Energy, Energy Service, Natural Gas & Oil Sectors

» Normxxx - $100 OIL

$100 OIL - NOT SO FAR FETCHED

By Chris Puplava, FSO | 10 November 2005

Leading up to the landfall of Hurricane Katrina, crude oil prices jumped from $65.71 a barrel on 08/23/05 to as much as $69.47 a barrel on 09/01/05, just 3 days after the severity of the storm began to be realized. Katrina shut in nearly 90% of Gulf oil production. The U.S. Minerals Management Service said that 1.5 million barrels of daily oil output in the Gulf was offline on 09/25/05, 100% of the Gulf’s daily output, as a result of Katrina and Rita, and more than 78% of daily natural gas production also remained offline.

As of this week, the Minerals Management Service said that 52% of daily oil production and 47% of natural gas production in the Gulf of Mexico remained off-line. And despite this week’s mild temperatures in the northeast, forecasts for this winter call for a long, cold and wet winter for the Midwest and Eastern part of the country.

U.S. Refinery Capacity, Inputs, and Production, July 2004 to Present
<img Width="520" src="http://www.financialsense.com/Market/cpuplava/2005/images/1109.h4.jpg">
Click Here, or on the image, to see a larger, undistorted image.

With nearly 90% of Gulf of Mexico oil production shut in, U.S. politicians voted on September 1st open up the 700-million-barrel Strategic Petroleum Reserves (SPR). This was done to prevent what some were forecasting as $4 or even $5 gasoline and skyrocketing crude prices. The opening of the SPR coupled with oil loans from the International Energy Agency (IEA) brought much needed supply and put downward pressure on crude oil prices. What was the case for natural gas? There are no strategic reserves for natural gas; and guess what--natural gas prices soared from a pre-Katrina price of $9.68 per million BTU on 08/23/05 to $14.22 on 10/04/05, and peaking at $14.34 on 10/25/05, up 48%.

Some scoff at talks of $100 oil but we may be closer to it than we think. This point was made in the Casey Energy Speculator (Vol. 1, Issue 5) in a graph by Bud Conrad showing the movement of natural gas and oil. I found the graph hard to believe and so I recreated it using data for both of the commodity’s prices and saw the same pattern. When one overlays the price movements of oil and natural gas on dual scales, their price movements are clearly seen to move in tandem with crude priced roughly 7.5x that of natural gas. What is even MORE telling is what the price of crude oil might have reached had the U.S. not released the SPR just after Katrina hit. Taking a look at the chart I made below shows natural gas with its price scale on the right and crude oil on the left.

<img Width="520" src="http://www.financialsense.com/Market/cpuplava/2005/images/1109compare.gif">
Click Here, or on the image, to see a larger, undistorted image.

The close price movements between crude and natural gas show what crude oil could have risen to--not $100 a barrel, but $110 a barrel! As the price of natural gas soared from a pre-Katrina price of $9.68 (08/23/05) to $14.34 (10/25/05) for a gain of 48%, the tandem movement of crude would correspond from $65.71 (08/23/05) a barrel to $103.60 a barrel with a 48% increase as was seen with natural gas.

The release of the SPR showed politician wisdom that the economy could not handle a supply shock with oil, but what shows their foolishness is all the talk about oil companies 3rd quarter profits and talks of windfall taxes because of their “outrageous profits.” Politicians need to be reminded of the difference between absolute numbers versus relative numbers (ratios for example). When looking at ExxonMobil’s (XOM) 3rd quarter revenue of $88B and net income of $7.64B, I can see why some politicians are screaming outrage, but they need to remember these are absolute numbers, NOT relative numbers. When looking at the net profit margins for several companies, ExxonMobil’s net income doesn’t look so outlandish compared to other companies profit margins (see table below).

