Steamboat Springs 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.