Tuesday, May 20, 2008

Give me liberty or give me windfall profit taxes.

I sort of admired Barack Obama when I first heard about him, but his idea about windfall profit taxes on oil companies is about the quickest legislative way to get to $200 oil that I can think of. If you want less investment in oil and natural gas production, vote for higher taxes on oil companies, and stand back and watch prices skyrocket. As mentioned below, things are already tight enough in the oil and gas business.

My guess is that John McCain will be the next president, but if Obama gets elected, I will be very interested to see what he does with this idea and what the consequences will be.

Reuters: Schlumberger sees threat to oil, gas output growth.


Less than 25 percent of worldwide reserves are open to private investment, he said, because many states are turning over their fields to government-controlled oil companies.

"This does not mean that (production) gains will not occur, but it does mean that they will take longer than if access had been more open," Gould said.

Schlumberger, the world's largest oilfield services company, and its peers have posted sharp revenue and earnings growth in recent years as energy companies increased spending, and Gould has predicted that trend will remain in place into the next decade.

Oil prices in the United States have jumped to record levels near $128 a barrel in recent days, and natural gas has surged to $11 per million British thermal unit.

For the energy producers, rising costs for raw materials such as steel have also help contributed to a 120 percent increase in exploration and production spending between 2004 and 2007, while the number of new wells drilled has risen by only 52 percent, he said.

High energy prices have also prompted governments around the globe to hike taxes and change investment terms to gain a greater share of producers' profits.

But added to the rising materials cost and the riskier nature of many new fields, "there is a real danger that this will cause underinvestment and simply exacerbate the problems," he said

And what of McCain's gasoline tax holiday idea?

Newsweek: Should You Pay $6 Per Gallon?


Kloza goes a bit further, calling a gas-tax holiday "caca." "It represents pandering. You're not leveling with the American public," says Kloza. "All this talk of energy independence means nothing if you don't have energy discipline. When it comes to our gasoline consumption, we're the morbidly obese of the world. And like the person who weighs 350 pounds, we need to exercise more and consume less." To do that, though, first you have to look in the mirror and admit there's a problem—and it's not the price of gas.