Exxon Invests

"Hardly known as a wildcatter, Exxon Mobil Corp. is searching for oil in most of the world's regions where high-risk exploration is under way, even as other bog pil companies are being more selective and cutting capital spending. ... Exxon said capital spending reached $27.1 billion last year, up 3.6% from a year earlier. Fourth-quarter spending reached $8.3 billion, Exxon's highest three-month total ever. Exploration expenses charged to income, which capture spending on unsuccessful wells, rose 39% last year. ... Exxon is exploring in eight of the 'hot,' high-risk exploration regions around the world identified by Sanford C. Bernstein and is attempting to invest in a ninth. Aside from Royal Dutch Shell PLC, which is nearly as active, most other oil companies have interests in only half as many such areas, at most", Russell Gold at the WSJ, 2 February 2010, link:

http://online.wsj.com/article/SB10001424052748703422904575038930311563198.html.

Exxon is better off putting dollars in the ground than holding them. Exxon apparently believes $75 oil is cheap. So do I.

Exxon's Acquisition

"Shrinking? Me? Having spent much of this decade buying back the shares it issued in its last big acquisition, Exxon Mobil Corp. is purchasing another company for a change. ... What's more, Exxon is scaling up in a business that looks dreadful right now: US natural gas. ... Exxon has recycled $258.8 billion into buying back its own stock since September 2000, according to [S&Ps], equivalent to almost 79% of its current market capitalization. ... Moreover, it is paying less than $1 per thousand cubic feet equivalent whcn XTO's probable and possible reserves are taken into account. ... With XTO, an entrepreneurial, acquisitive company, the risk is largely cultural. In trying to capture the expertise of XTO's employees, Exxon must be careful not to smother them in its much larger organization", my emphasis, Liam Denning at the WSJ, 15 December 2009, link: http://online.wsj.com/article/SB10001424052748704869304574596431977167614.html.

There is much speculation about why EOM is buying XTO. My answer: XOM thinks the price of natural gas will increase over the next 5-10 years.

Exxon Plunges!

"Capitalizing on recent years of soaring oil prices and conservative investment, Exxon Mobil Corp. said it will boost spending on energy exploration and production by 11% to $29 billion this year, even as many of its rivals are cutting costs. ... Exxon's spending this year will come in toward the top of the $25 billion to $30 billion the company had said it would spend each year through 2013", Russell Gold at the WSJ, 6 March 2009.

This makes sense to me. Exxon's exploration and development dollars go a lot further than they did nine months ago.

Foreign Policy For Sale

"But this spring, events for Chevron took an ominous turn when a court-appointed expert recommended Chevron be required to pay between $8 billion and $16 billion to clean up the rain forest. ... Chevron is pushing the Bush administration [BA] to take the extraordinary step of yanking special trade preferences for Ecuador if the country's leftist government doesn't quash the case. A spokesman for U.S. Trade Representative Susan Schwab confirmed her office is considering the request. ... Chevron argues that it has been victimized by a 'corrupt' Ecuadorian court system while the plaintiffs received active support from Ecuador's leftist president, Rafael Correra--an ally of Venezeula's Hugo Chavez. ... 'The ultimate issue here is Ecuador has mistreated a U.S. company,' said one Chevron lobbyist who asked not to be identified talking about the firm's arguments to U.S. officials. 'We can't let little countries screw around with big companies like this--companies that have made big investments around the world'," Michael Isikoff at Newsweek, 4 August 2008.

Which court does Chevron think it's in front of? The US Roberts' court? Exxon didn't want to pay a punitive damage award and poof, Roberts & Co. creates some law to reduce the award by 90% from the jury's initial determination. Paraphrasing Inherit the Wind (1960), "If it's good enough for Exxon, it's good enough for Chevron". I await the BA intervening in this case. Why not? The BA wanted Texas not to execute Jose Medellin to keep Mexico happy. No problem. Let's declare war on Ecuador for Chevron! It's the least we can do. While Chevron apparently wants this, I have another plan. Article 1, Section 8 of the US Constitution lets Congress grant letters of "marque and reprisal". Fine, Chevron, stop lobbying, get a letter of reprisal, raise an army and a navy and go at it with Ecuador. You can put the battles on pay per view. With a little luck, you and Ecuador might make a bundle at this! Battles are popular. The Washington, DC elite picnicked while watching the first battle of Bull Run in 1861.

