Tuesday, November 02, 2004

Election Day and the Future of Oil Companies
In yesterday's blog, I posted a comparison of President Bush's and Senator Kerry's proposals for energy. I'm not sure how many voters will focus on energy as a pivotal issue in this election, given the prominence of Iraq, terrorism, and the economy. But I'm sure the major oil companies will be watching with great interest.

Last week's Economist looked (subscription or fee required) at the profits and reinvestment rates of the world's largest publicly traded oil firms and joined the chorus suggesting they are not reinvesting enough in finding and developing new oil reserves. The author also saw the prospect that these companies will be precluded from pursuing the best oil opportunities, which are in the Persian Gulf, and will instead accelerate their shift towards becoming "energy companies", focused largely on natural gas. So while several years ago some of these firms talked aspirationally about the larger energy picture--including my old company, Texaco--this may now become a necessity, as prodigious upstream earnings must either be plowed back into new resource opportunities or returned to shareholders.

A win by Bush today (or in the protracted, post-election day process we may be facing) may give the industry at least the hope of a shot at some of the off-limits oil reserves in the US, particularly in Alaska. A Kerry win would put paid to that notion and add additional impetus for the shift overseas and into gas. Although that would bode ill for any prospect of mitigating a precipitous decline in US oil production over the next 10 years, it would merely reinforce the position of gas as the key fuel of the future, at least the next two decades.

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