The MasterBlog: How much Exxon pays for oil
Subscribe to The MasterBlog in a Reader Subscribe to The MasterBlog by Email

MasterBlogs Headlines

Wednesday, November 7, 2007

How much Exxon pays for oil

How much Exxon pays for oil

It doesn't cost big oil companies anywhere near $90 to produce a barrel of crude. But they buy more crude than they pump, so the rising cost of a barrel cuts both ways.

By Steve Hargreaves, staff writer
November 6 2007: 1:36 PM EST
NEW YORK ( -- Oil is selling for nearly $100 a barrel. Gasoline is near $3 a gallon. Oil companies are swimming in cash. But these record-high prices are both a boom and a burden for Big Oil.
Big oil companies refine more crude than they produce. That means they must buy crude to refine at market prices, which are now at record highs. Gasoline prices, meanwhile, have only made modest gains.
To be sure, producing the stuff has made big money for big oil over the last few years. Although it costs a lot less than $90 a barrel to pump, it's still not as cheap as you'd think.
The world's cheapest oil to extract comes from Saudi Arabia and costs $2 a barrel. But that oil, over 8 million barrels a day, is pumped mostly by the Saudi national oil company and is largely off-limits to Western oil firms.
For Western firms, it can cost as little as $5 to $7 a barrel to pump the most easily accessible oil from places like Venezuela or Azerbaijan, said Fadel Gheit, a senior energy analyst at Oppenheimer.
The costs don't stop there. On top of the $5-$7 production costs, there's also the the money it took to build the pumping facility. At several billion dollars a pop, capital costs typically add another $5 to $7 a barrel.
And that's the cost of producing oil in the cheapest regions of the world. Factor in expensive fields like the deep water Gulf of Mexico, the tar sands of Canada or water-laden output of Texas, and the average production and capital cost is somewhere in the low teens to mid $20s, said Gheit.
Still not bad, considering the selling price.
Enter government.
Gheit said taxes and royalty payments can range from 40 percent of profits in places like the United States to 90 percent or more in places like Russia or Libya.
"It's a very complex equation," he said of trying to figure out just how much it costs oil companies to produce oil.
But if production were just the only concern, big oil companies like Exxon Mobil (Charts, Fortune 500), Chevron (Charts, Fortune 500) and ConocoPhillips (Charts, Fortune 500) that both pump and refine oil would have seen record profits in the latest quarter. Unfortunately for these companies, they are also buyers of expensive crude, not just sellers. In fact, they refine more oil than they pump themselves.
A lot more. Exxon refined 5.6 million barrels a day in the third quarter 2007, but only pumped 2.5 million barrels a day. Chevron sold 3.5 million barrels a day of refined products but only pumped 1.7 million barrels of oil. Conoco refined 3.1 million barrels but pumped just 774,000.
These companies don't get a deal on the extra oil they must buy to refine, analysts said.
"Generally speaking, they have to pay fair market," said Peter Tertzakian, chief energy economist at ARC Financial, a Calgary-based private equity firm. "If the refineries need it, they have to buy it."
Furthermore, Tertzakian said, accounting rules prevent the production side of a big oil company from giving the refining side a deal on crude. Other rules prevent the movement of crude from one country to another at below-market rates - rules largely designed so oil companies can't skimp on their tax obligations.
"They are subject to market forces, they pay like everybody else," said Gheit.
That's party why oil companies saw profits decline so much last quarter, when crude oil costs rose but gasoline failed to keep up.
Crude oil prices went from about $71 a barrel at the start of the quarter to more than $81 a barrel at the end. Gasoline prices, meanwhile, fell to a national average of $2.81 a gallon from $2.95, according to numbers from the Energy Information Administration.
As a result, Exxon reported at 10 percent drop in profits compared to the same time last year, while Chevron fell 26 percent and Conoco lost 5 percent.
Of course, with Exxon walking away with over $9 billion in profit for the last three months, it is unlikely anyone will lose sleep over how much the company must pay for oil. Top of page
Find this article at:

