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11/04/2005
Will-You-Give-Us-A-Break? Oil Companies Look for Profits in Public Relations

by Greg Remke

Will foolish public relations campaigns by Chevron and British Petroleum (BP) demoralize employees and damage stock prices? Or will millions respond to these advertising campaigns by rushing to buy more gas from caring oil companies?

Contrast Exxon's straightforward pro-market company pronouncements with the less-than-straightforward public relations campaigns of Chevron and BP. Exxon makes clear they are in the oil business and work hard to make money finding and refining oil, and delivering hydrocarbons to customers.

You can see these different approaches on company websites. Here is Exxon s homepage:

It shows a gas station, beautiful oil pouring, red oil barrels, and a guy working. All pretty straightforward images for a company in the oil business.

Let s look at British Petroleum s homepage:

Well, there is the green BP ( Beyond Petroleum ) oil flower, then a mechanical contraption that is either from an oil-rig or an amusement park. BP is about delivering oil, gas and renewable energy resources And BP s homepage makes clear they care. They ve apparently launched a global campaign to ask people what you would ask an oil company.

Exxon, by contrast, features on their homepage (on Nov. 3, 2005) an image of Exxon XD-3 heavy duty diesel engine oils [that] deliver the kind of outstanding protection today's trucking demands. In other words Exxon seems to assume people look to oil companies for oil, and they take the opportunity to advertise their oil products on their website homepage.

Of course both companies recognize there are challenges to be faced. Exxon s homepage includes a link to their Energy Challenges page, which looks like this:

The graphics cycle but each frame profiles a technology to increase energy production (one is on ways to produce cleaner energy).

BP s equivalent section is titled Environment and society and looks like this:

BP is apparently in the business of growing trees as well as well as producing energy and you can find out more by downloading their report on Sustainability in action in Georgia (I didn t).

BP is, or claims it is or wants to be, in some future Beyond Petroleum industry where flowers grow from gas tanks, and lattés are served. Of course there s a lot of money in lattés. And in having your sensitive customers see you as a force for flowers, lattes, and good, rather than a money-grubbing, oil-drilling, profit-seeking Exxon. BP has spent a lot of money burnishing their corporate image, reportedly spending $100 million on its corporate flower (too much PR spending say some: The United Steelworkers on Monday asked British Petroleum North America to pay more attention to preventing future tragedies than to the company s image. The demand came in the face of increased scrutiny over a report the company issued in the wake of an investigation into a series of explosions at one of its refineries that killed 15 workers and injured 170 others. (http:// newstandardnews.net/content/?action=show_item&itemid=1871)

Unfortunately, Chevron seems to have fallen further into the public relations morass.

Chevron s home page shows someone blowing bubbles (better by far than an image of a CEO blowing smoke). One of capitalism s great accomplishments was shifting most back-breaking human work to oil and gas fueled machines. Chevron s homepage harkens back though to the days of Human Energy (a phrase they claim to have trademarked) It s the one energy our planet will never run out of. Okay, so what is the point? That we will run out of every other kind of energy? How about solar energy, will that run out? Truth is we won t run out of hydrocarbon energy. Ever. England still has plenty of coal. They just chose not to bother digging it up anymore because other energy sources were cleaner and cheaper. We will switch to other energy sources long before we burn all Earth s hydrocarbons. We will switch as soon as these alternative energy sources are cheaper. We switched from wood to peat, peat to coal, coal to oil. All will be happy to switch to the next better, cleaner, safer, cheaper energy source.

In big bold green letters we read on Chevron s homepage: If each one of us took just one small step towards conservation, the impact would be huge. Huge like a meteor impact? Are they claiming that if each of us took this one small step towards conservation (rather than actually conserving?) there would be some huge impact? Do we want that huge impact? Do oil companies like Chevron want a huge decrease in energy consumption? If we all turned down the heat and wore sweaters, how huge would the impact be?

But such fluff is not enough for Chevron. They have a whole campaign to encourage us to join them in taking these small steps toward conservation. You can find details on giant billboards around the country or in full-page magazine ads. And on their website:

If you don t have a magazine with their full-page memo, you can find it on their site: www.willyoujoinus.com/advertising/print/

Big letters next to Chevron CEO David O'Reilly's memo, ominously read: "It took us 125 years to use the first trillion barrels of oil. ... We'll use the next trillion in 30."