Oil Stocks

"Paradox: Despite the sharp rise in oil prices, bargains are bubbling in major oil stocks. The stock price of major oil companies hasn't kept pace with the price of a barrel of oil, which is now 95% more expensive than 12 months ago. ... But for the long term, the outlook for these stocks isn't rosy, as they face their biggest challenge ever: lack of oil-production growth or even a decline in output. Signs of this have emerged in the earnings statements of recent quarters, making some observers think these companies may not even be around in 10 to 15 years. ... Exxon's P/E has been in the range of 10 to 13 since 2004, its lowest level since the last time oil prices rose, in the late 1980s and early 1990s, with the onset of the first Persian Gulf War. ... Today, 'the majors, on the whole, look pretty cheap,' says Justin Perucki, an energy analyst at research firm Morningstar Inc., who assumes a long-term price of oil at $85 to $95 a barrel for valuing these companies. ... Life has gotten much tougher for the majors in their foreign endeavors. Decades ago, these companies were welcomed for their huge funding and technological and engineering prowess. Today, these companies are facing increasing nationalism in countries such as Venezuela, which are reducing the amount of oil they are willing to give up to let companies such as Exxon come in and drill", Shefani Anand (SA) at the WSJ, 12 July 2008.

SA explains the paradox: the majors "reserves" are all held at the sufferance of "host" countries. No one can predict what royalties or other taxes the majors will face in the future, so the market increases its discount rate on those reserves.

Exxon and the Supremes

"After almost 20 years of legal battles over the Exxon Valdez oil spill, the Supreme Court last week slashed the punitive damages imposed on ExxonMobil to $500 million from $2.5 billion. ... Justice David H. Souter cited studies showing that under federal maritime law, punitive damages were on average equivalent to actual damages in cases where the damage was not deliberate or malicious. ... It's what conservatives call 'judicial activism' when so-called liberal judges do it. As Justice John Paul Stevens wrote in his dissent, 'Congress is far better situated than is this court to assess the empirical data, and to balance competing policy interests, before making such a choice.' ... Ginsburg wrote, 'The new law made by the court should have been left to Congress.' So it should be. Yet again, as in cases involving automakers, cigarette manufacturers and other companies the court has sided with big business. ... Exxon is a business, and it functions like a businees. The Supreme Court, however, strayed from its function in arriving at this arbitrary decison with no basis in the law, and that's everybody's business", my emphasis, Editorial at the Houston Chronicle, 30 June 2008.

I agree with the Chronicle. The Supremes regularly create law. Look at the recent case ending Louisiana's death penalty for rape. What was the Supreme's basis for that? Why was the recent District of Columbia gun case decided 5-4 as opposed to a 9-0 shutout? The Supremes do whatever they want. We should accord them no respect whatsoever.

Incentives Count-For Oil Companies Too!

"ExxonMobil Corp. doesn't make many mistakes. In the often-chaotic petroleum business, its careful budgeting and efficient operations are widely admired. But Exxon's stingy approach to capital spending--amid skyrocketing oil prices--could be a target of second-guessing for years to come. ... Consider these numbers. In 2007, Exxon spent 5.3% of revenues on exploration and capital outlays, down from 6.5% in 2003. The actual dollar amounts did increase, to $20.9 billion from $15.3 billion. But they didn't keep pace with Exxon's overall revenue growth, let alone soaring oil prices. ... 'Exxon has consistently been the most cost-disciplined of the big oil companies,' says Morgan Stanley analyst Doug Terreson. 'They most likely believe that the historic rise in oil prices isn't sustainable. Otherwise they would be spending a lot more than they have.' ... What's more, countries such as Venezeula and Russia have become more assertive about the terms on which foreign oil companies can operate within their boundaries", George Anders at the WSJ, 16 April 2008.