Company	3rd Qtr Sales (Th)	Net Income (Th)	Profit Margin	Relative Income to XOM (Th)
ExxonMobil	$88,568,000	$7,640,000	8.6%	$7,640,000
Microsoft	$9,741,000	$3,141,000	32.2%	$28,558,884
Pfizer	$12,425,000	$3,462,000	27.9%	$24,677,860
Google	$1,384,495	$342,814	24.8%	$21,930,271
Intel Corp.	$9,960,000	$1,995,000	20.0%	$17,740,277
Toll Brothers	$1,561,896	$215,532	13.8%	$12,221,837
Proctor & Gamble	$14,793,000	$2,029,000	13.7%	$12,147,940

To make an apples-to-apples comparison, one must look at relative numbers. To do this I multiplied ExxonMobil’s sales to each respective company's net profit margin to look at the net income on a relative scale. I think the numbers speak for themselves. Looking at these numbers and hearing talks of oil windfall taxes is ludicrous. They should be talking about chip makers, semiconductor and drug maker windfall taxes, not oil! ExxonMobil had enough of the talks about windfall taxes on the oil industry and put out a piece called “Oil and Apples: Oil Industry earnings are high, but not out of step with other industries.”

<img Width="560" src="http://www.financialsense.com/Market/cpu...">
Source: ExxonMobil

Robert Shapiro, former undersecretary of commerce for economic affairs in the Clinton Administration, along with Professor Nam Pham of George Washington University recently conducted a study on what can happen if the leading proposals for a windfall tax were enacted and oil sells for $45 a barrel, $50 a barrel, $55 a barrel and $60 a barrel for the next five years. He commented on his findings in his article, “Making a Scapegoat out of a Windfall” (Wall Street Journal, November 8, 2005).

They had two major findings. First, domestic production would fall by roughly 100 million barrels per year, just like it did when Congress passed the 1980 windfall tax as oil prices rose drastically. The second conclusion is that instead of helping consumers, it would hurt millions of savers and retirees who own stock in oil companies directly or indirectly from their pension plans or retirement accounts from foregone dividends and increases in stock value. Shapiro stated that these plans and accounts hold nearly $267 billion in oil stocks.

Shapiro calculates that a windfall profits tax would take back an average of $8.7B to $50B (depending on $45 oil to $60 oil over the next five years) from pension and retirement savings holdings. Shapiro concluded his article by saying, “Oil companies may be able to shoulder the burden by reducing their domestic investments. American savers and retirees may not be so lucky.”

People need to remember that of the profit oil companies make, the government takes 35% of that which flows right to the Treasury via the corporate income tax. Now they want more with the windfall tax! Politicians and Bill O’Reilly need a history lesson.

Lesson 1: When Jimmy Carter signed the windfall profits tax during the last oil crisis the result was oil companies reduced their U.S. Domestic production by 1.5 million barrels a day, nearly 6%.

Lesson 2: A famous study by Harvard economist Joseph Kalt found that U.S. dependence on oil increased between 8-16% after the price controls and profits tax. Just look on the graph below to see current foreign oil dependence rising on a clear upward trend.

<img Width="560" src="http://www.financialsense.com/Market/cpu...">
Source: http://www.bea.gov/bea/di/home/trade.htm

Politicians need to look at relative numbers like the business scale of a company. The reason why ExxonMobil’s net income was so high was that they had over $88B in revenue! What happens when politicians start dipping their hand in oil profits? The likely result is less capital expenditures based on lower revenue. Yes, XOM had $7.6B in net income but they spent $15B in capital expenditures last year alone for new exploration and production as well as refining capacity and new energy-saving technologies. When you cut into their profits you cut into their capital expenditures and production goes down, supply goes down, and higher crude prices, NOT cheaper prices results!

Look at the oil and gas chart comparison above and what happens with a supply shock--a rise of 48%! We can’t afford decreasing exploration and production by oil companies with China and India coming onto the scene and record oil demand in this country. Ron Paul, U.S. Representative from Texas, made an important argument in his October 31, 2005 weekly column piece, “A Free Market in Gasoline.” He said, “But we must understand that high oil prices are not the result of an unregulated free market. On the contrary, the oil industry is among the most regulated and most subsidized of U.S. industries. Perhaps we need to ask ourselves whether too much government involvement in the oil markets, rather than too little regulation, has kept the supply of refined gasoline artificially low.”

He goes on further to say that “Federal subsidies and regulations are largely responsible for limiting the supply of refined gasoline in this country. The demand for gasoline has risen dramatically in America due to population growth in recent decades, but virtually no new refining capacity has been added. Basic economics tells us that rising demand and a fixed supply will lead to higher prices. No amount of congressional grandstanding about price gouging will change this economic reality. We must increase domestic exploration, drilling, and refining if we hope to maintain reasonable gas prices. We need more competition, which means we need less government.”

