Down the Rabbit Hole: Wanna Drill for OIL?

[Warph]

Wanna Drill For Oil?  I think I've got this whole mess on Oil Leases figured out.  If not, hopefully Frank will straighten me out on this.

Let's pretend we're going to Wal-mart to get some Legos.  We get there and we find that all the Legos are now locked up behind the desk in boxes.  Each box is marked $25 dollars.  You put your money on the counter and tell the cashier to get you a box.  She takes your money and tells you to pick a box and she hands you the box you pick.  You take it home and open it and... there are no Legos in the box.  Not one.  What do you do?

Of course, you do what everyone else would do: you march back and demand a refund.

Except, here your told that you paid $25 dollars for the box, not the Legos.  The Legos are just a bonus.  Hence, no refund.  Feel free to buy another box though.  You ask which ones have Legos in them.  You're told that they don't know and you can't shake the boxes to find out.  They also tell you that you have roughly a one in 5 chance that any given box has any Legos in it.  So, do you feel lucky?  Well, do you punk?  Do you plunk down another $25 dollars for another box?  You have to.  You have to have the Legos for your kids.  So you plunk down another $25. You get the box to your car and open it. SUCCESS!  You have Legos.  You look up and at your car window is that nice cashier that sold you the boxes.  You roll down the window and she says you have to give Wal-mart a payoff for the Legos and she reaches in, grabs some money from you and walks away.  Come on, you have to share now.  I'm sure Wal-mart will spend that money nicely.

Ok, let's add one more caveat.  Instead of buying boxes from Wal-mart, you can pay a Lego store across the street a sum of money based upon a set market price and get your Legos.  Not a box, not a chance at some Legos but a set price for a set number of Legos. Now what do you do?  If you're a thinking person, Wal-mart just lost a customer.

So would you buy Legos that way?  Do you think it makes perfect sense to buy that way?

Well, that's what the government does to the oil companies for these so called leases.  To explore and drill for oil, the oil companies first have to pay the government to even pick a lease to drop a pipe into.  Most of these leases are picked over already and the ones remaining are very hit and miss.  Well, actually, hit and miss, miss, miss, miss.  A one in five chance is all they average for oil.  Once the money is paid, then and only then, can a lease be tested for oil.  No oil?  Too bad. No refund. How long does it take to test and drill?  Anywhere between 3 and 10 years.  If the company is lucky and gets oil, it pays a royalty to the government for each barrel.  In fact, BP just settled on some of it's royalties to the government.

Now, you tell me, would you drill if you had to shell out millions for the right to see if you could guess right and get one of the 20% that have oil versus the 80% that don't and then shell out more payola for the privilege of getting the oil you just paid millions to explore for?

Or would you just say screw it and buy your oil from the world market.  Look at BP's Group Income Statement.  Look at the top line under the expenses.  Purchases: $187 Billion dollars.  So what do you think is a major part of a gas companies purchases?  Raw materials or in this case, oil.  Oil to refine and sell.

It's time to throw the BS flag on the democrats over these leases.  Do you really want the oil companies to drill more here like you say you do?  Drop the cover charge.  Open the leases up for free exploration.  Add more acreage to the leasing processes and get the hell out of the way, Nancy Pelosi.  Of course, that assumes that the she, oBUMa and the democratic nit-wits want lower prices.  You and I both know the lying clowns don't.  They can care less! .....Warph

[pam]

I had unloaded on this to start with and then I erased and figured whatever bud, if that's how you want to roll that's your problem.

[flo]

Ahemmmmmmm, and I'm sure that these oil companies never, but never, claim any expenses or losses on their tax returns. right?  They do file tax returns, don't they? That's okay, good old fashioned wood ABC blocks are just as much fun, and cheaper, than lego's, and you can store em in your empty $25.00 box.  That last sentence make sense? about as much as the post about the "poor persecuted" big oil companies.

[flo]

warph, "democratic nit-wits" ?? would those be the same ones that were elected into office by the AMERICAN CITIZENS?

[Warph]

I had unloaded on this to start with and then I erased and figured whatever bud, if that's how you want to roll that's your problem.

I'm sorry that you erased whatever you had to say about my thread on Oil, Pam.  Ol' Bud would be curious to see what you had to say.  Would I be correct in saying you were blaming the oil companies for our high gas prices?

[Warph]

Ahemmmmmmm, and I'm sure that these oil companies never, but never, claim any expenses or losses on their tax returns. right?  They do file tax returns, don't they? That's okay, good old fashioned wood ABC blocks are just as much fun, and cheaper, than lego's, and you can store em in your empty $25.00 box.  That last sentence make sense? about as much as the post about the "poor persecuted" big oil companies.

And Flo... forget Walmart. You can buy all the legos you want at the Potter House or Goodwill for practically nothing.  I check them out for golf balls. 

And yes Flo, you're dead-on right about the "democratic nit-wits." They WERE elected to office  by american citizens. 

Now, as far as my post not making sense to you (and I tried to make it as simple that a fourth grader could understand it using the lego theme) tells me you don't know beans about our oil situation we are having.  Let me enlighten you.  I guess you remember Bill Clinton and I'm guessing here but, I bet you voted for him.  There are two things that Billy Boy did that helped our economy go south.  One was the creation of NAFTA and the other was the Deep Water Royalty Relief Act for deep-water drilling in the Gulf of Mexico.

As of today, the deep-water oil leases that were awarded from Nov. 1995 to 2000 on the gulf are still oil royalty free.  At todays oil prices, would you believe they would owe the government about $53 billion because of that Act.  As it stands now, all new oil leases since 2000 have to pay the government oil royalties.

