Why are Oilco's are buying back OILCO shares rather than build new ref'ys or drill for oil in existing leases?

Question

"Economic logic fails when people are undereducated or untrained in how to make wise investments. Oilco's are buying back shares rather than build new ref'ys or drill for oil. Now why's that so?" Thiwas my original Queation but censors( ie YAT) forbids asking Q's in that format!

Answer 1

I can't believe that there are still people that don't get it.

The refinery thing is really funny. The first argument you hear is that "They haven't built a refinery in 40 years" Well I don't know if you looked, but they haven't built a loom, or a shoe factory or a lot of other things here for a long time. For the same reason. It's cheaper to do it there than here. The oil companies are multinational and they going to put the refinery where it makes the most money.

As far as drilling. Every drilling rig in the US either current or under construction is booked through 2013.

This is one of those things where popular notions run into reality. Oil wells are not like a water faucet. You don't just stick a hole in the ground and start sucking and the oil is not in some huge underground cavern. It's in porous rock and you need a lot of wells.Most wells only produce a few barrels of oil per day.

Oil companies are buying back stock to concentrate wealth. They can sell fewer, more expensive shares to ever wealthier people and freeze out the small investor.

Answer 2

Buying back shares is essentially an accounting move. It can save the company a little money in paperwork, and will raise the amount of money in profit earned per share ... which affects stock price slightly. It's an easy move for companies who have a cash surplus on hand and no immediate needs to spend it. In the case of an oil company, if there's no place where it has the right to drill for product, this buyback plan might make more sense for the economic health of the company.