VCCA Home Forums GENERAL DISCUSSION General Discussions Gas Prices

I double-checked all of my "facts" on the web before posting. Any errors would come from my misreading something (and at 70 I do that now and them). You are free to do the same and if you find an error, please let me know. I also clearly identified my "opinion."

I also kept picking up that most crude exports are banned by the Federal government, however, it is not clear to what degree that is true today. If it is, than not "almost all" domestic oil is not exported except for refining and re-importation.

Of course I am an energy stockholder. I bought in last summer when it became clear that the government's actions and inaction would drive up the price of crude, and oil companies profits should increase. Anyone who did this at the same time has made more than enough to cover the additional price of a gallon of gas.

The dollar amount of oil company profits is so high for two reasons. First, the price of crude is up primarily because of worldwide demand (especially Asia). Oil companies generally work on a cost + basis. They add a certain percent to the cost of producing their product for profit. The higher their costs, the higher the dollar return.

Also, their dollar profits are so large (billions) because they have so much invested (hundreds of billions). However, as stated in my prior post, their return on investment (net income/assets) is way below other industries.

Oil companies require huge amounts of dollars invested in plant and equipment so they have to make a lot of dollar profit if they are going to have a decent return on their investments.

Think of it this way: if I had $1,000 in a bank, and that bank payed 10% interest, I would make $100 a year. If you had $100,000 in that same bank you would make $10,000. Your dollar profits would be much more than mine because you have so much more invested, but our return on investment would be the same - 10%. The last I checked oil companies were making about 15% ROI while tech companies were in the 30's. This may be somewhat off as I have not checked for a year or so.

Don't get me wrong, I think profit is good. The primary mission of management is to increase the wealth of stockholders. Also, there should be a risk/return relationship. Oil companies take a lot of risk and their stockholders should be rewarded for investing in risk.

Remember, they also pay a huge amount of taxes on those profits. The government gets far more of their profits than do the stockholders(owners). Besides the direct taxes on each gallon of gas which run between 50 to 75 cents per gallon; they pay income taxes; FICA taxes on all employees; tariffs; lease and royalty payments to the government; unemployment taxes; excise taxes; and on and on and on.

They also pay out huge amounts of money to meet all of the increasing amounts of regulations.

The bottom line is that every one of these tax dollars must be passed on to the consumer in the form of higher prices. Any economist will tell you corporations don't pay taxes, they just collect them for the government from the consumer. All expenses (including taxes) must be passed on to the consumer if a company is to make a profit and then they pay taxes on the profit.

The oil companies are making good profits or I wouldn't have invested part of my life's savings with them, but there have been many years when their profits were not so good and their stock prices were down. On average over the years their ROI is not all that great.

What makes me most unhappy is that during the Clinton administration a plan was put forward by the oil companies to make us independent of foreign oil by fully developing our reserves. They were rejected by the administration because "it would take 15 - 20 years to implement." Guess what, the twenty years are now up. Had they gone forward, we would not need foreign oil and we would have more to sell to others to bring down our debt.

In any industry that is dominated by the government(s), high prices, low supply, etc is directly traceable to that same government(s).

Dr David...
Being you explained it to me in such a heart rending story that almost brought me to tears thinking about how bad the poor oil companies are treated in this country.
I just can't imagine the hardships the CEOs of these corporations must go through on a daily basis, and their poor families...Children have to eat Spam sandwiches every day at their Private schools ,wives having to wear hand-me-down cloths to the country club and the greatest shame of all...Having to drive last years Mercedes.
Makes me rethink this whole thing, count my blessings and thank the "Higher Power"(pick one) for The gift of these dedicated executives that are doing this all for me...BLESS THEM ALL.....ED

You missed the points, but I suspect you know this.

I am glad that at some level you have a better appreciation of why the oil companies are leaving this country.