"Russian oil production declined in the first quarter of 2008. ... But since 2003, the most efficient Russian oil company, Yukos, has been dismembered, contracts with efficient foreign operators such as Royal Dutch Shell have been forcibly renegotiated, and Russia has imposed an 80% tax on revenue after the first $27-a-barrel price. ... Venezuela recently seized majority control of foreign oil concessions, so even with the world's largest oil reserves, its production has declined since 2006. Nigeria taxes foreign oil companies at 98%; its production has declined 10%", WSJ, 16 April 2008.

I think Terreson is all wet. I suspect Exxon's management believes current oil prices will be maintained, but Exxon will be unable to profit from them as a result of tax changes and contract renegotiations.

BP and Exxon Justice?

"In a case that could test the limits of punitive damages, the Supreme Court will hear arguments today related to the $2.5 billion award against what is now ExxonMobil Corp. for the 1989 Exxon Valdez oil spill. ... Beyond taking its case to lawmakers and presenting arguments in litigation, Exxon has sought to influence academic thinking about the remedy, funding research by several prominent scholars who concluded that juries were likely to act arbitrarily in awarding punitive damages. ... Moreover, Exxon complains that jurors were permitted to consider the award's amount in light of the company's profitability", WSJ, 27 February 2008.

"Victims of the 2005 Texas City refinery accident should not be allowed to block a $50 million criminal settlement between BP and the government, prosecutors wrote in court papers filed this week. Federal prosecutors argue they didn't violate the victims rights when they didn't include them in settlement discussions. They also noted that, among other things, including them in negotiations could make it more difficult to reach an agreement. ... The prosecutors' response, filed this week, says the government shouldn't be compelled to have discussions with victims on issues related to possible fines in a criminal case. In such discussions the government might not be able to reveal all the facts to the victims because it 'poses a significant risk of publicity that could impair the government's ability to secure a negotiated resolution or could impair the defendant's constitutional rights if negotiations fail'," my emphasis, Tom Fowler at the Houston Chronicle, 8 March 2008.

"A congressional committee is investigating the government's proposed criminal plea deal with BP stemming from the deadly 2005 Texas City refinery explosion, questioning whether the deal woulf protect workers or deter future misconduct. ... John [Dingell's] ... letter posed dozens of pointed questions about the deal's adequacy, how it was forged, prosecutors' responsibilities to include blast victims in the plea process and whether top executives are culpable. ... The committee wants a meeting with prosecutors, documents related to the plea deal, and an assessment from the [DOJ] about whether the deal is an 'ineffectual deterrent to future violations' given BP's history of problems. ... Dingell and Rep. Bart Stuart ... said in the letter that even if the fine is the largest imposed for a violation of the Clean Air Act, 'this alone does not address whether the fine is adequate to achieve the goal of deterrence, particularly since the fine is less than a single day of profits for BP in 2006 and 2007'," Kristen Hays and Lise Olson (H&O) at the Houston Chronicle, 13 March 2008.

This case is a farce. The Supremes had no business hearing it. Exxon funded research? Big deal. Is this Exxon's answer to the Tobacco Research Institute of the 1950s? The Supremes heard "doll" evidence in deciding Brown v. Topeka School Board. Are juries less "arbitrary" than judges? I think not. As for Exxon's profitability. I remember companies lobbying the California Supreme Court to admit evidence of their net worth so as to limit punitive damages awards against them. Exxon should have been forced to pay this judgment decades ago. Will the Supremes now hear arguments to limit fines individuals might pay as a result of criminal convictions if they can't "afford" to pay them? Should a Los Angeles drug dealer be able to contest a fine by pleading poverty?

Of course, it could make it more "difficult to reach an agreement", if that means sell out the public interest. Get out that crying towel. The Bush administration's new found concern with defendant's consitutional rights is touching. I wonder in Exxon would settle its punitive damages case for the $50 million fine BP is being asked to pay by Uncle Sam? This is a joke.