The rest of the story would read: "It took us at least 5,000 years to even figure out what to do with this oily gunk (much less how to get it off our shoes, or even how to make shoes), and then it took the next 125 years to discover, refine, deliver, and burn the first trillion barrels. ... In the next 30 years we will refine and burn the enjoy another trillion barrels with safer, cleaner and more efficient technology. And over that time we will discover far more oil than we use."

Here is my line-by-line response to Dave O'Reilly's advertising memo:

writes: "Energy will be one of the defining issues of this century."

Response: It won't. The issue will lose definition when prices decline. Prices may not fall next week, next month, or even next year. But they have always fallen before and they will likely fall again. Whether they fall a little or a lot, people will adjust, life will go on, and people will adjust. The energy crisis faded the day President Reagan took office and deregulated oil production, ending that price-control inspired energy crises of the Carter years. The defining energy issue fades away when prices fall, as it did again in the early 1990s, in the late 1990s, and again post 9/11 (see chart below). A 10,000-year chart would show much the same story. Prices fall and people turn their attention to other projects. They have after every previous energy crisis since wood ran out around the cities of the ancient world. (See Maurice and Smithson's great book The Doomsday Myth: 10,000 Years of Economic Crises).

Source - U.S. Energy Information Administration

Note gray bands on chart. As prices spike up on each: grave concern by polticians, pundits, scholars. As prices fall like a rock on the other side silence from politicians, pundits, and scholars. Maybe this time it will be different?

Dave writes: "One thing is clear: the era of easy oil is over."

Response: Easy for whom? Finding oil has always been harder than approving a public relations memo full of platitudes. Edwin Drake in 1859 struggled to drill the first oil well. And every step forward since then has been a contest with some throwing up their arms in despair and others fighting on to find a way forward. Easy oil ran out quickly in Pennsylvania. Burt Folsom, in Myth of the Robber Barons, tells how John D. Rockefeller bet the farm on figuring out how to transform sulphurous crude in Ohio into usable kerosene. No one knew if it could be cracked and Rockefeller s own board at Standard thought it couldn t. Until it was. Rockefeller bought and leased land in Ohio and hired chemists who eventually figured it out. Was finding oil ever "easy"? From sailors balanced on a wood skiffs launching harpoons at great whales to those on today s deep- water platforms dropping drills thousands of feet down, finding oil has been easy only in Hollywood (where Jed Clampett shoots at a rabbit and hits a bubbling crude ).

Dave claims: "Demand is soaring like never before"

Response: How was demand soaring before? Demand soared when prices fell like a rock in the late 1990s. That's what quantity demanded often does in response to falling prices. If China and India fall back into deep socialism, energy demands will fade. Free people turn burn energy to transform the world around them. More accurately, but less poetic, "Demand is soaring like always before when people are free." The key question is whether oil production will soar as fast as demand. Or a little faster or slower.

Dave claims: "[M]any of the world's oil and gas fields are maturing."

Unlike oil industry CEOs, oil and gas fields are always maturing. That is why oil companies look for (or should look for) new oil and gas fields, and for ways to rejuvenate current fields. Looking backward, sure, new fields are harder to get to and are full of harder-to-refine hydrocarbons. But that has been so since oil first began to run out in Pennsylvania. Canada's tar sands, the equally difficult hydrocarbon gunk in Venezuela, and oil shale in Colorado, all hold trillions more barrels waiting for whenever oil industry technology and political rules of the game are ready.

Dave writes: "We can wait until a crisis forces us to do something. Or we can commit to working together, and start by asking the tough questions. How do we meet the energy needs..."

Response: The toughest question here is first in that first sentence "Or we can commit to working together " Just how do we do that? I have trouble working together with my sister. I used to work for my father. That was hard too. We love each other and wanted to work together. But it s hard. It has always been a challenge, for me at least, to work together. I guess it would be easier if I were CEO of Chevron. Then other people would figure out how to work together with me.