The lesson in all of this, Paul says, is that “Centralized government planning, on the other hand, cannot solve our energy dilemmas. The Nixon-era price controls on gasoline in the 1970s produced nothing but disastrous shortages. By contrast, the Reagan administration’s immediate deregulation of the oil industry resulted in an unprecedented boom in oil production and a dramatic reduction in prices. This is the lesson we must remember.”

A great example of the “hands-off” approach with the energy sector is the regulation of natural gas decades ago. Domestic production of natural gas reached “peak gas” in 1973 at 22.6 trillion cubic feet of production. The supply of natural gas then plummeted through 1983 and then reversed course after price deregulation began. With the price deregulation, exploration increased with supply following suit, increasing steadily through 1994 before leveling off (see chart below).

<img Width="520" src="http://www.financialsense.com/Market/cpuplava/2005/images/1109.h9.jpg">
Click Here, or on the image, to see a larger, undistorted image.

If politicians want to help the common person with oil prices, tell them to suspend federal gas taxes, which would save consumers nearly 20 cents per gallon as Paul suggests. This can be done immediately irrespective of U.S. Strategic Petroleum Reserves, but would politicians want to cut into their own pockets? I don’t think so. Ron Paul is putting together legislation to allow offshore drilling, eliminate regulations that restrict refining, and suspend harmful tax laws that discourage domestic oil production. As Paul puts it, “If we hope to have a stable, affordable supply of gas, we must allow the free market to operate.”

-- posted by Normxxx

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» SteveT - Energy's Correction May Be Temporary

By DIMITRA DEFOTIS

ENERGY STOCKS HAVE BEEN THE FATTED CALF in portfolios this year. Yet their selloff in October may create some buying opportunities.

Oil prices have tumbled 17% from their peak during Hurricane Katrina, and energy stocks in the Standard & Poor's 500 index have followed suit. They've dropped roughly 10% from their mid-September high, seriously underperforming the broader index's flat returns, according to Thomson Financial/Baseline.

But the fundamental case for strong oil prices -- and higher energy stock prices -- remains: Global oil supplies are tight and demand is strong.

That should support a 2006 average crude-oil price in the mid-$50s, around the current price, which slid to roughly $58 per barrel Thursday.

Since energy companies can make good money at those prices, some stocks, including Burlington Resources and Chevron, now look like bargains. They're well off their highs and have low multiples and decent growth prospects to boot.

"I want to take advantage of other peoples' fear and greed," says William Gerlach, lead manager of the Gartmore Global Natural Resources Fund. "Some energy stocks went down 20% to 25% in October, and I thought that was overdone."

Next year, according to Thomson First Call, Wall Street analysts expect oil prices to average about $56 per barrel and fall no further than $46 (see Weekday Trader, "Cheaper Oil May Not Sink Energy Stocks1," Sept. 22).

"Nothing has changed,'' says Francisco Blanch, a senior commodities strategist at Merrill Lynch in London. "Production growth is still heavily constrained, refining capacity is limited, and it will take several years to clear the bottlenecks."

He thinks that if oil prices fall below $55 per barrel, "it is not a bad time to get in" to energy stocks again.

That price is well below crude's multiyear high near $70 per barrel in late August as Hurricane Katrina hit land. Approximately 40% of oil and gas production in the Gulf of Mexico remains shuttered because of hurricane damage, according to Bruce Lanni, an analyst at A.G. Edwards & Sons.

This week the International Energy Agency said supply constraints could keep oil near current prices through 2010 and force them above their recent peak by 2030 (see The Wall Street Journal, "Energy Agency Sets Grim Oil Forecast2," Nov. 8).

And demand remains strong: China's gross domestic product (GDP) is rising at nearly 9% a year, and third-quarter U.S. GDP growth was an annualized 3.8% despite the big spike in gasoline prices.

"A number of companies produced good results [and] talked about expansion into new basins for exploration, [yet] the stocks went down," says Gerlach. "That strikes me as silly."

One company he likes is Burlington Resources, an oil and gas exploration and production company whose shares have fallen roughly 20% from their 52-week high.

Burlington is one of the largest producers of North American natural gas. Natural gas prices, near $11.40 per million British thermal units, have soared well beyond their historic averages.

Yet at only about 8.3x estimated earnings for the next four quarters, Burlington's shares look cheap compared with its median 13x forward earnings over the last five years, according to Thomson Financial/Baseline (see At a Glance).

