Total has provided its 2004 accounts and we now know the profit of the 5 largest oil companies:
| ExxonMobil | $25.3 billion | |
| Shell | $18.5 billion | |
| BP | $16.2 billion | |
| ChevronTexaco | $13.3 billion | |
| Total | $11.2 billion |
More interesting is what these companies have done with these "obscene" amounts of money.
Here’s a second list:
| ExxonMobil | $15.5 billion | 100% | $ 9.9 billion |
| Shell | $13.4 billion | 50% | $13.7 billion |
| BP | $16.2 billion | 78%* | $13.7 billion |
| ChevronTexaco | n/a | n/a | n/a |
| Total | $10.7 billion | 120% | $ 4.5 billion |
*(106% with TNK-Russia)
The first column is the amounts that were invested by these companies in the exploration and production of oil.
The second column is their "replacement rate", i.e. the ratio of newly discovered reserves to production.
The third column is the amount of share buy-backs in 2004.
This means that oil majors are not willing – or not able – to invest their available funds into the development of future reserves and would rather return the cash to their shareholders rather than invest in their business – to the point that they are actually threatening their own long term viability, by not renewing their reserves!
The reasons they are not investing are the following:
- Reserves are more and more located in countries which are totally closed to foreign investment, like Saudi Arabia, Kuwait or Iran.
- Those reserves that could be available do not meet the stringent profitability requirements of the investors, and only the best opportunities are pursued. Obviously, the long term assumption for the price of oil is the most fundamental parameter to determine such profitability and the oil majors, although they have increased that level in recent years, are still very conservative (most of them require their investments to be fully profitable at $20/b, as opposed to $15-16/b a few years back).
- They have not enough incentive to invest in a major way in other forms of energy. They are dabbling in renewable energy (Shell is a big player in wind, BP in solar) but it’s small change for them.
Item one is obviously beyond the control of the oil companies, but possibly not of the US government. The Iraqi campaign can certainly be seen as an attempt to ultimately open that country to foreign (and first of all American) investors. As I’ve argued elsewhere, this is far from succeeding, at least as far as Iraq is concerned.
Item two is linked to how our own economies are structured; with the current domination of short term requirements for financial profitability, this is unlikely to change, but we should all note – and publicise – the fact that the stock market is beginning to lose its role as the place where companies find funds to invest and is turning into a place where (rich) investors get remunerated by extracting ever increasing cash "savings" from companies.
Item three is a matter of public policy. Put in incentives to develop other forms of energy, and the energy companies will respond by investing (as the example of the wind sector shows). Penalise the use of oil, simply to reflect its real externalities (pollution, carbon emissions) without even making the energy companies bear that directly, and they will adapt again.
My point is – the status quo is broken: Big Oil is earning record profits which it is unable to use itself; there is no clear energy policy for the medium term while bigger and bigger threats are looming (China’s growing consumption, global warming, reserve depletion, the geopolitics of oil reserves getting steadily worse). There is plenty of cash available to do something and it is not done.
Our kids will hate us when they see how we did not care for their needs when we could, and cared only about a few extra percentage points of profit to burn in SUVs and McMansions.