I'm not interested in taking sides here, but I hope someone can do the math, maybe Sammy, on cost per barrel against margin.
If a barrel of oil costs $23 in 1997, what was Mobil's or Exxon's margin then? What was their profit?
If a barrel of oil costs $100 in 2008, what is ExxonMobil's margin and their corresponding profit?
What are the variances and where are those variances most pronounced.
This is interesting, from BusinessWeek, summer of 1997, cover story.
http://www.businessweek.com/1997/44/b3551001.htm
Partial paste:
THE NEW ECONOMICS OF OIL
With technology dragging down the cost of finding and producing the precious stuff, prices won't rise--even as demand soars
Crude-oil prices have been careening like steel balls in a pinball machine this autumn in response to news and rumors from the Middle East. In the first few days of October, the threat of armed conflict between Iran and Iraq sent crude prices soaring from $20 a barrel to almost $23, before sinking back down again.
Even as the world is reminded of the vulnerability of its oil supply, consumption is soaring. Americans have fallen in love with gas guzzlers such as the Ford Expedition. In newly prosperous developing countries, ordinary people can afford cars for the first time. A recent survey in the China Youth Daily found that 75% of Beijing families planned to buy a car within the next five years.
Yikes. Are we in for another oil crisis? You might think so. Fort Worth investor Richard E. Rainwater has 30% of his $1.5 billion net worth sunk in oil and gas investments because he expects prices to rise 50% to 75% in the next 5 to 10 years. With free markets fueling economic growth, says Rainwater, ''we should see a tremendous amount of pressure on prices.''
Perhaps. But there's another, quite different scenario--namely, that oil prices, adjusted for inflation, won't rise at all over the long term. They may even fall. Why? First, because producers in the Mideast and elsewhere need the cash from oil too much to let their supply be interrupted for long, despite political and military skirmishing. Second, and more important, because demand growth can't push prices upward as long as it is balanced by supply growth. And the supply curve for oil--the amount offered at any given price--is being pushed steadily outward, thanks to technology.
PETRO-TREASURE. Technological advances are slashing the costs of finding, producing, and refining oil, creating a new economic calculus for the oil industry. The new alchemy runs from three-dimensional seismology to exotic wells that sit on the ocean floor, in some cases eliminating the need for billion-dollar offshore production platforms. Says Shell Oil Chief Executive Philip J. Carroll: ''Technology always drives down cost. I don't think its effect in this industry will be any different.''
Never mind the latest discord in the Middle East. Short of destroying another country's oil wells, as Iraq did to Kuwait in 1991, no nation can curtail the world supply of oil and force up its price for very long. Members of the Organization of Petroleum Exporting Countries still sit on the world's biggest and best oil reservoirs. But they can't raise prices--because if they do, non-OPEC sources will grab market share by developing fields where technology has made production affordable.
Rainwater's high-price theory notwithstanding, the end of the cold war and the spread of global capitalism aren't just adding to the demand for oil--they're adding to its supply as well. That's because more and more countries, from Venezuela to Kazakhstan, are welcoming the investment that's needed to exploit their petro-treasures.
The progress already achieved through technology is mind- boggling. The average cost per barrel of finding and producing oil has dropped about 60% in real terms over the past 10 years, while proven reserves are about 60% higher than in 1985 (charts, page 140). And these official figures far understate the amount of accessible oil in the ground. Smith Rea Energy Associates Ltd., a London-based researcher, figures that the world's oil producers could add 350 billion barrels to their proven reserves if they counted all the oil that has become affordable to recover because of the latest breakthroughs. That sum is equal to nearly 14 years' worth of worldwide consumption.
Experts have been underestimating oil reserves since 1874, when Pennsylvania's state geologist direly warned that ''the U.S. [has] enough petroleum to keep its kerosene lamps burning for only four years.'' Later experts put the date of exhaustion in the 1920s, then the 1940s. In 1972, the Club of Rome said the world had only 20 to 31 years of known oil reserves. Yet today, measured reserves are higher than ever.
Indeed, the very notion of what oil reserves are is changing. Rather than being a fixed number of barrels, the reserve is seen as something that grows and grows as technology finds new sources of oil and extracts more from existing fields. Take the giant Forties field in the British sector of the North Sea. In 1970, British Petroleum Co. rated it at 1.8 billion barrels of proven reserves. Yet by 1995, it had produced 3.6 billion barrels, and BP said 2.8 billion barrels in proven reserves remained.
The impact of such progress on crude oil prices has been dramatic. In 1980, Stanford University brought together 10 of the top oil forecasters to run their computer models. The average forecast for this year, among the six that made predictions for 1997, was $98 a barrel. Even as recently as 1991, experts were predicting the price per barrel in 1997 would be about $45.
Instead, the inflation-adjusted price of oil has fallen by two-thirds from its 1980-81 peak. Oil is cheaper than bottled water. ''Oil-price forecasters make sheep seem like independent thinkers,'' gibes Massachusetts Institute of Technology energy researcher Michael C. Lynch. ''There's no evidence that mineral prices rise over time. Technology always overwhelms depletion.''