Oil Industry Enjoys Era of High Profits

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In Depth

High oil prices are leading to record earnings at companies like Exxon Mobil, which reported a first-quarter profit of $8.4 billion. Energy analyst John Olson talks with Steve Inskeep about where oil companies are spending their profits.

RENEE MONTAGNE, host:

Higher oil and natural gas prices and revenue increases from refining are the big reasons that oil companies are making so much. And with all that money coming in, they've been criticized for what they do, or don't do, with the windfall.

Steve Inskeep spoke with John Olson, who is tracking the oil company profits. He's an energy analyst with Sanders, Morris, Harrison Group, in Houston.

STEVE INSKEEP, host:

Now you know, Mr. Olson, that oil companies have been criticized for not taking more of their many billions of dollars in profits and using it to invest in more energy supplies.

Mr. JOHN OLSON (Chief Investment Officer, Sanders, Morris, Harris Group): That is something that is debatable, I think, Steve. Right now we are looking at an industry which is spending about $70 billion a year here in the United States, and…

INSKEEP: Are you talking specifically in exploration?

Mr. OLSON: Domestic exploration and development, yes. That is, I think, probably proof positive that this industry is doing its level best to put more money into the ground and to offset the naturally declining production that we are burdened with right now.

INSKEEP: There's certainly no obligation for ExxonMobil to reinvest all of its profits in exploration, but it is worth asking the question if perhaps more could be getting done.

Mr. OLSON: You could always make that claim, I think. But Exxon has been a conservative company. They will go where they best can make money. Unfortunately, in the world markets, we are looking at places which are becoming closed to American oil companies. Latin America, in particular, looks like it is beginning to turn very populous.

INSKEEP: Well, let me ask, do you think that western oil companies face something of a dark future, even though they're making such profits now, because it's going to get harder and harder for them to find sources of oil that people will let them explore?

Mr. OLSON: There are political cycles as well as there are economic cycles, and today we're looking at China, for instance, with tremendous momentum in the world of oil and gas markets, making deals virtually everywhere with people who are not necessarily friendly to the United States. And this kind of situation is indeed going to pressure U.S.-based oil companies with the thought that they are missing out on their share of the future prospects.

INSKEEP: Is there ever a point where the price of oil could get so high that it would in some way be bad for oil companies? $100 oil? $150 oil?

Mr. OLSON: Commodity markets always normalize, Steve. The trouble with the oil market is that it has not been normal for the past six or seven years. Somewhere out there at 80, 90, 100 dollars a barrel, we'll begin to see some demand destruction for oil.

INSKEEP: Demand destruction?

Mr. OLSON: Yes. That means we'll begin to see people use less, conserve, ride bicycles, whatever the option you elect.

INSKEEP: So until you get to that point, it's very good times for the oil companies?

Mr. OLSON: Very good times. For the past ten years, we have seen oil demand go up between 1 and 2 million barrels a day. That is not what I would call demand destruction.

INSKEEP: John Olson, of Sanders, Morris, Harris, in Houston, Texas. Thanks very much.

Mr. OLSON: Thank you.

MONTAGNE: Find out what's causing energy prices to go up so quickly, and how emptying your car trunk can save you on gas, at npr.org.

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