Even if oil prices fell to $50 again, companies would have enough cash to grow, says Frederick Sturm, manager of the Ivy Global Natural Resources Fund.

"It is altogether possible for the commodity prices to go down and stay down from recent highs, but the companies to go on to new highs," Sturm says.

He likes Chevron, the integrated oil and gas exploration and refining company whose shares have fallen about 14% from their 52-week high.

In fact, Chevron's stock has stalled following its August merger with Unocal. But Sturm believes the combined companies offer more value than the current stock price reflects.

Chevron fetches roughly 7.3x forward earnings, a nice discount to the 8.4x forward multiple at which other integrated oil and gas companies in the S&P 500 trade, according to Baseline (see At a Glance).

Of course, investors may continue selling energy stocks if crude-oil prices fall, mostly because of worries that global economic growth could slow, which would reduce demand.

That's why Michael Rothman, head of energy research at ISI Group, thinks oil prices eventually could settle at $40 per barrel, lower than the consensus,.

"Is this a buying opportunity?" asks Rothman. "I don't think that it is the right time yet. I expect further weakness in oil prices, and the stocks are trading off of oil prices."

And if a cold winter pushes heating costs higher, that, too, could slow economic growth, ease energy demand and send crude back below the $50 threshold.

But no matter what happens in the short run, the supply of oil and natural gas is limited and overall demand is growing.

That's why as the business cycle waxes and wanes, spending on oil and gas exploration, related services and refined products should remain strong -- and help energy stocks bounce back, too.

Full Disclosure:
• ConocoPhillips was the largest holding in the Gartmore Global Natural Resources Fund, followed by Exxon Mobil and Burlington Resources; Chevron was among the fund's top 10 holdings, as of Sept. 30, according to Gartmore fund data.

• Chevron was the top holding in the Ivy Global Natural Resources Fund, and Transocean was among the fund's top 10 holdings, as of Sept. 30, according to an Ivy Funds fact sheet.

Comments? E-mail us at online.editors@barrons.com
URL for this article:
http://online.barrons.com/article/SB1131...

-- posted by SteveT

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» Normxxx - SHORT-TERM ENERGY OUTLOOK

SHORT-TERM ENERGY OUTLOOK

By U.S. Department of Energy | 8 November 2005
Energy Information Administration, http://www.eia.doe.gov

Overview

Hurricanes Katrina and Rita damaged, set adrift, or sunk 192 oil and natural gas drilling rigs and producing platforms, the most significant blow to the U.S. petroleum and natural gas industries in recent memory.

At the beginning of November almost 53 percent of normal daily Federal Gulf of Mexico oil production and 47 percent of Federal Gulf of Mexico natural gas production remains shut in. Moreover, in Louisiana 1.0 billion cubic feet (bcf) per day of onshore natural gas production remains offline and 0.8 million barrels per day (bbl/d) of crude oil refining capacity remains shut down. Some wells were temporarily shut in as a precaution to Hurricane Wilma. While no damage was reported from that storm, hurricane recovery remains a key factor in this Outlook. Indeed, recent information on damaged and destroyed platforms and shut-in production suggests that the recovery path will be slower than predicted in the October Outlook.

This short-term forecast projects that total energy demand is likely to respond to higher prices and hurricane related destruction by showing relatively flat growth between 2004 and 2005, compared with 1.5-percent growth between 2003 and 2004. However, energy demand is expected to recover in 2006 at a rate of about 2 percent. Prices for crude oil, petroleum products, and natural gas are projected to remain high during the remainder of 2005 and through 2006 because of tight international supplies and hurricane induced supply losses. The price of West Texas Intermediate (WTI) crude oil is expected to average $57 per barrel in 2005 and $64-$65 per barrel in 2006. Retail regular gasoline prices are expected to average $2.29 per gallon in 2005 and $2.43 in 2006. Henry Hub natural gas prices are expected to average $9.15 per thousand cubic feet (mcf) in 2005 and $9.00 per mcf in 2006.

