What big oil is doing with big profits

Washington Times:

Big Oil's record profits attract attention and outrage, but an independent study has found that oil companies do exactly what economic textbooks say they should do with all that money: They invest it in oil exploration and development efforts that eventually should relieve pressure on prices.
The top 20 U.S. and Canadian oil companies actually invested 50 percent more than they earned in the past 10 years in efforts to produce more oil, but adverse geopolitical developments conspired to give them fewer opportunities to expand production while fading oil fields in the U.S. and elsewhere forced them to spend substantially more just to maintain current production, according to the study by the Ernst & Young accounting firm.
"Reinvestment is under way, and it's strong," said Charles Swanson, an energy analyst at the firm, but "average costs to find and develop oil and gas reserves have tripled since 1997, while total reserve-replacement costs have more than doubled."
The study found that the top companies -- including Exxon Mobil, ConocoPhillips and Chevron, among others -- took in a mind-numbing $5 trillion in revenue from sales of oil and related products between 1995 and 2005. After subtracting the cost of equipment, leases, labor and other operating expenses, the companies posted whopping profits of $336 billion.
Over the same time span, however, the companies spent even more than they earned -- $550 billion -- on oil exploration and development. Some of them went deeply into debt to finance new ventures, especially during times of lean profits.
Despite the massive sums of money oil companies spent trying to find more oil for the world's fuel-thirsty consumers, returns on investment over the past 10 years declined sharply because most existing oil fields in the West are in decline and the most promising new discoveries are not available for development, Ernst & Young found.
Nevertheless, the study found that oil companies continued to invest steadily, even during busts like 1998, when the price of premium crude plummeted to $10 a barrel, as well as during boom times like today, when prices are topping $77.

...
The oil companies are much more responsible with their earnings than the federal government would be if it were taxing "excess" profits. The economic suptidity of the position of many politicians on this issue is appaling. One of the worst is Chuck Shumer who demogogs on the issue relentlessly. The real windfall in the oil and gas business goes to the government in the form of windfall tax profits that exceed the profits of the people taking the risks and doing all the work.

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