorry, don't need to "study" opinions. And I am far from "brainwashed". You also mentioned you are "56+" years old. So what? I'm far from my teen years too, big deal. I also read the addition "material" you added pertaining to Alaska. You start off by saying "I do not have intimate knowledge of the oil royalties earned by the State of Alaska" then you go on to add things like "But I doubt", "I also do not know", "I assume", " I'm sure", and "probably not". You are correct, you do not know and your statements lead on to a lot of assumptions. Try using Google  for "Alaska oil revenue". And no, I was not "extrapolating"  the lower 48 as being the same as Alaska. The main reason I went in to detail in regards to how Alaska shares some of the revenue from crude oil with Alaskan residents is because you asked me if I made any more from the oil industries. As I said I do not get anything from the oil companies but I do from the state since I am an Alaskan resident. People are making a lot of far reaching assumptions and all I was trying to do was point out that some of those assumptions are wrong. Not all of the oil they get is free and clear.

Answer 5

Some day we will be charge the real value for oil products! It makes great profits as it provides energy at an unreal price.

I know cray right? Fuel too cheep? Put the energy produced from oil in other terms. Without it what would we do, use a horse to get back and forth to work or petal a bike?

OK a HORSE first consider the energy consumption used for a horse. There is the energy you would use to take care of the animals health cleaning the stall brushing and grooming etc... with out fuel to harvest the hay and grain needed to keep the horse going there is also planting the grain. How many days does it take to plant and harvesting the grain and hay needed? How many days? Weeks? Without cheep reliable fuel.

OK petal a BIKE...you need extra energy as you use more calories to get back and forth. total up the energy needed to accumulate the calories needed. You will be planting foods by hand no fuel to power farm machines. let say you let someone else grow the foods you need. How much more do you think they will charge if they have to do it all by hand?

YA your right civilization has survived for thousands of years without fuel. But just think of all the things, services, etc you would have to go with out if petroleum fuels did not exist. No plastics (no computers, T.V.s) limited transportation no fresh food in the winter, no antihistamines How many days weeks to cross the county? The ocean? This relates to all goods and services we use as consumers. Sure hydro can provide some of these services, BUT WHAT ENERGY will we then use to heat our homes? Air conditioning? Don't think so! Not us common folks we would not all have the same access to these services.

I know this is a radical departure from modern society thoughts on the subject! We are rich, EXTREMELY RICH no society has been able to afford the luxuries we have, not even Kings or Queens or rulers of ancient Egypt. Sure they built the pyramids. But the resources to do that were not and are not sustainably.

If we want to retain some of our modern day luxuries we will eventually have to start paying the price.

How many more time can they possible discover; never before discovered petroleum deposits? Exploration at least on this planet will come to an END perhaps during our life time. Then we will consume the remaining reserves...how many generation one, two, maybe three... Best hope the infrastructure is built to last by then.

HYDROGEN sure it take energy to produce hydrogen in reality it is only a storage system. Mathematically even if you block out the entire sky with SOLAR panels they do not equal the energy produced by oil in the same time (energy stored or hundreds of thousands of years) used in hundreds of year. WIND, HYDRO no dido, COAL sure but it too is a limited resources and not nearly as portable. Not to mention coal is nowhere near as clean to burn. LIGHTENING you know that we are working on it. Start coming up with better ideas as a civilization we are going to need it! NUCULAR our almighty savour? No it would only extend our energy supply as a planetary civilization. Not to mention what energy are you going to use to mine the uranium and what energy are you going to use to build the nucular plant! This could be part of that infastructure I mentioned earlier but the longer we take to build it the more it will cost (energy cost) in the future. But look on the bright side it too could be built by hand and uranium mined by hand. Just DO NOT ASK ME to be one of the miners! (By the way how are we going to transport and dispose of the waste?) another cost adding feature! One other energy source would be GEOTHERMIC, to be cost effective you need a heat source close enough to the surface to be able to drill to it and enough water to feed it. Then you must maintian the turbines that it drives. Again another infastructure delema use petrolium to drill the holes before it is gone. Geothermic is very practical as it not only drives turbines to create electric power, it also creates hot steam as a bi-product that can be used to heat homes. It is a localized energy that could be portable by turning the energy into hydrogen.

The true price will eventually be paid. If not by us then by future civilization or the colapse there of! You can not make a silk purse out of a sows ear. This is why the oil drillers are not going after the oil in the leased areas. Most of it is not as high a grade and will cost much more to produce and refine after all they want to get their grubby little hands on as much of the profits as they can(can't blame them if my money was invested here I would too). It will cost them more so they will make less, So for now they are content to wait till the price goes up to increase their profit margin, to that of the current oil feilds or greater! Should oil companies drill offshore? What about the leases they already hold? THEY WILL BUT ONLY WHEN IT MAKES THEM AS MUCH OR MORE MONEY THEN THEY ALLREADY ARE!