Hurricane Recovery Path Is Revised From October Outlook

Recovery of production facilities and other infrastructure in the Gulf region is expected to continue, but it now appears unlikely that anything close to complete recovery will occur before the end of the second quarter of 2006. This extends the recovery period by about 3 months beyond what was assumed in the previous Outlook. The changes to our production path are driven by more detailed information on damage to production wells, pipelines, and natural gas processing plants from the hurricanes. The Minerals Management Service (MMS) reports that more than 150 offshore platforms have been heavily damaged or destroyed and are not expected to be fully operational for several months.

In this Outlook, shut-in Federal Gulf of Mexico production is projected to gradually decline through March 2006, when shut-in Gulf crude oil falls to 353 thousand bbl/d (22.6 percent of its pre-hurricane production level), and shut-in natural gas falls to 2.1 bcf per day (20.6 percent of its pre-hurricane level). Refinery capacity improves more rapidly; by the end of February, refinery capacity is fully restored to pre-Katrina levels. Also, on-shore oil and natural gas production in Louisiana was less than 50 percent of capacity at the end of October, but are expected to be fully restored by the end of March. Although our recovery projections are based on more detailed information than previously available, damage assessments are still underway, and estimates of impacts to oil and natural gas production remain uncertain.

Winter Heating Expenditures

Our current projections for winter residential heating oil and natural gas expenditures reflect slight revisions downward from our last Outlook. In the case of the petroleum market, this change reflects the return to more normal wholesale and retail price margins as refineries have come back on line supported by an increase in imports. For the natural gas market, the adjustment reflects our reassessment of the markup between wellhead and end-use markets in our new regional natural gas model. However, residential space-heating expenditures are still projected to significantly increase for all fuel types compared to year-ago levels.

On average, households heating primarily with natural gas likely will spend $306 (41 percent) more for fuel this winter than last winter. Households heating primarily with heating oil can expect to pay, on average, $325 (27 percent) more this winter than last. Households heating primarily with propane can expect to pay, on average, $230 (21 percent) more this winter than last. Households heating primarily with electricity can expect to pay, on average, $33 (5 percent) more. Should colder weather prevail, expenditures could be significantly higher. These averages provide a broad guide to changes from last winter, but fuel expenditures for individual households are highly dependent on local weather conditions, the size and efficiency of individual homes and their heating equipment, and thermostat settings.

Global Petroleum Markets Remain Tight Through 2006

Many of the same factors that drove world oil markets in 2005, such as low Organization of Petroleum Exporting Countries (OPEC) spare oil production capacity and rapid world oil demand growth, will continue to affect markets in 2006. Other factors are less certain, such as the frequency and intensity of hurricanes, other extreme weather, and geopolitical instability

OPEC spare production capacity reached historic low levels in 2005, at around 1.0-1.5 million bbl/d. For 2006, EIA forecasts a slight increase in OPEC spare oil production capacity to 2.0-2.5 million bbl/d, which should allow for some easing of tight oil market conditions in 2006. Crude oil output from OPEC is expected to remain flat in 2006, at about 30 million bbl/d. Non-OPEC supply outside of the United States is expected to grow by about 700,000 bbl/d in 2006, with around 400,000 bbl/d coming online from the Caspian region (Azerbaijan and Kazakhstan), roughly 450,000 bbl/d from the Western Hemisphere (particularly Canada and Brazil), and about 150,000 bbl/d from West Africa. Natural production declines at mature fields in the North Sea, Mexico, and the Middle East will dampen this supply growth.

Worldwide petroleum demand growth is projected to slow from 2004 levels, but remain strong during 2005 and 2006, averaging 1.8 percent per year during the 2-year period, compared with 3.2 percent in 2004. EIA expects continued strong growth in world oil demand in 2006, driven in large part by increases in China and other non-OECD Asia. Overall, EIA projects world oil demand to increase by about 1.8 million bbl/d in 2006, up from growth of 1.1 million bbl/d in 2005.

U.S. Petroleum Demand Responds To Increased Prices And Hurricane-Related Losses

Total U.S. petroleum demand in 2005 is projected to average 20.6 million bbl/d or 0.8 percent less than 2004 levels. Hurricane-related disruptions combined with increased prices result in lower projected demand for petroleum products. Petroleum demand in 2006 is expected to average 21.0 million bbl/d, or 2.2 percent over 2005.

U.S. Product Output And Inventories Likely Adequate But Tight

Total U.S. refinery output this year is projected to decline by about 0.3 percent compared with 2004 because of hurricane outages. A relatively warm October and an increase in product imports are helping to keep total product inventories at levels close to the average of the last few years. However, inventories of gasoline, distillate fuel, and jet fuel are significantly below normal levels and our projections are for a slow recovery from now through early summer.

