Oil industry reaches out

Petroleum Institute sends analyst to city to explain revenue

Gargi Chakrabarty

Saturday, March 22, 2008

Record revenues for oil companies, record prices at the pumps and skyrocketing heating bills are not creating any goodwill for the energy industry.

The questions on everyone's mind: How much profit do the oil companies make? Who pockets those profits?

Anticipating those inevitable questions, the energy industry is mounting a nationwide publicity drive to clear up what it calls "common and surprising misperceptions."

"We are trying to reach out to legislators and consumers in 40 locations," said Rayola Dougher, the American Petroleum Institute's senior economic analyst. She spent Wednesday at the Capitol in Denver trying to set the record straight, or at least defend the industry.

"We will highlight the industry's technology, the efficiencies and bring the message it's not your grandfather's oil and gas industry anymore," she said.

The U.S. energy industry says it earned 8 cents for every dollar of sales in the third quarter of 2007.

That is below the beverage and tobacco industry's profit of 21.6 cents during the same period, the chemical industry's 12.9 cents and the manufacturing industry's (excluding auto) 9.2 cents.

Also, pension and retirement accounts own 41 percent of the shares in U.S. energy companies, mutual funds hold 29.5 percent and individual investors 23 percent. Corporate insiders own only 1.5 percent.

Similar data was cited by Marc Smith, executive director of the Independent Petroleum Association of Mountain States.

The oil and gas industry poured $23 billion into the state's economy in 2005, employed more than 70,000 and paid an average salary of $60,000 a year .

Industry critics say the energy industry's profit-per-dollar of sales does not reflect the windfall earned by leading companies.

"Oil and gas companies are some of the most profitable companies in the world," said Erich Pica, director of domestic programs at Friends of the Earth, an environmental group based in Washington, D.C. "You have the big five oil and gas companies over the last couple of years report over $100 billion worth of profits each year.

"These profits are made off of hard-working families around the country who are paying record prices at the pumps."

On Friday, Colorado's average for regular, unleaded stood at $3.179 a gallon, slightly lower than Thursday's $3.180 and the record $3.344 set on May 24, 2007. Experts say pump prices will continue inching upward, at least through Memorial Day weekend, given that crude oil is trading above $100 a barrel in the backdrop of a weak dollar.

Meanwhile, Colorado's biggest utility, Xcel Energy, is raising natural gas and electric rates beginning in April, citing higher gas prices.

"I am not sure how (the energy) industry estimated such low returns," said Pete Morton, an economist with the Wilderness Society. "In a presentation last September, a natural gas industry executive bragged about a 53 percent return in the last two years, so I think they can afford to protect Colorado's clean water, clean air and abundant wildlife."

chakrabartyg@RockyMountainNews.com or 303-954-2976

• March 22, 2008

  11:27 a.m.

  Suggest removal

  justright writes:

  It is expensive to bring gasoline to the market. When you drill 2 or 3 or 4 miles deep it takes 100's of millions of dollars. In many cases they spend billions of dollars for several years before they see any revenue much less a profit on many of their projects.

  The national oil companies in the middle east who have done very little with the decades of profit are the ones reaping the benefit. American and many International companies actually have to be responsible to there share holders or they get sold. Which why there has been more oil companies go under then stay in business.

  Instead of blaming them for excellent dividend checks to grandma and gramdpa or earning a measly 8-10 percent profit, how about supporting the companies who are trying to increase supply while the world demand sky rockets.

  Your angry would be better directed towards, Venezuela, Iran, Saudi Arabia, Kuwait, United Emirates and Iraq. Those national oil companies is where your money is going and they pissed away the money needed to increase supply. They also account for 3/4 of the worlds known oil reserves.

• March 22, 2008

  12:12 p.m.

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  SASQUATCH writes:

  I can't believe that my earlier comments were removed in just 5 minutes, so here I am again.

  A little econ 101 tells you that oil companies do not set the price of this fungible commodity, markets and supply and demand does. Unfortunately, speculators and a terrorist price premium also gets to play. When prices catapult because of market forces, selling prices also catpult but corporate fixed costs remain largely unchanged--the temporary result is oversized and leveraged profits.

  Q3/07 was the best of times durring an oil boom--and 8% is hardly a big profit margin. Average in the bad years and the long-term average margin is closer to 5%. And 5% isn't that much profit for taking the risks associated with puting up their own capital for exploration, extraction, production, refining and transportation. The government extracts (gouges) a big multiple of that profit margin right at the pump for taking no risk and supplying no oil.

  And when you throw in all the government regulations that constraint the oil companies from doing what they are good at, 8% is a bargain to the consumer. Those big profits may have been smaller if the oil companies were allowed to engage in more exploration and production and refinery building--if you can't spend the money then what do you expect the bottom line to look like?

  Oil's nice fat dividends and capital gains also contribute to the wealth and prosperity of America. Big oil is nothing but good news for America; let's not forget that all-time record taxes also came as a result of those record profits.

  Bottom line: Gargi needs to check out his local community college for a few courses in introductory econ 101 and accounting.

• March 23, 2008

  8:47 a.m.

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  dukeco1 writes:

  Gargi is a she.

• March 23, 2008

  9:01 p.m.

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  justright writes:

  SASQUATCH your dead on on econ 101! But has you and I know facts get in the way of the hate big oil crowd. They wish and feel for a better America but have no idea how to produce one.

• March 23, 2008

  9:47 p.m.

  Suggest removal

  grmolts writes:

  And they are trying to run the companies out of Colorado, with new regs. They need to be stopped now

• March 24, 2008

  8:06 a.m.

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  dukeco1 writes:

  Hey grmolts,

  You can drop that line of propoganda about energy companies leaving Colorado. It isn't and never was true. I will refer you to the story on the Local section front page of Sundays' Grand Junction Daily Sentinel. They don't even use that line on the western slope anymore because NOBODY believes it.