Oil Companies Struggle to Tap New Sources

A U.S. Senate committee today takes up a comprehensive energy bill, which opponents argue will do little to reduce the country's dependence on foreign oil. But the problem isn't simply relying on foreign oil, it's finding and extracting new supplies of crude in the first place.

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STEVE INSKEEP, host:

Today's business report includes a battle over an energy bill.

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INSKEEP: A Senate committee takes up a comprehensive energy bill today. Backers say it strikes a balance between energy production and conservation. Some of the bill's opponents argue that it will do little to reduce the country's dependence on foreign oil. As NPR's Scott Horsley reports, the problem is not simply relying on foreign oil; it's finding and extracting new supplies.

SCOTT HORSLEY reporting:

Big oil companies are enjoying a Texas-sized gusher of profits these days, but when it comes to plowing those profits into new oil ventures, the companies are finding some dry holes. Energy analyst Fadel Gheit of New York-based Oppenheimer & Company says even though major oil companies are making money like he's never seen before, spending that money is another story.

Mr. FADEL GHEIT (Oppenheimer & Company): The whole industry is facing a dilemma, if you will, which is record earnings and cash balances, but fewer and fewer investment opportunities. So basically the industry has become cash rich and opportunity poor.

HORSLEY: It's not so much geology as geopolitics that's getting in the company's way. The energy bill will likely address oil drilling opportunities in and around the US, but much of the world's oil today is in places like Saudi Arabia that are off-limits to Western oil companies. And the countries that do allow Western investment are demanding more in exchange. Robert Ebel, who chairs the energy program at the Center for Strategic and International Studies, says that makes it hard for the big oil companies as they hunt for new places to drill.

Mr. ROBERT EBEL (Center for Strategic and International Studies): Where do you go today? Do you look at Russia? Do you look at Iraq, Iran, Libya, West Africa, Kazakhstan? Most of the reserves today are in the hands of national oil companies and they're going to keep that oil in their hands. So Russia is--you've got problems today. Iraq, not yet ready for foreign investment. Iran is out of bounds for US companies. West Africa is coming along but has its problems. So no matter where you go, there are risks.

HORSLEY: Risk, of course, is nothing new for oil companies. The whole industry is built on big gambles in the hope of big rewards.

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HORSLEY: Think of James Dean in the movie "Giant." He was down to his last collar button before he finally struck it rich.

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Mr. JAMES DEAN: My well came in big. (Laughter) I'm a rich boy. Me, I'm going to have more money than you ever thought you could have.

HORSLEY: Today's oil companies have plenty of money. Since the end of 2003, Exxon, Chevron, BP and Shell have earned profits totaling nearly $100 billion. They are pumping some of that money back into finding new oil, but Exxon, Chevron and Shell all produced less oil in the first three months of this year than they did a year ago. Exxon actually spent more money buying its stock back in the quarter than it did on exploration. Daniel Yergin, the chairman of Cambridge Energy Research Associates, says the companies are handicapped not only by the limited places they can drill for oil; they're also straining to reverse downsizing that's left them with fewer drilling rigs and fewer trained personnel.

Mr. DANIEL YERGIN (Chairman, Cambridge Energy Research Associates): All the companies are substantially increasing their expending budgets. They're putting more money to work, but you can't just turn on a dime. You can't transform English majors into petroleum engineers overnight.

HORSLEY: Yergin also says the big companies are cautious about overinvesting in new oil supplies. Even though many forecasters expect oil prices to remain high, industry veterans know what it's like to get burned.

Mr. YERGIN: Remember, these were companies that seven years ago were dealing with $10-a-barrel oil, and so they're not going to invest on the premise that oil's going to go to $100 a barrel. I don't think anybody wants to see, you know, another boom-and-bust cycle.

HORSLEY: Yergin chronicles the long history of the oil business in his book "The Prize." He says one of the basic lessons of that industry is that however sure things look today, they'll look different three years from now.

Scott Horsley, NPR News.

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