“The oil industry is stuck in exactly this tight spot. Oil companies are generating record profits — but they don’t have a good place to put those profits back to work. A big share of today’s oil exploration and development capital expenditures are unlikely to earn back a reasonable return on the money invested. The prices paid for today’s assets are too high, the costs of development are rising too fast and the risk that politics will prevent full production in the future is too great. That’s why you see companies across the industry buying back shares or increasing dividends and waiting – hoping, really — that the price of investing in future production growth will fall.”
The thing to do is to pay out big special dividends now. The 15% tax rate on dividends might not last forever. The stockholders who receive these dividends could invest them far more intelligently than oil company executives, who typically only know oil.
If oil companies know that the only oil out there is expensive and fraught with risk, they have two choices.
They can sit on their collective @sses and do nothing, which usually results in governmental intervention.
Or they can drill for the expensive oil and field company militias to fend off any pissant third-world crackpot dictators attempt to extort them.
One decision is low risk, but leads to stagnation and oblivion.
The other leads to more profits and increased supply, but at an increased risk.
One can see by the decisions that our oil companies... that they will most likely be just one more sector of American business that’ll be ‘outsourced’.