U.S. Natural Gas Markets Remain Tight Despite Slower Demand Growth

In response to higher prices, total natural gas demand is projected to fall by 0.8 percent in 2005 compared with 2004 levels, then recover by 2.8 percent in 2006, assuming a return to normal weather and a recovery in consumption by the industrial sector. Residential demand is projected to decline by about 1 percent from 2004 to 2005 mostly in response to relatively weak heating-related demand during the latter part of last winter, while industrial demand is estimated to decline by over 8 percent during the same period due to the much higher prices for natural gas as a fuel or feedstock. By 2006, both end-use sectors are expected to recover somewhat, with residential demand estimated to increase 3.2 percent from 2005 levels and industrial demand to increase by 6.8 percent. The projected industrial demand rebound in 2006 rests in part on the assumed reactivation of damaged industrial plants in the Gulf of Mexico region. Power sector demand growth likely will track electricity demand growth through the forecast period.

Domestic dry natural gas production in 2005 is expected to decline by 4.2 percent, due in large part to the major disruptions to infrastructure in the Gulf of Mexico from the hurricanes, then increase by 4.7 percent in 2006. Total liquefied natural gas (LNG) net imports for 2005 are expected to remain at about 650 bcf as they were in 2004, but are projected to average slightly above 1,000 bcf in 2006.

On October 28, working gas in storage stood at an estimated 3,168 bcf, a level 119 bcf below 1 year ago but 2.6 percent above the 5-year average and about 28 bcf above last month's Outlook. End-of-year storage levels are expected to be 7.9 percent lower at end-2005 than they were at end-2004. Natural gas storage levels at the end of 2006 are expected to be about even with the 2005 level. Hurricane-related natural gas production losses have cut down on the amount of natural gas available for the market, which increases the projected requirement for withdrawals of gas from underground storage this winter.

The Henry Hub natural gas spot price is expected to average $9.15 per mcf in 2005 and $9.00 per mcf in 2006. In October 2005, the Henry Hub natural gas spot price averaged $13.82 per mcf and the monthly average spot price is likely to remain above $10 per mcf until peak winter demand is over.

Strong Electricity Demand Forecasted

Weather conditions and continuing economic growth are expected to move electricity demand 3.3 percent higher in 2005 and an additional 1.3 percent higher in 2006. Year-over-year electricity demand growth rates are expected to be particularly strong, as cooling and heating demands are likely to be higher than in the mild third and fourth quarters of 2004. When compared to 2004 figures, regional residential demand in 2005 rose in nine of the ten regions (Alaska and Hawaii, treated as one region, is the exception). Commercial demands increased across all ten regions, but industrial demands fell in the four regions along the East Coast and Midwest. Estimated 2005 prices for delivered electricity across all end uses range from 6.0 cents per kilowatt hour (kwh) in the East South Central region to nearly 12 cents per kwh in New England. In response to higher utility fuel prices, average electricity prices for all end uses are projected to rise by 9.5 percent in New England and 7.8 percent in West South Central, but by 6 percent or less in all other regions in 2005 compared with 2004.

Power Sector Demand For Coal Continues to Increase

Electric power sector demand for coal is expected to increase by 3.2 percent in 2005 and by 1.2 percent in 2006. Power sector demand for coal continues to rise in response to higher oil and particularly natural gas prices. U.S. coal production is expected to grow by 1.2 percent in 2005 and by an additional 3.3 percent in 2006. Coal prices to the electric power sector increased significantly in the first half of this year, growing by 15.3 percent compared with the first half of 2004. The large coal price increase was the result of low coal inventories because of the increase in demand and also because of higher transportation costs. The price of coal to the power sector is expected to increase through the forecast period, although at a lower rate than in the first half of 2005. Coal prices are projected to increase by an average 14.2 percent in 2005 and by an additional 3.9 percent in 2006, rising from $1.35 per million Btu in 2004 to $1.60 per million Btu in 2006.

______________


The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

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» EdO3 - Oil CEO's & Congress

Well-written article available on Bloomberg.com

http://www.bloomberg.com/apps/news?pid=e...

