tigris72poo

Why Invest in Oil Over Alternative Energy

Good points but you ommited two critical reasons that make oil a more attractive investment than RE:
1. Most of the oil is used for transportation fuels and almost 100% of transportation is fueled by liquid hydrocarbons. It will take many years and billions to change the infrastructure and produce enough electric or hybrid cars to make a difference.
2. Free market principles work because one way or another somebody has to pay the true cost of AE whether the end-user r the taxpayer. So unless the price of oil goes much higher all of these AE sources will be of limited use. I learned that in 1979 when after the big jump in oil caused by the Iranian crisis my boss asked me to research photovoltaic cells. My conclusion was the best way to play it was buy oil stocks. Thirty years later my conclusion is unchanged.

Oil Industry: Farewell, Good Old Days

Try $43 billion in annual profit Mr Snyder -after all expenses and depreciation. That is more than enough PROFIT in one year to buy Goldman Sachs or Boeing or Eli Lilly or Occidental Petroleum just to name a few. XOM is by far the biggest, most profitable and financially strongest company in the world. And they sell a product that is a necessity and they sell it for cold hard cash. I would certainly rather own XOM shares for the next 20 years rather than depreciating "ultrsafe" US Treasuries.

Exxon Mobil Appears at Lower End of Valuation Range

Let's forget about the numbers for a moment and think about investor sentiment since this market is driven by fear.
Exxon Mobil is by far the largest, most profitable and most financially strong company in the world. In the middle of a huge credit crisis, every company that relies on borrowed money (especially short term credit like commercial paper) or sells to consumers on credit (autos, housing etc) is justifiably getting crushed. But why is XOM getting punished? They don't need to borrow a dime to keep going. As a matter of fact they can invest in their business and have enough free cash flow to buy back $30 billion a year of stock and pay another $8 billion in dividends (rough numbers -I haven't checked carefylly). The knock against them is they are not growing fast. But they could show tremendous growth if they didn't care about return on capital. Remember that BP and RDS grew faster but then had to take huge writedowns which XOMs never has done. Then there is the fact that oil is a cash business. GM can "sell" a lot of cars by giving them away with no money down and zero percent financing for five years. But if you want oil you pay cash. XOM does not finance any of its customers.

Finally, there is a knee jerk reaction to sell commodities and cyclicals and buy staples. But has anybody stopped to think that oil and gas are a necessity not a luxury? And that oil is the only commodity that is neither renewable or recyclable? And that depletion is a relentless fact of life...We need to discover 4 or 5 MMB/D
every year just to keep production from falling.

Given all these facts, and that the government is borrowing trillions of dollars and debasing the currency to stave off financial collapse, would you seek safety in U.S. treasuries like all the lemmings or in XOM shares?

Exxon Shareholders Suffer a Windfall Loss of 13.7%

Exxon and all the other oil companies pay royalties that are a fixed percent of the price of every barrell of oil they produce. So the government gets just as much as a windfall from eising prices as the company. Furthermore, these royalties come right off the top. Then after paying all their expenses ( for drilling rigs, steel, chemicals etc.which are rising faster than the price of oil in many cases) they pay income tax on what is left. So the governement gats it's take twice: off the top line and out of the bottom line.

Also, who is to say what is a windfall? The technology, tobacco, soft drink, drug and entertainment companies (to say nothing about lawyers) make higher profits as a percent of revenue or capital invested than the oil companies.

Finally, if you want more of something (energy independence anyone?) you tax it LESS not more.

Those who are in favor of the government deciding what is a windfall and how we should tax it, should move to North Korea or Cuba and see how well socialism works.