No comments:

Post a Comment

Commented on The MasterBlog

Tags, Categories

news United States Venezuela Finance Money Latin America Oil Current Affairs Middle East Commodities Capitalism Chavez International Relations Israel Gold Economics NT Democracy China Politics Credit Hedge Funds Banks Europe Metals Asia Palestinians Miscellaneous Stocks Dollar Mining ForEx Corruption obama Iran UK Terrorism Africa Demographics UN Government Living Bailout Military Russia Debt Tech Islam Switzerland Philosophy Judaica Science Housing PDVSA Revolution USA War petroleo Scams articles Fed Education France Canada Security Travel central_banks OPEC Castro Nuclear freedom Colombia EU Energy Mining Stocks Diplomacy bonds India drugs Anti-Semitism Arabs populism Saudi Arabia Brazil Environment Irak Syria elections Art Cuba Food Goldman Sachs Afghanistan Anti-Israel Hamas Lebanon Silver Trade copper Egypt Hizbollah Madoff Ponzi Warren Buffett press Aviation BP Euro FARC Gaza Honduras Japan Music SEC Smuggling Turkey humor socialism trading Che Guevara Freddie Mac Geneve IMF Spain currencies violence wikileaks Agriculture Bolívar ETF Restaurants Satire communism computers derivatives Al-Qaida Bubble FT Greece Libya NY PIIGS Republicans Sarkozy Space Sports BRIC CITGO DRC Flotilla Germany Globovision Google Health Inflation Law Mexico Muslim Brotherhood Nazis Pensions Peru Uranium cnbc crime cyberattack fannieMae pakistan stratfor Apollo 11 Autos BBC Bernanke CIA Chile Climate change Congo Democrats EIA Haiti Holocaust IFTTT ISIS Jordan Labor M+A New York OAS Philanthropy Shell South Africa Tufts UN Watch Ukraine bitly carbon earthquake facebook racism twitter Atom BHP Beijing Business CERN CVG CapitalMarkets Congress Curaçao ECB EPA ETA Ecuador Entebbe Florida Gulf oil spill Harvard Hezbollah Human Rights ICC Kenya L'Oréal Large Hadron Collider MasterBlog Morocco Mugabe Nobel Panama Paulson RIO SWF Shiites Stats Sunnis Sweden TARP Tunisia UNHRC Uganda VC Water Yen apple berksire hathaway blogs bush elderly hft iPad journalism mavi marmara nationalization psycology sex spy taxes yuan ALCASA ANC Airbus Amazon Ariel Sharon Australia Batista Bettencourt Big Bang Big Mac Bill Gates Bin Laden Blackstone Blogger Boeing COMEX Capriles Charlie Hebdo Clinton Cocoa DSK Desalination Durban EADS Ecopetrol Elkann Entrepreneur FIAT FTSE Fannie Freddie Funds GE Hayek Helicopters Higgs Boson Hitler Huntsman Ice Cream Intel Izarra KKR Keynes Khodorskovsky Krugman LBO LSE Lex Mac Malawi Maps MasterCharts MasterFeeds MasterLiving MasterMetals MasterTech Microsoft Miliband Monarchy Moon Mossad NYSE Namibia Nestle OWS OccupyWallStreet Oman PPP Pemex Perry Philippines Post Office Private Equity Property Putin QE Rio de Janeiro Rwanda Sephardim Shimon Peres Stuxnet TMX Tennis UAV UNESCO VALE Volcker WTC WWII Wimbledon World Bank World Cup ZIRP Zapatero airlines babies citibank culture ethics foreclosures happiness history iPhone infrastructure internet jobs kissinger lahde laptops lawyers leadership lithium markets miami microfinance pharmaceuticals real estate religion startup stock exchanges strippers subprime taliban temasek ubs universities weddimg zerohedge

Subscribe via email

Enter your email address:

Delivered by FeedBurner