For 23 years I worked for a large integrated oil company, initially as a computer programmer. During most of my oil company tenure, though, I was an information technology planner, including time spent in two separate tours of duty on the corporate staff. At the time of my second tour the company was 13th in sales in the Fortune 500, and fourth or fifth among the top eight oil companies. I worked with geologists, geophysicists, engineers, foremen, managers, executives and the many other specialists engaged in bridging the gap between long-term vision, and gasoline actually in the tank. Because of the nature of my job, I worked with people in district and sub-district offices, division offices, and corporate headquarters.
Across the years, I did share a few secrets, and was aware of the existence of others, in each of the environments in which I worked. The secrets with which I was entrusted were essentially technical in nature, and they came under the heading of proprietary business information. Secrets which I might consider “strategic” were not handled the way technical secrets were; they were discussed rather openly with Wall Street confidants (who seemed to have already inferred the information independently).
Now, what secrets or conspiracies would I suspect the oil industry of guarding? One secret, which was never classified as a secret, has yet to be discovered by most of the media and at least half of the politicians. At the time when I had been with the oil company only a few months, a senior manager was educating me on the technology and the operations of the oil industry. One thing he mentioned was that the total cost involved in bringing oil to the surface in Saudi Arabia was nine cents a barrel (this was in the mid-1960s). “That’s great” I said. “No” he responded, “that’s not great. At that price there’s no incentive not to waste it. And if we get hooked on that cheap oil, the Arabs will own us some day”. (To be fair, we should remember what Sheik Yamani, the Saudi Oil Minister, told us around that same time: “Petroleum is much too valuable a resource to just burn it”).
But let’s get on to current secrets. We can probably ignore the refining and marketing end of the oil business. It deals with things that are quite visible: refineries, tanker ships, storage tanks, and the like. Most of these tangibles would be difficult to hide, and the federal and state governments monitor and regulate the refining and marketing business to varying degrees. Less than a sixty-day supply exists in all of the tankers, pipelines, and storage tanks today so it seems unlikely that a significant quantity could be hidden anywhere in the world. But a more important reason to not suspect the refiners is the money angle: refining and marketing limps along, profit-wise, toward the bottom of most industries, seldom exceeding five or six percent.
On the other hand, exploration and producing is where the big money and “obscene profits” are, so it’s the most likely place for underhanded dealings. As with refining, many people suspect oil companies of sitting on mineral leases or other assets, taking no action until prices have risen to some undefined level. The only fly in that ointment is that lease contracts have a finite life; at lease expiration the mineral owners are free to lease the tract again to any company that might want it. Exploration leases for federal lands, particularly offshore areas, also include clauses that require specified exploration activities within a certain period; failure to comply results in revocation of the lease.
One important exploration and producing oversight group, never mentioned in the media, is that of the business partners. No oil company in history has ever had nearly enough cash reserves to intensely explore very many areas. When dealing with the huge projects where a successful exploration lease bid alone can exceed three or four hundred million dollars, even the largest oil companies routinely utilize investors’ risk capital. We can assume that when so much money is at stake, the partners will keep a close eye on where, when and how their money is being spent and how the projects are being managed.
But what about the possibility of a mind-boggling, multi-corporation conspiracy, one big enough to dramatically increase oil prices and profits? A conspiracy capable of this kind of economic influence would probably require a number of companies. Let’s initially assume just two world-class companies might pull it off. To figure out the minimum number of individuals involved, we will start with the two Chief Executive Officers; let’s assume that each is also Chairman of the Board of his or her company. In each of the large corporations I worked for, the CEO / Chairman needed, at the very least, some amount of executive assistance / cooperation in order to effect any kind of action. Add each company’s Chief Financial Officer to the conspiracy team,and that brings us up to four individuals.
It is not unreasonable to assume that a big, world-class conspiracy will involve world-class sums of money: add the number of Directors (with the Chairmans’ vote) necessary to approve the big sums of money. With rather small boards of directors, adding three from each company to our conspiracy team brings it up to ten. You can see where this is heading: even without considering any technical expert, government bureaucrat, or other key individual conspirator, our conspiracy team is already doomed to leaks by size alone.
Although it seems very unlikely that big oil companies can greatly influence oil supply or prices on their own, we can rest assured that the media, the legislators and the government regulators will continue their close scrutiny. For the rest of us, to whom high energy prices are becoming an up-close-and-personal concern, we should probably turn our attention elsewhere. Collectively, across time, we usually come up with fresh ideas and the correct direction. Let’s think about how we are going to get out of the gigantic energy hole in which we find ourselves at present. We can, and will, figure out who to blame and how to punish after we are over the hump.
Tags: exploration and producing, oil companies, oil industry regulation, oil prices, oil reserves, refining and marketing