Now, as far as taxes are concerned, the GAO and the IRS go over the oil companies tax statements and books HOPING to find discrepancies.... and believe me, they are tighter than a speedo on Bill Clinton's butt.  Any cheating by any one of the oil companies, they would lose their oil lease.  As far as the big oil companies being persecuted, you better believe it.  They been under the microscope by the Senate and the House because they screwed up and let Bill Clinton go along on the Deep Water Royalty Relief Act adopted in November 1995 thru to the year 2000.  Billions and billions of dollars are lost today by the government because of this.  The Senate today has pressed for a 13 percent excise tax to try to recoup the foregone revenues.         

This is the way I look at it.  Do we want oil domestically produced or prefer to keep drilling in the backyards of those who detest us?  Saudia Arabia being the biggie.  Deep water drilling isn't cheap and it is risky and very difficult.  So if you want oil more locally available but without the political strings and payments to countries fundamentally opposed to us... ( like Saudi Arabia, Russia and Venezuela, to name a few) DRILL! ..... What is the problem?  Companies like Exxon/Mobile, Chevron and Shell are cash cows for the government as it is.  Not only do they pay almost as much money to the government in royalties, fees, and direct taxes, these oil companies are some of the biggest tax collectors in the land, collecting from us and delivering to various levels of government billions in gasoline and affiliated taxes everytime we fill up our tanks.

I'm not trying to make the oil companies out to be pristine saints, we have none, but they aren't overtly the bad guy on the issue of high priced gasoline at the pump.  Now, if you want to address the accounting issues that tie world spot price rises to the cost of your gasoline and the oil already in the pipeline, that darned sure needs to be looked at more closely.  If it cost some Texas producer $5 or $10 a barrel to pump it into the pipeline, comprising of one third to one half the oil that the refinery processes, then the oil we bought from abroad needs to be priced at the higher premium -- but not the whole works.

And what about the Oil Speculators?  I'm going to try to explain this very carefully: speculation does not affect the price of oil that much.  It may abit with the bigger players but not the little guy.  When you speculate you make a side bet with another speculator(s) and one side wins while the other side loses - thats all.  For every buck the winner makes the loser(s) loses a buck - (ok the broker took two cents as the house fee for holding the bet).  The price of oil is set ONLY by the supply vs the demand at a given price point.  Speculators gamble on the future price of oil but do not affect in any way the current price at the pump.  What people are confusing with speculation is "cornering the market."  The royal house of Saud can do this to a limited extend but NO one in this country can do that unless they have the ability to buy up and store a trillion dollars worth of oil every month and sock it away while they rub their hands envisoning buying up the next months trillion bucks worth.  The US government has the largest storage bins in the world (The strategic petroleum reserves in TX. & LA. that hold 570 million barrels) and can't really affect the price at the pump by diverting oil to them - hows a pip-squeek "speculator" going to do this?

Anyway, there you are.  My advice is if you want to know more about what's HONESTLY going on with the OIL chrunch today, ladies.... read some of the Oil Company profit/loss sheets readily available on-line.  And you can find them on Google or Yahoo or the many search engines out there in Wonderland!

[flo]

What oil companies produce the oil in Saudi? Why does George W. think we should keep borrowing money from China to buy more foreign oil? Why not turn some of those billions of "stored" oil loose instead of hoarding? Lastly, if the big oil companies are loosing all that money, maybe they need to find another line of work.

[pam]

No Warph I don't blame the oil companies per se, I blame the big oil men who whether you admit it or not have a lot to do with the RAMPANT SPECULATION that is to blame for the outrageous oil prices. I blame the american big businessmen who set up their own exchange overseas to escape regulation and then speculated their asses off.

[W. Gray]

This information may have been put on the forum before but a quick search finds that, the Strategic Petroleum Reserve is an emergency oil store maintained by the Department of Energy.

It holds 700 million barrels.

Even countries with higher gasoline prices than the US have strategic oil reserves on hand. Japan has a reserve supply almost as big as the U.S. reserve.

By law, oil is not released from the reserve unless there is an emergency cutoff of oil from overseas.

The current inventory is 700 million barrels, or about a 58 day supply, however if there is an emergency, there is only a physical capacity to withdraw 4 million barrels a day.

Eventually, our goal is to have one billion barrels in storage. It is added to on a slow but steady basis.

Congress created the petroleum reserve in 1975 after oil supplies were cut off during the oil embargo of the previous two years.

Use of oil in the reserve is specifically as an emergency to counter a supply interruption. The Congress of that year had the foresight to put into law restrictions under which the oil could be drawn down.

A recent suspension does not draw oil from the reserve.

In May 2008, Congress voted temporarily suspending oil deposits into the emergency reserve. Bush reluctantly signed off on the law.

Shipments into the reserve will resume at the beginning of next year but only if oil is selling for more than $75 per barrel.

The reserve is stored underground at four sites on the Gulf of Mexico in man made caverns carved into salt domes.

[frawin]

Waldo, good post, I think it would be absolutely the worst move our Government could make to Pull from the SPR. It is for EMERGENCY and not to give the people more gas at cheaper prices to burn in Hummers, V-8s and V-10s. I think someday we will need the SPR for a much greater emergency than just the high price. Almost 70% of our supply is imported and much of it from Muslim Countries that are seeking our destruction. For a politician, Democrat or Republican to suggest pulling from the SPR for additional supply for the people or for a lower prices is totally irresponsible, in my opinion. A lot of the oil in the SPR is of the low gravity high sulfur type and cannot be processed in some refineries.