One way people have discovered to work together is to follow set rules about property, contracts and dispute-resolution, and to allow market prices to communicate relative scarcity and relative demand. Changing prices convey billions of bits of information about the relative ease or difficulty of producing new energy as well as the relative ease or difficulty of reducing current usage. For example, when oil prices are relatively low, as they were until recently, people worked together to reduce oil exploration and development operations. Major oil companies laid-off tens of thousands of employees and cut back on exploration. With lower prices consumers turned to larger, faster, safer and more-fun cars.

Now that oil prices jumped way up, consumers are looking for smaller cars with more efficient engines, and oil companies are rehiring elderly retired workerst, buying new equipment and computers, and vastly expanding exploration. Everyone and his brother is looking for creative ways to conserve energy and for alternative energy sources. Changing prices and open markets enable us to work together. Not advertising campaigns based on memos signed by at Chevron.

Dave s perspective: "Whatever actions we take, we must look not just to next year, but to the next 50 years."

Response: How? How do we look 50 years ahead and act today? If Chevron had been able to look ahead from 1992 just 10 years it would have laid off far fewer workers and shut down far fewer of its oil exploration and development operations.

A 1998 news story reports: Chevron Chemical Co. LLC, an arm of US oil giant Chevron, will eliminate 300 jobs by mid-2000 as part of a plan to trim $76 million from costs. Another story from 2000: The new company, to be called Chevron Texaco, plans to eliminate 4,000 positions [7%] out of its combined worldwide workforce of 57,000, saving $1.2B a year. Overall, United States oil and gas industry employment dropped from 1.65 million workers in 1982 to roughly 640,000 in 2002. Some of these job reductions probably had to do with technology gains. But a lot were part of scramble to downsize in the face of falling oil prices--and an inability to see into the future. Had Chevron s then CEO been able to see just 10 years ahead, Chevron would could have held on to key staff and been better positioned for expansion when oil demand and prices jumped .

Chevron s economists couldn t predict oil prices five years ahead, yet their CEO tells us all we should be looking ahead fifty years when we take action today. Who can project what a barrel of oil will cost to find, drill and refine in 2055?

But if there is somehow a meaningful demand to make decisions today based on expected reality 50 years in the future, then by all means lets set up futures markets and start planning and trading. But Dave, if you are just blowing smoke about acting today with 2055 in mind, tell us now. If you are serious, set up meaningful internal trading desks with investment tools that reach to 2055. Build your field of dreams, and if its services are valuable, players will come.

Dave believes: "At Chevron, we believe that innovation, collaboration and conservation are the cornerstones on which to build this new world"

Response: Well, it is good to know what folks think at Chevron. At Exxon they think Chevron paid way too much for Unocal. I guess time will tell who is right. Outside Chevron too we are all for innovation, collaboration, conservation and cornerstones. But I am thinking that at least during work hours Chevron folks should focus on discovery, refining and delivery of oil.

Dave says: "Corporations, governments, and every citizen on this planet must be part of the solution as surely as they are part of the problem."

Response: Well, I agree I am part of my own problems. But I would prefer to define my problems and figure out on my own how to solve them (I am happy though to take time out to help define Dave s problems.).

I like to think and write critically about economics, public policy, and public relations campaigns. I don't like to drill for oil, or to figure out how to refine and distribute it. I am not good at these things and don't want to learn. Energy production is not a problem I have learned how to solve. But I have huge respect and admiration for the engineers who do know how to accomplish these tasks. And I am happy to continue paying my respects each time I visit a gas station.

What I would like is for employees at companies like Chevron, Exxon, Shell, and other such firms to focus on finding, refining and delivering oil. Every citizen on the planet should be left free to focus on solving the problems they deem worth solving. I have no more insight into those problems than Dave does. But unlike Dave, I m not trying to draft the world into solving my public relations problems.

No one should be empowered to define other people s problems, nor empowered to restrict how others face life s daily challenges. People everywhere wake up hungry or thirsty, hot or cold. Energy is, as Robert Bradley Jr. writes, the master resource. With it all other resources are available, from clean water to comfortable indoor climate, to swift transportation. Cheap and reliable energy is a goal that doesn't need to be marketed.