Oil Firms' Retreat into America Not Necessarily a Good Thing

By Samuelson, Robert J. | American Banker, February 7, 1984 | Go to article overview

Oil Firms' Retreat into America Not Necessarily a Good Thing


Samuelson, Robert J., American Banker


Just when you thought that oil was becoming dull, Texaco offers a cool $10 billion to buy Getty Oil. We are told that Texaco is finding oil cheaper on the stock market than it could by exploring. Maybe this is true, and maybe it isn't.

Most likely, the Texaco-Getty merger is part of a bigger story: the retreat of U.S. oil firms back into Fortress America. This may be good for the oil companies, but it is not necessarily good for America. Only ample supplies can keep oil markets stable, and unfortunately, the best prospects for new oil discoveries aren't here.

The tranquility of oil prices after World War II stemmed heavily from oil companies' globe-trotting. For 25 years, U.S. firms roamed the world as if they owned it. Their development programs expanded oil reserves by a factor of 10, and this cheap energy helped propel the postwar economic boom.

All this ended in the early 1970s. Oil consumption was on a rampage, jumping 20% between 1969 and 1973. This frenzied demand, combined with the 1973 Arab-Israeli war, raised prices. Although OPEC formally set prices, it could not -- and did not -- control the underlying forces that were decisive. These remain supply and demand and basic political conditions. The Decline of Private Firms

The upshot was to alter the politics and economics of world oil. No longer did private companies dominate. As late as 1970, 93% of the non-Communist world's oil reserves were owned by private firms. By 1979, the proportion was only 45%. Because oil prices had risen dramatically (but production costs had not), countries either expropriated the oil or imposed heavy taxes. If companies found oil, there was no assurance that they could market it profitably.

Even with oil and natural gas price controls -- and the subsequent imposition of the "windfall profits" tax in 1980 when oil controls were lifted -- the United States was a much friendlier place than most to operate. So exploration activity shifted here. From 1970 to 1980, the geophysical exploration performed in the United States rose from about one-third to one-half the world total.

The frustration, though, is that finding oil in America (especially in the lower 48 states) is tough. No area has been so thoroughly explored or developed. Of the 702,002 producing oil wells in the non-Communist world in 1982, 609,000 were in the United States. Despite increased activity, proved U.S. oil reserves fell from 39 billion barrels in 1971 to roughly 28 billion in early 1983. Less Expensive than Finding New Oil

Texaco, among others, had experienced a sharp drop in U.S. reserves. With the Getty purchase, it could more than double its U.S. reserves -- from 1.05 billion barrels to 2.3 billion. Although $10 billion is a lot of money, investment analysts figure Texaco is buying Getty's oil at between $4 and $5 a barrel.

This is probably less expensive than finding new oil, but just how much less is anyone's guess. Bernard J. Picchi of Salomon Brothers has estimated the aftertax cost of developing new oil at about $7 a barrel. But estimates are inexact, and recent declines in drilling costs could mean that the figure is lower.

What perhaps explains the gap between stock market oil and discovered oil is a difference in outlook. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Oil Firms' Retreat into America Not Necessarily a Good Thing
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.