If link doesn't work, go to www.bloomberg.com

and click on article by Caroline Baum

-- posted by EdO3

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» lcha - Big Oil may face a $5 billion levy

Nov. 15, 2005, 10:37PM

Big Oil may face a $5 billion levy
Senate panel approves addition to tax-cut bill
By EDMUND L. ANDREWS
New York Times

WASHINGTON - In a sign of the political impact of soaring energy prices, the Republican-controlled Senate Finance Committee voted on Tuesday to impose a $5 billion tax next year on the nation's biggest oil companies.

The measure amounts to a one-year windfall profits tax, a concept that most Republicans had until recently denounced as a discredited idea from the 1970s. It was added to a larger bill that would cut taxes by about $61 billion over the next five years.

Conservative Senate Republicans who support the oil industry bitterly protested the measure, noting that Congress had just approved billions in new tax breaks to encourage oil and gas exploration. But every Republican on the panel voted for the overall package, which passed the committee by 14-8 and which the full Senate is expected to take up today.

Five of the largest oil companies recently reported that their combined profits for the third quarter surged to $33 billion as a result of skyrocketing oil prices. Last week, top oil executives testified at a congressional hearing, defending their record results in the face of mounting criticism.

Lawmakers have been prodding the oil companies to give up some of their profits and have floated the idea of a windfall profits tax. But party leaders and the White House have firmly opposed such a move. Many Senate Republicans are counting on House Republicans to reverse the new tax on oil companies and add back an extension of tax cuts.

Sen. Craig Thomas, R-Wyo., charged that his Republican colleagues were "undermining the energy policy that we have been working on for years" and would discourage exploration and production. "I suppose," he said gloomily, "it's because you found out that energy companies are making some money."

Senate Republicans refused to call their provision a "windfall profits tax," a tax that was imposed after oil companies enjoyed a similar spike in oil company profits in the early 1970s. Critics of the windfall profits tax contended that it merely discouraged production and contributed to severe gasoline shortages.

Lcha here: It looks like for oil companies there will be a different tax structure than other companies. 33% is not enough I guess. Is this supposed to HELP increase domestic oil production? Shame on this Republican congress! On econimic issues the difference between Republicans and Democrats is narrowing to the point of insignificance.

-- posted by lcha

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» axolotl - Re: Re: Big Oil may face a $5 billion levy

More meddling by our do gooder Congress is some bi-partisan group has proposed a big oil reduction in usage plan. It would require the auto makers to go to more expensive technology as if autos aren't expensive enough now. It calls for a reduction of 10 million barrels per day within 25 years. This Congress will not allow drilling on a little piece of land in huge Alaska that not even 1% of the population will ever visit - unreal! However, I do think that they are correct in predicting $100 per barrel oil being just one disaster away.

-- posted by axolotl

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» lcha - Groups join to cut U.S. oil thirst

Nov. 17, 2005, 12:05AM

Groups join to cut U.S. oil thirst
Allies include evangelicals, environmentalists and conservatives
By H. JOSEF HEBERT
Associated Press

WASHINGTON - Efforts to stem America's appetite for oil, nearly two-thirds of it imported, is getting new attention in Congress with a push from an unusual coalition of environmentalists, evangelical Christians and conservatives.

The diverse groups are putting pressure on lawmakers to find ways to curtail oil use, especially in transportation, and to promote alternative fuels and new technologies less dependent on fossil fuels.

Environmentalists view reduced oil use as a way to curtail pollution and lower the risk of climate change. A number of conservatives and others argue the dependence on oil imports poses a security threat.

Both liberal Democrats and conservative Republicans in Congress are listening.

A bipartisan group of senators unveiled legislation Wednesday they said would save 2.5 million barrels of oil a day within a decade and 10 million barrels a day by 2031. The country now uses a little over 20 million barrels of oil a day, most of it for transportation.

"Failure to act, we fear, will make America like a pitiful giant, tied down and subject to the whims of small countries," said Sen. Joe Lieberman, D-Conn., calling U.S. dependence on foreign oil a national security risk.

The legislation would include tax breaks, as much as 35 percent, and loan guarantees to get automakers to switch from producing gas guzzlers to gas-electric hybrids, advanced diesel or other alternative technologies.

It also includes new tax breaks for those who buy such vehicles for car fleets, and incentives for developing alternative fuels such as ethanol from cellulosic biomass, research into use of lightweight material in cars, and the promotion of mass transit corridors.

