Exxon-Mobile's Strategic Petroleum Reserves

From A rare look at the U.S. strategic oil reserves by Simon Romero
Published on 6 Dec 2004 by New York Times / IHT. Archived on 6 Dec 2004.

FREEPORT, Texas A swamp near here is one of the most secretive places in America. There are no signs, just a 500-acre complex protected at all times by 30 armed guards in combat fatigues patrolling in sport utility vehicles.

This is part of the world's largest and most expensive filling station, the U.S. Strategic Petroleum Reserve, where a large portion of the government's nearly 700 million barrels of oil are stored in underground salt shafts that are supposed to be stable for the next thousand years or so.

American taxpayers have invested some $20 billion to build and stock this reserve - and three others in hidden locations - since it was created in 1975 in response to the Arab oil embargo. And now, after 29 years, it is finally about to be filled up to the brim for the first time.

TWENTY BILLION DOLLARS ??!!

That's peanuts when compared to ExxonMobile's strategic reserves, according to the NYT DealBook blog's story, "Exxon’s Texas-Size War Chest":

Exxon Mobil has amassed a large pile of common stock held in treasury. At the end of 2007, the company had 2.367 billion shares held in treasury, for which it paid $113 billion over the last 10 years, according to a regulatory filing. If that stock were valued at the current market price of $90 a share, it would be worth $237 billion, or $124 billion more than what Exxon Mobil originally paid for it.

The article tells us Exxon had built up a war chest like that in the 1990's and used it to buy up Mobile, its then rival, further re-concentrating the "broken up" Standard Oil Company **.

So what's in store for this strategic reserve this time? No one is telling, but the NYT DealBook is speculating:

It refuses to invest in projects that would lower its industry-leading return on capital employed, which is now around 35 percent. [And thereby increase production and supply of oil. **]

So what could Exxon Mobil buy with a quarter-trillion dollars in stock? ConocoPhillips has a market capitalization around $140 billion, so Exxon Mobil could snap that company up whole and give a modest premium to shareholders, if it were so inclined. The second-largest United States oil company, Chevron, has a market capitalization of around $206 billion, so Exxon Mobil could swallow it up instead.

** See Guambat's post just a day or so ago: Missed this anniversary date: May 15



BUT WAIT, THERE'S MORE ....

May 29, WSJ, "Oil Exporters Are Unable To Keep Up With Demand":

The world's top oil producers are proving unable to put more barrels on thirsty world markets despite sky-high prices, a shift that defies traditional market logic....

"Unable"? More unwilling than unable, Guambat reckons.

"Market logic"? More doodoo economics than logic, Guambat reckons, when the cozy cabal of suppliers (the big oil companies and oil countries) are more keen to cartel than compete.