In defense of oil companies

Yesterday’s post “Overtime inside the Beltway” brought two comments from my fellow blogger ShoreThings.

As for the first comment, I couldn’t do that right off the top of my head because I believe some of those leases are offshore. But the query misses the key point – whether oil companies already hold leases on a particular amount of explorable land is irrelevant when other areas with proven reserves are off-limits. Like the old adage goes, a bird in the hand is worth two in the bush. And if oil companies have the choice between rolling the dice on an area that may hold some promise but could very well end up a dry hole against an area where it’s extremely likely that oil can be extracted and transported away profitably, chances are they’d go with the latter. While the drive-by media and the leftists (yes, I repeat myself) castigate oil companies for making obscene profits, it bears reminding them that indeed that is why they’re in business. Exxon/Mobil isn’t a non-profit corporation and it better not become one as long as I have a few shares of their stock. They still have to play in the market though and if Shell is selling gasoline cheaper, customers will go there and Shell will increase their profits.

To address the second comment, these House members make a compelling argument for their cause. However, to me the solution is not to place oil companies under the same restriction as coal companies have but instead loosen those shackles on the coal companies. Let’s look at this logically.

In both cases, the businesses are dependent on a supply of some sort to stay in business. Coal companies wish to mine coal as cheaply as possible and charge the highest price the market will allow. The same goes for oil companies. Therefore, for either entity to lease land but not use it would happen for two reasons: one, to prevent another competing company from gaining access to a particular site, and two, because to build the infrastructure necessary and transport the product to end-users isn’t currently estimated to be at a price point which is economically feasible. An example of this is oil shale, which I seem to recall becomes profitable to produce when the per-barrel price of oil is $75 or above. If oil companies are allowed to begin the process in an unfettered fashion, they can get to work on doing this as the per-barrel price is well over that figure – but methinks the environmental lobby will put the oil companies through a series of hoops before this ever happens.

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So in the oil companies’ case they’re holding on to reserve areas because even at $120 a barrel it’s not currently profitable to start oil exploration and extraction there. (While I haven’t checked this out in some time, I used to frequently drive by some small oil wells in northern Ohio that weren’t being used – either the field is tapped out or the cost to extract became too high. The same principles apply, but I’ll have to check next time I go that way and see if they’re back in production given the higher prices.) But eventually as other areas begin to fall off in production oil companies are going to have to begin working these reserve areas, or else diversify their business away from oil. I’m quite aware that there is only a finite supply of petroleum; however, the supply isn’t going to run out anytime soon. In the meantime, oil companies should be allowed to lease more lands – after all, those lease payments do make someone a tidy profit for little time and investment on their part. (As I say, I’d be happy to lease my backyard to an oil company as long as I can use it too. Those little oil wells don’t take up a lot of space.)

While ShoreThings doesn’t mention this, I’ll also bet that the reason oil companies import so much foreign oil is quite simple – it’s cheaper to go to some other country, deal with their government-controlled oil monopoly there, and transport crude across an ocean or two than it is to produce here because our government discourages production through restrictions and regulation. And to address another argument he advances in his first comment, perhaps it is easier to transport ANWR oil to Japan but if the Japanese are willing to pay market price for oil, it’s not like we can’t use the money to buy that same amount of oil from a place easier to transport from than ANWR. (And you have heard that they built a pipeline across Alaska? With some help from Canada we could build another to the lower 48.) As readers may have gathered by now, oil’s a pretty damn valuable commodity to sell, too, so why not sell ours?

The other advantage to enhancing the areas available to domestic production is the additional opportunity to create good-paying jobs in America. This is a topic I’ve harped on a lot and it provides a great way to use those oil company profits – let’s create jobs which actually do work rather than a windfall profits tax creating jobs to push paper from one side of the desk to the other, as the government is famous for doing.

Finally, by loosening restrictions on where oil companies can go it allows property owners to possibly have more valuable land. While much of the land in question is already under the control of the federal government, there are many who could see their land become more valuable and in some cases those areas happen to be fairly depressed right now. As I stated in the last paragraph, let’s allow more of those oil company profits to be reinvested in the communities across America and not be sucked into the black hole inside the Beltway, lost in the maw that is Fedzilla.

All I am saying is give capitalism a chance.

A retitled piece is crossposted at monoblogue.

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