Home › Forums › Refining Community › Refinery News › Recap Fortune 500 vs Oil Companies & Update news = (BN) Oil Producers Mask Decade's Worst S&P 500 Pr › RE: Recap Fortune 500 vs Oil Companies & Update news = (BN) Oil Producers Mask Decade's Worst S&P 500 Pr
Here is great update on this years S&P 500 Index and what the numbers really say about oil companies.
The media has been beating up oil companies about “record earnings”, windfall profit and how much damage oil prices are doing to the world markets. One the reasons these idiots use total numbers instead of normal profit measures in percentages of “Return on Assets (ROA)” or “Return on Investments” (ROI) & others….. is that these don’t fit their story line.
Oil companies are paying 450% increase in the cost ($4-6/Bbl back up to +$18/Bbl) to find & develop a barrel of oil, the “record earnings” on a percentage basis are less the range of 7-10% returns that puts them barely above the 500 average of 5.7% and in the class of mature industries (no one wants to invest in long term).
About 5 oil companies made it into the Top 20 list on the Fortune 500 – on a Revenue ranking, and while 3 of them made it on Top 20 list on total $Profit basis, none of the oil companies show up on a Top 50 list of most profitable companies when it is based on Profit as a
%Revenue, %Shareholder equity/%Assets or other basis. The Top 20 Profitable companies list had on a % Revenue ranged from 20-40%, and Profits on a % Shareholder Equity ranged from 60-3,520% whereas the top 5 oil companies had 3.4-10.9% Revenue & 13.4-33.4% Shareholder Equity by comparison!
The reason for this is obvious the +$120/Bbl market value is driven by speculators and the “true” value based on Gas/Diesel price fundamentals of the market would on be $75-80/Bbl. This has the market over-weighed and on risk basis for investing in expensive long term projects to find or refine oil barrels. The proof of this is born by oil companies reducing exploration and buying less to refine despite record prices – that record gross profit number came from a record gross revenue number that also has record gross cost values that actually lower returns compared to markets where fundamentals are the drivers. As an additional penalty the Oil industry reserves / “assets” become artificially increased to artificial market value basis.
The recent find 500 Billion Sweet Conventional crude field in Montana/Wyoming, the large number of Canadian SAGD Bitumen upgrader projects coming online (with P/L into US also completing), Brazil new 8 & 33 Billion Heavy Crude fields, and existing California & Texas 450 Billion Bitumen fields all bode for unsupportable $100-200/bbl touted prices. Additionally the reversal of grain based Ethanol forced blending could be reversed based on worldwide negative impact on food cost – this could readily be offset by more profitable blending of Butane (+104 octane) and Lt Straight Run Gasoline/Condensate (large volumes but cheap cost) which are currently prevented by Ethanols high vapor pressure. If U.S. either reduces consumption or increases (thru large doubling capacity expansions coming online 2008-2012) gasoline production it would dramatically drop crude prices from countries like China, Africa & SAmerica that have to export gasoline because they are diesel economies (would reduce amount crude & price competition on current Conventional crude oil production).
The dramatic cost increase in the cost of finding & producing a barrel of oil mentioned in article comes from the large transition of going from Giant fields of low cost conventional oil reserves to smaller (large vs. giant) fields of high cost non-conventional heavy crude that also require substantial investments or joint ventures in refining that are often not cost linked. The reason for the sharp transition was the huge number of oil industry mergers where oil companies were “finding” additional reserves in their former competitors assets which they purchased at $6/Bbl even with refining assets valued at $0! The mergers to form giant worldwide and regional oil companies was driven by both a mature oil industry consolidating to reduce cost duplication but also by cheap oil reserve acquisition cost. A bonus was derived from picking up refining assets from 0-50% of replacement cost which was also a landfall in a world where Environmentalist have a worldwide block against developed countries putting in new assets.