[nyt big oil article]
Hi Dew,
your brief commentary was too kind. Guy Chazan clearly doesnt understand ME producers, the oil industry, or the economics of the consuming countries. With regard to the producers comment: not all Saudis have been sitting around doing nothing more strenuous than taking dinner flights to Switzerland for the past 40 years. Aramco (and other NOCs) have been taking on more of the activities previously managed by western oil companies and drilling in-fill wells doesn't require the high level expertise of XOM. In addition, there are simply more oil companies competing for contracts with ME oil producers. Chazan doesn't seem to understand why this competition did not exist in any meaningful way until relatively recently.
However, the most important reasons for western oil companies to produce in "rich, developed countries" is that it is more profitable to operate in those countries. Those countries tend to respect contracts and private property ownership, provide safer working environments, more dependable supply and support infrastructure, and stable royalty/tax rates. Chazan does allude to these things but those are quite a bit different than refocusing operations areas because they were "shut out" of the previous areas or because "unconventionals" are fashionable. Chazan should've paid more attention to Amy Jaffe's quote.
Chazan might also want to compare BP's cost of obtaining and moving a barrel of oil from Saudi Arabia to Japan versus obtaining and moving it from Alaska. The selling price is roughly the same.
He had most of the parts right, he just doesn't understand their relative levels of significance to making profit (which, strangely, was a word never used in the article).
cheers,
Charlie