I wonder if the Supremes will consider the Dingell-Stuart letter in deciding the Exxon Valdez case? Or it they have already decided it. For Exxon. Exxon's academics claim juries are arbitrary. Look at the DOJ and the BP case. See my 22 November 2007 and 29 February 2008 posts.

Punitive Damages are a Fraud-2

"BP should pay at least $1 billion in criminal penalties for the deadly Texas City refinery explosion instead of the $50 million agreed to in a plea bargain with the U.S. government, a lawyer for the blast victims said Tuesday. ... David Perry [DP] ... argued that BP neglected repairs at the Texas City plant for six years and made more than $1 billion in profit from the plant in that time, so the corporation should pay at least $1 billion in fines. ... [DP's] federal court motions filed Tuesday asked that the plea be rejected and that U.S. District Judge Gary Miller remove himself from the case because his former law firm, Fullbright & Jaworski, helped BP in lawsuits over the explosion", Houston Chronicle, 21 November.

"Motorola ... may seek $1 billion in punitive damages from the former owners of a Turkish wireless carrier. ... The trial judge said the Uzans had $5 billion", NYT, 22 November.

Gary Miller (GM) "stepped down after a lawyer protesting BP's plea bargain pointed out that the judge's former law firm had represented the oil giant. [He] noted that he was not required to recuse himself", Houston Chronicle, 22 November.

The Uzan's "'failed to demonstrate that the award exceeds their ability to pay. Therefore, we conclude that the modified punitive damages award of $1 billion is valid under Illinois law'," WSJ, 23 November. So said the Second Circuit Court of Appeals in New York.

Who is GM, the Federal Bench's Mary Jo White, see my 10 August, 12 September and 7 October posts? GM wasn't? What's wrong with the federal bench?

Let's "do" some numbers. I can, I'm a CPA. A trial judge grants a punitive damages award of 20% of the Uzan family's net worth ($1 /$5). Now Exxon's and BP's net worths as reported in their 30 September quarterly SEC filings were: $118,603 and $90,541 million respectively, source: http://www.sec.gov/. Now dividing, we see the Exxon Valdez punitive damages award was 2.1% of Exxon's net worth ($2,500 / $118,603) and the BP fine is: drumroll please, .06%, that's right, not even a rounding error to BP of BP's net worth ($50 / $90,541). Will my "favorite" Supreme John Roberts grant immediate certiorari to reduce Motorola's award against the Uzans, individuals, not Fortune 500 corporations? Will Theodore Boutros of Gibson, Dunn & Cruther file an amicus brief with the Second Circuit Court of Appeals in New York, pro bono on behalf of the Uzans? Don't hold your breath. Also see my 23 and 30 October posts.

Are Punitive Damages A Fraud?

"It has been nearly two decades since the Exxon Valdez ran aground in Alaska. ... The $2.5 billion award in Valdez raises obvious and important questions of excessiveness--it is larger than the total of all punitive damages awards affirmed by all the federal appeals courts in history", Theodore Boutros, a Gibson, Dunn & Cruther partner in the WSJ, 23 October.

I remember Exxon applauded the jury which awarded $287 million in compensatory damages, then rebuked the jury for its $5 billion punitive damages (PD) award. How did Exxon avoid paying the judgment for over a decade? In 2005 and 2006 Exxon made $36 and $39 billion repectively, what makes $2.5 billion excessive? Exxon's current market cap is $507 billion. Does Boutrous compare the PD award to say, a social security recipient's average annual payment? What does Boutrous claim is not excessive? $1? That federal appeals courts did not confirm $2.5 billion in total PD awards in history shows PD are a hollow threat. Let's get out our violins and crying towels for Exxon. Joe Schmoe can get 25 to life in California for stealing a pizza if it's his third "strike" and Exxon complains about "Due Process"? This is disgusting. This case has become a Seventh Amendment issue. We need new civil procedure rules. After appeal, the original jury should be reconvenied and shown all the appellate papers and rulings and permitted to affirm or reject the appellate court's holdings!