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Triple-digit crude prices pain oil majors, too
HOUSTON
Petroleumworld.com, May 16, 2008
The world's oil majors aren't necessarily embracing high oil prices, even though they fuel tremendous profits, the chairman and chief executive of ConocoPhillips told shareholders Wednesday."High oil prices have not been our friend," James Mulva said at the company's annual meeting.
He later explained to reporters that oil's record-breaking runup into triple digits has let resource-rich countries take more control and shrink access for international oil companies like Houston-based ConocoPhillips.
Though he didn't mention it, Venezuela moved last year to take majority control of foreign-run projects. ConocoPhillips rejected the terms of the change, and left three projects under control of Petróleos de Venezuela, or PDVSA, the country's government-run oil company. ConocoPhillips wrote off the projects' combined $4.5 billion value and is in talks with PDVSA for compensation.
Increased costs
Mulva said high prices have raised costs of doing business, from buying steel and cement to renting drilling rigs to hiring enough skilled workers to make sure increasingly complicated new projects are done properly."The result is that each barrel that might have cost us $20 or $30 to develop, now they cost us $70 or $80," Mulva said.
He knows consumers paying more than $3.50 a gallon for gasoline aren't sympathetic.
But Mulva noted that ConocoPhillips, as the nation's second-largest refinery behind Valero Energy, buys 2 million barrels of crude per day at market prices to refine into gasoline and other fuels.
High-priced crude means high-priced gasoline, he said.
"I know the American public thinks we control the oil price, that large oil companies control the oil price. We do not control the oil price. The marketplace sets the oil price," Mulva said.
Crude for June delivery closed Wednesday at $124.24.
The average price for regular unleaded gasoline also hit its seventh consecutive weekly record last week, reaching $3.72 a gallon, according to the federal government.
In Houston Wednesday, regular gasoline sold for a record $3.64, according to AAA and the Oil Price Information Service.
The Energy Department says crude prices accounted for 45.5 percent of the price of gasoline that cost an average of $1.74 a gallon in March 2004. In March this year, crude accounted for 72 percent of $3.24 gas and given the continued rise, that figure is dated, Mulva said.
Other costs that go into each gallon of gasoline are for refining, distribution and marketing and taxes.
'Head in the sand'
Mulva said that ConocoPhillips, which has lowered its production growth outlook to 2 percent from 3 percent, would spend more for exploration, production and project expansions if companies could tap resources in U.S. areas that now are off limits. Those areas include the Arctic National Wildlife Refuge and off the east and west coasts."Effectively, as Americans, we have our head in the sand," he said. "If we could add supply, and have more efficient use of energy, we will have a more quick dramatic effect on the cost of energy."
Shareholders followed the recommendation of directors in rejecting a string of shareholder proposals, including one calling for an advisory vote to ratify or reject executive pay.
Scott Adams, an analyst for the American Federation of State, County and Municipal Employees, which submitted the "say on pay" proposal, noted that 44 percent of votes cast favored it.
"I hope the company, board and compensation committee will see if this might become a reality," he said.
Another shareholder initiative calling for ConocoPhillips to report on environmental damage that could result from expanding its operations in Canada's oil sands was rejected by 61 percent of votes cast.
Trillium Asset Management, a pro-environment investment firm from Boston, presented the same proposal at BP's annual meeting last month and will do so again at Chevron's meeting next week. BP shareholders also rejected it.
ConocoPhillips holds the largest position in the oil sands, where companies extract bitumen that can be diluted and upgraded into usable oil.
Environmental concerns about emissions and possible toxic releases from operations in the oil sands have been growing as more companies seek to develop the resources in a friendly country open to outsiders.
Story by Kristen Hays from Houston Cronicle
-kristen.hays@chron.com
Houston Cronicle 15 05 08
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