Chevron Data Shows Industry Lag in Producing New Oil from U.S. Source — Lower Production Shows Failure of Investment, Not Lack of Oil, Says Watchdog
 
Santa Monica, CA — Chevron Corp. reaped another record quarterly profit of $6 billion dollars, despite producing less oil than projected, and losing money on its refining of oil into gasoline. The results illustrate an industry with plenty of resources to produce more oil in the U.S, but slow to spend the money to develop them, said Consumer Watchdog.
 
“The most striking thing about Chevron’s report was its executives’ webcast discussion of its available new oil and its progress, or lack of it, in producing that oil,” said Judy Dugan, research director of the nonprofit, nonpartisan Consumer Watchdog. “Its most immediate project is a Nigerian oilfield expected to ‘turn a handsome profit,’ as one executive acknowledged, while costlier projects in the Gulf of Mexico merited only vague predictions.”
 
“These economic choices show the pointlessness of President Bush’s demand that currently off-limits coastal areas be handed on a platter to oil companies, while known large discoveries in the Gulf of Mexico go undrilled,” said Dugan. “The ‘drill now, drill everywhere’ campaign is a hoax on Americans.”
 
Chevron alone has four large areas being developed in the Gulf of Mexico, two of which — leases named Blind Faith and Tahiti — are projected to produce oil by the end of 2009. Two others, known as Jack and St. Malo, are years behind schedule — put off because of cost and the lack of drilling rigs, according to a recent Bloomberg report. The fields are each likely to produce at least several hundred millions of barrels of oil.
(See the Bloomberg report here.)
 
“Chevron’s laggard production of U.S.-based oil shows a company intent on assuring the highest profit from top-quality Nigerian oil, while costlier U.S. production takes a back seat,” said Dugan. “Later, when Chevron’s new Nigerian production is hampered by political violence, it’ll be another excuse for traders to jack up the price of crude oil.”
 
Chevron, like all the other major oil companies, also continued buying back its own stock rather than putting the money into producing new oil. The stock buybacks in this and the two previous quarters totaled more than $6 billion.
 
The company also revealed that its losses in the refining end of its business were largely due to its own derivative trading in futures markets rather than actual losses on producing fuel. Under pressure from questioning analysts, executives sheepishly acknowledged that they were cutting back on such trades.
 
San Ramon-based Chevron, California’s largest refiner, also put blame on Californian’s reduced driving for its refining losses, saying it had suffered from “consumer sentiment.”
 
“Drivers aren’t sentimental about buying gasoline, they’re screaming in pain,” said Dugan. “if Chevron thinks Californians have a choice about cutting back, multimillion-dollar executive salaries have addled its judgment.”
 
But the gap between the call to drill everywhere in the U.S. and actual corporate behavior is the real truth gap, said Consumer Watchdog.
 
“In a normal market, with prices for a product rising like they have for oil, manufacturers in competitive markets would be spending like crazy to make more of it,” said Dugan. “Yet oil companies are able to sit back and make more money by selling less. Even if both U.S. coasts and the Alaska wilderness preserve were handed to them, they’d demand more tax breaks before hiring the first drilling rig.”
 

Consumer Watchdog favors the following reforms:
 
·  Robust U.S. oversight of all U.S.-generated energy trades, including limits on purely financial trades between entities that neither sell nor receive delivery of products;
 
·  Higher cost of trading for purely financial energy trades, allowing entities that sell or receive oil and other products to continue hedging at lower margins;
 
·  Reform of taxpayer subsidies to oil companies, including revisions of royalty relief, with proceeds to fund renewable energy development and tax rebates to low-income consumers;
 
·  Regulation resulting in a 30-day average national supply of gasoline (current supply averages 21-23 days), with limits on regional variation of supply. This return to the average levels of the early 1990s would reduce price volatility in both gasoline and crude oil, reduce overall prices and prevent price spikes in the event of supply interruption.
 
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See Consumer Watchdog’s database and charts of oil companies’ yearly profits since 2000 at www.OilWatchdog.org. The database takes into account companies that merged after 2000, such as Chevron and Unocal in 2005, to give the fairest picture of oil profit increases.