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Earnings and Reinvestments
Large earnings announcements reported in the media naturally grab attention, but it is not always made clear that the oil and natural gas industry also is one of the largest in the world, with employees and operations in virtually every country.
Oil Prices Since 1861
You might be surprised to learn that the biggest oil companies in the world are not publicly traded companies such as Shell, but national oil companies owned by foreign governments. To compete in the global marketplace with government-run oil companies that are far larger than Shell, independent companies must remain sizable and strong. Solid earnings among all of the major oil companies enable essential re-investment in their businesses.
The industry is spending at record levels to increase supply to meet the demand for energy and Shell expects to invest around $25-$27 billion on a net basis in 2011.
Ensuring Continued Production & Supply
Regardless of revenue, the costs of providing more and more consumers with the energy they need are high. It is becoming more complex and more expensive to find and produce oil. To find workable oil reserves, companies now have to look further into deep water and remote locations, using ever more sophisticated technology.
Higher costs naturally increase the financial risk. Producing crude oil involves long-term and high-risk projects requiring billions of dollars investment over 20-30 years. Higher profits in some periods help safeguard investments when oil prices, and hence profits, are lower at other times.
Additionally, the price of crude oil varies widely so oil companies have to take careful account of this uneven market factor before investing billions of dollars in complex, high-risk, long-term projects needed to find and produce oil. In 1998, the crude oil price fell below $10 a barrel, which triggered severe cut backs in investments and the near collapse of some oil-producing economies. In 2008 alone, oil fluctuated from a high of $147 per barrel to less than $50.
Earnings Generate Investments in America
Every cent of these earnings for companies like Shell is critical to the energy security of America. Shell and other energy companies collectively invested $1.25 trillion into the oil and gas industry between 1992 and 2008 - which is more than any of the companies earned in that same time period – in hopes of finding new ways to produce, refine and deliver quality products at competitive prices to consumers.
Technological innovations, refinery capacities and distribution methods have all improved over the past few decades, thanks to the foresight and reinvestments of American oil and natural gas companies such as Shell.