Remember when the oil companies were forced to stop drilling in the Gulf last year by the government? Well, these off-shore rigs are very expensive and cannot sit idle, so they towed them to other countries --- I hope you feel as much pain for those people who lost their jobs in LA, MS, and TX because the government closed them down. Their children are eating Spam if they are lucky.


KEEP ON TRUCKING and DRILL, BABY, DRILL

Doc,
One fact that you and many others do not cite is the size of the oil companies, number of employees, plants, etc. Yes you did state the size of investment in capital equipment and eluded to the cost of daily operations. And your comparison of return on investment was also done.

What irritates me is that the media report profits in billions of $$$ and percentage increase but never ROI or other numbers where a comparison to other companies can be more accurately made. That leads to the misconception that greed, conspiracy and secret agreements are what drives the industrial/military complex or government/industry complex or similar fable.

Warren Buffet, Bill Gates are generally considered as heroes while the COEs of the oil companies are considered criminals. Buffet and Gates make much more each year than the COEs. Then there are the athletes, actors, etc. Nuf said!

My brother got robbed a while back... He was crossing the pasture coming to my house and ran into three cows..."what do you want?" said my brother... One of the cows said "MOOOOLA". Now thats funny! At least there wasn't any politics to that!

Chipper:

You are 100% correct, I did omit this. I sometimes omit this aspect when talking about gas prices when people want to focus the discussion on oil companies while omitting the role of our government(s)in energy development and cost.

We are currently in eastern-middle Ohio in Amish country southwest of Canton. We went to Memorial Day outing on the small farm of a couple my wife went to high school with which is located closer to the West Virginia border.

One man who just retired from a box-making plant (that went bankrupt last year) was lamenting that Ohio's anti-business attitude has chased most of the good manufacturing jobs from the state, and there are no good jobs for the young people in the area, and they are having to leave the state.

The man whose farm we were on said "God bless the oil companies" as they are the only saving-grace for this area.

Because of the high cost of crude they are buying leases on farmer's land and drilling for oil and gas. Many farmers are getting $100,000 or more a year for these leases. They are putting that money back into their farms and helping their children start small business and/or get some more education. It is also helping our friends who still work their farm while being in their 70's.

These new wells in turn provide local people with construction jobs, jobs in developing these new fields, driving truck and, etc.

I don't have the figure but the number of jobs created by the energy industry is enormous.

Dr David..
For some strange reason that story about The smiling oil folks approaching the Amish with the "what a deal we have for you" line ...vaguely reminds me (I'm not sure why)of the Deal that the Appalachian folks got from the coal companies way back when.
I guess it's like telling old jokes....If it's old enough and you think everyone has forgot about it you can tell it again and get a laugh......Nobody in Appalachia is laughing...ED

You can call it political, but you are not going to discus this topic without mention of Government failure or involvement some time or another.

Here in "The MaryLand" they have decided to add another $.10 a gal. to the price gas making it one of the highest in the nation, doubling all the tolls and doubling vehicle reg. fees. All in poor economy.

Now is that "us trying to improve our economic condition"?

I don't believe any of the sad sob stories told by any of the rich folks. My wallet tells me the truth.

Question:

Gasoline here today is $3.95 and 9/10's per gallon. If I go into a gas station and demand that I want exactly one gallon of gasoline, will I get one-tenth of a cent in change?

Living in a smaller town, you might. I've found that most gas stations in the "bigger" cities don't carry anything smaller than whole pennies in the till. Some don't even take cash - plastic only!!!!

Dog:

That is why you use a credit card to buy your gas. No need to carry those pieces of eight(or 10 in this case).

Credit card? What's that? This mutt is old school so I don't have credit cards. Just green stuff and coins in my doggy bag. Therefore, I want my one-tenth of a cent in change...like the law requires. Didn't know that the credit card companies can give one-tenth of a cent in credit on your card. Cool!

I tried it once. Told the station attendant that I wanted exactly one gallon in my gas can and no more.....and I wanted my change. He had no idea what to do. This 9/10 thingy is a lot of dog dew!