Among those joining Lieberman and Sen. Evan Bayh, D-Ind., as co-sponsors were Sen. Ken Salazar, D-Colo., and GOP Sens. Sam Brownback of Kansas, Lindsay Graham of South Carolina, and Norm Coleman of Minnesota.

"This is a bipartisan effort," Brownback said in an interview. "This is just good common sense. This is where the public wants us to go. They want us to not be so dependent on foreign oil."

Earlier this year, Democrats tried to include a provision in a broad energy bill that later was signed into law by President Bush, which called on the president to develop programs that would cut oil consumption by 1 million barrels a day. It was opposed by the GOP majority and defeated.

"That was seen as a mandate," said Brownback, who opposed the measure. The new approach is based on incentives to reduce oil consumption, he said.

Among those supporting the new Senate initiative are environmentalists such as the Natural Resources Defense Council and the Apollo Alliance, a coalition of labor and environmental groups.

But they have been joined by mix of neo-conservatives and members of the Christian right who view the country's continued dependence on foreign oil — especially from volatile areas such as the Middle East — as a threat to the nation's security, and in the view of some, American values.

Among those arguing forcefully that the country's dependence on foreign oil poses a security risk are former CIA Director James Woolsey and Robert McFarlane, former national security adviser to President Reagan.

A number of conservatives have formed a coalition called Set America Free which advocates a diversification of motor fuels, development of more fuel-efficient cars and trucks and increased research into the development of ethanol from cellulosic biomass.

Among the group's members are Gary Bauer, president of American Values; Frank Gaffney of the Center for Security Policy, and Gal Luft, director of the Institute for the Analysis of Global Security.

-- posted by lcha

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» lcha - Toyota Prius thoughts...

Since March 5th we have driven our Prius 11,500 miles and averages 43 MPG. The lowest MPG we got was 39 MPG and the highest MPG we got was 49 MPG. We are finally getting to a point where we can drive it without air conditioning. It looks like we may average 50 MPG on a tank at highway speeds without A/C.

Major observation

It is amazing how my driving changes just due to the fact that the Prius gives a graphical readout on instantaneous MPG and average MPG over 5 minute intervals. Just being able to see this info causes me to drive in a way that increases MPG.

My Toyota Avalon only gives me the means to display speed and time info. So, when I drive that I tend to drive in a way that minimizes trip time. It's a mental game I guess. The Prius gives me the MPG info and I have another set of data to play a different game, maximizing MPG.

I really believe that if all cars displayed info on MPG, people would tend to drive differently and in a way that they would get better gas mileage. And if everyone drove ini a way that eeked out just 5-10% more MPG, it would go a long way toward fuel savings.

Otherwise, we are happy with the Prius purchase and do take comfort in knowing we are driving one of most environmentally friendly cars around. We have had no reliability issues so far as well. And I am more confident than ever that when/if we have to replace the battery in 8 years, we will be replacing it with a much more powerful battery that will allow us even better gas mileage than when the car was new.

-- posted by lcha

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» Normxxx - Re: Groups join to cut U.S. oil thirst

In response to Groups join to cut U.S. oil thirst posted by lcha:

I'll be damned if I give up my Hummers until the ANWR is sucked dry!

How about if Congress gives the Oil Companies' a 1:1 reduction on that 'excess' profit tax for every $1 they spend or commit to exploration and drilling, or to conservation and alternative fuels, beyond that done in (an average of) the last three years or so?

-- posted by Normxxx

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» lcha - Re: Re: Groups join to cut U.S. oil thirst

In response to Re: Groups join to cut U.S. oil thirst posted by Normxxx:

Normxx, if the oil companies had prospects that were economical to drill on a risk adjusted basis they would be drilling them. The fact is the oil companies just don't have an excess of good drilling prospects. That's why they are spending their money buying oil on Wall St. and buying back their stock. To suggest that oil companies choose between giving back profits to the government vs drilling prospects that don't make economic sense is counterproductive to everyone. Oil companies are not in the conservation business either. They're just not good at it.

As long as this country is going to purchase oil from an illegal organization, OPEC, that controls 42% of the world oil market, then this government should not confiscate U.S. oil company profits. The government already took 33 of the $99 billion in oil company profits in taxes. I think that's quite enough.

-- posted by lcha

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