Thursday, January 27, 2005

Drilling on Wall Street

When predictable behaviors cease (e.g. major oil companies stop concentrating on finding more oil when prices are high), it is worth seeing what's up. What's up is a tacit admission by those oil companies that we are moving into an era of scarce supply that they believe we cannot drill our way out of.

Starting back in the mid-1980s when oil got dirt cheap, major oil companies soon realized that it was much cheaper and easier to drill for oil on Wall Street. No derricks, however, appeared in lower Manhattan; rather, the majors started acquiring other companies with reserves, sometimes for less than those reserves were worth.

That was then, and this is now. Now, it would stand to reason that with oil prices so high, drilling for oil in an actual oilfield would be richly rewarded. But alas, the trouble is that oil has gotten harder to find and, once found, harder to bring out of the ground. Those are increasingly the geological facts, even if people choose not to believe them.

Oil companies know better, and the major ones are bothering less and less with drilling and focusing more and more on acquisitions. In the investment field it can actually pay to embrace the facts, and savvy CEOs know that it pays even more to embrace the facts early.

This rambling piece on an investment website shows that some in the investment community are starting to pick up on the coming realities of peak oil. Whether peak oil is here or coming at later date to be announced, it will have profound implications, not just for investors or oil companies, but for everyone.

(Comments are open to all. See the list of environmental blogs on my sidebar.)

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