Murray Tucker, Ph.D.: Money in the bank

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— If I have money in banks and stocks in my portfolio, I have wealth. If I take that wealth and buy a restaurant, I have a risky business that may or may not yield a return equal to or greater than my passive investment.

Oil companies look upon untapped oil leases as money in the bank. So do stockholders. The more leases a company has, the greater its potential and the more value that is placed in its stock by the market.

Drill on one of these leases and chances are 80 percent that the investment will only be money down a dry hole. Thus, oil companies seek to hold leases for the potential that oil will be recovered. Drilling is very risky.

The evidence is quite clear that President Bush favors oil companies. One big favor that the president can give these friends who helped put him in office is to open public lands and offshore sites, not for drilling - that may come later, almost by accident. The lease is money in the bank. Investors are not interested in the fact that product may come from these leases, only the prospect that the product may be there.

Two things the investor (and the company) knows are that to get the product, a great deal of capital must be risked and that the potential return for any one well is less than 20 percent.

In recent polls, an overwhelming majority of Americans favor leasing, believing that leasing will lead to more domestic oil production, one of several great sales jobs from this administration. The fact is that oil companies now control mineral rights to a vast amount of public land and offshore sites that they are not exploiting.

One has to ask, "Why the giveaway?" The answer is in the economics of the oil business, to achieve high values for stockholders and not to drill for oil that spends their money. Greater returns are achieved by the company buying its own stock.

Murray Tucker, Ph.D.

Steamboat Springs

Comments

beentheredonethat 6 years, 2 months ago

excellent comments which are spot on. nice write up.

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just_tom 6 years, 2 months ago

Oh, YOU'RE right. Investors are too dim to understand how to calculate expected values. Right??????

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another_local 6 years, 2 months ago

PhD in what?

Oil companies basic business is producing oil.

Do they speculate in leases? Of course they do, it is a built in part of looking for new sources of oil.

Do they carry the value of the leases in a way that makes the books look better? Yep. No doubt. That would a fundamental part of levering assets to pay for expoloration.

Did George W support the interests of oil during his period in office. Yes. He did. Do you expect the oil companies to NOT buy leases on promising land when they are offered? I am not happy with "W" about this, but I find it hard to blame the oil companies.

The bottom line though, is that leases cost money and the oil companies will buy leases at rates they feel represent an advantageous price in relation to the risk that the lease will produce oil, how much and at what cost to produce.

When they think that a given lease will produce profitably with all conditions taken into consideration, they will go to work.

Murry, you are full of... well, interesting views.

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rsssco 6 years, 2 months ago

another local, Excellent analysis. Also, one need go no further than Tucker's first sentence to realize he doesn't know what he's talking about. He state's "If I have money in banks and stocks in my portfolio, I have wealth." Of course this is pure bufoonery. Let's examine. If one has significant amounts of money in the right banks and the right stocks and carefully nutures those investments and derives significant returns on the initial investment, one might have wealth. It is equally true that if one works hard enough and invests in the correct restaurant concept and grows that concept to the point of realizing above average returns on the initial investemnt, one might also attain wealth. There are many paths to wealth. Tucker is a simpleton and his overall analysis shows a Limbaugh-like simpleton mind.

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another_local 6 years, 2 months ago

I googled the author of the letter and was able to find the references shown below...

THE COMPLEX NATURE OF GAIT AND POSTURAL DYNAMICS IN THE ELDERLY AND PARKINSON'S DISEASE

Ph.D. Economics, specializing in health economics Retired

Impact of escalating medical expenses on various socioeconomic groups.

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