"Oil Industry" and "Massive Capital Expenditures" undoubtedly appear on the same page in many documents. Despite the propensity to castigate "big oil" for its massive profits, in the end it is a cyclic commodity business with rather intense price volatility and increasingly debilitating exploration and production costs. (Which keep getting worse and worse and worse). That said, it seems the second guessing on Exxon's 2007 budget has begun. The tale could well be a case-study in the consequences of short-term focus by the public markets (or a savvy PR office resisting a brewing "windfall profits tax.") Says the Journal:
In 2007, Exxon repurchased $31.8 billion of its shares, up five-fold from the amount acquired in 2003. That activity helped earnings per share. It didn't increase oil output.
Wall Street analysts generally have cheered this financial conservatism, on the notion that big oil companies tend to waste money when they start drilling with too much gusto.
Shareholders love buybacks, of course. But given the multi-year scratch to strike periods involved in bringing oil finds to production, there are few businesses with a more direct need for long-term vision.
Lee Raymond left in 2005 (with much outrage over his $400 million take home) but I'm somewhat tempted to see if any current executives might have compensation packages disproportionately related to Exxon's late 2007 share price.
But seriously. I mean, if you can't trust big oil, who can you trust?
Exxon's Stingy Capital Spending May Haunt It [WSJ]