To Drill or Not to Drill

[Real]

Simple question. Gas is around 4.00 a barrel. Obama wants to propose a windfall tax on Oil companies because they (and I'm paraphrasing here) "make too much money." McCain opposes the tax but also thinks oil companies make too much. He blames rising prices on speculators and supply and demand, but voted to ban drilling domestically. Like Obama he also supports investments in alternative energy.

That's all well and good but neither plan helps us in the short term. Long term I like looking at alternative energy, but right now we're in a crisis. I think it's time to drill in places like Anwr.

Anyone agree?

 

[bbwchingy0007]

The problem is that once you start drilling for oil you're less likely to still want to invest in alternative energy. And if you tax the oil, it is likely that the burden will be passed mainly (if not in its entirety) to the consumers since the demand for oil is so price inelastic. That being said, I don't see why drilling should be banned in the US, given how much oil they consume.

 

[Denny Crane]

Well, I don't think that's right Chingy. The problem is that we needed to drill in 2000 or so to even have a chance of that oil being at market today. It also doesn't help to have our refineries working at 110% capacity and still unable to make enough gasoline out of the oil.

I don't see the oil companies as being so evil. They are making about 9% pre-EBITDA, which is lower than a lot of other industries. It's just they have a captive audience for their product so they seem bad. It also is important to recognize that profit isn't the same thing as cash flow - you can have massive $$$ in profit and still be cash-flow negative if you're spending all that profit on investments in new land to explore for oil, newer more efficient capital equipment, and that sort of thing. See:

http://finance.yahoo.com/q/ks?s=XOM

$171.7B in profit over the past 12 months, yet they have only $41B in cash in the bank, saved up over all they years Exxon-Mobil has been in business. They also paid out 5.2B (shares) x $1.60/share in dividends to the shareholders, which Exxon-Mobil paid corporate tax on and then the shareholders paid personal income tax on (there's your windfall profit tax).

If anything, the $4 gasoline is a way to ration fossil fuels and market forces encourage people to invent better ways to get around. It also makes drilling for hard to get-at (e.g. expensive, cost-prohibitive) oil reserves (shale, sand) affordable and should actually increase the amount of oil available.

 

[AEM]

Any steps we can take to counterbalance OPEC are good moves.