Show BUSINESS t I OIL INDUSTRY U I EIt PRESSURE The most significant effect of oC the Arab oil embargo of oC 1973 was the focusing of oC world attention at at- ten lion on all types of oC energy supplies Coal oil and natural gas long thought of oC as workaday commodities were were suddenly acknowledged to be our principal assets next to food At last came the realization that our energy assets were in decline and action should have been initiated years before beCore in order to bolster our position in terms of oC fuel Cuel reserves Energy Crunch By the beginning of oC 1975 the petroleum industry had been chosen by a disturbed public press and government as a whipping boy for the energy energy crisis In some instances oil companies were reporting sharply higher earnings for 1974 prompting charges of windfall profits and calls for Cor regulation and taxation This came about at a time when development of new sources of oC energy was a must The industry gave as its defense against its critics the tremendous costs involved not only in expanding existing facilities but also in seeking and making available new sources sources of oC oil and gas But in spite of oC protestations the Tax Reduction Act of 1975 was passed certainly a misnomer for the oil industry Provisions of the measure reduced credits for foreign income taxes paid and virtually removed the oil depletion allowance which had been an an industry privilege ge for many years Higher tax payments immediately immediately immediately im im- im- im mediately ate up the funds previously used in capital investment investment investment in in- vestment generated by the thed d depletion allowance with an industry estimate of 2 billion yearly now diverted from oil and gas exploration n and development by the Act C Constraints Sought thelast 1 t I In the last session Congress tried several times to create and maint maintain in competition in inthe inthe inthe the petroleum industry attempting attempting attempting at at- tempting to require major oil firms to divest themselves of certain operations Last October amendments to tobe tobe tobe be attached to unrelated legislation were only barely defeated They would have meant 1 Restriction of major oil companies to one phase of the oil and gas business producing refining transporting tran tran- tr transporting n. n sporting or marketing or 2 forcing the 15 largest crude oil producers to divest themselves of other phases of the business or 3 making the 20 largest oil companies divest themselves of all other sources of energy Viewing The Future The Research Department of Babson's Reports looks for continued efforts to restrain the oil industry One divestiture proposal now being considered sponsored by a Presidential hopeful would restrict major oil concerns to just one phase of oC the business for a three year three year Major l would mean some 26 companies as defined by minimum volumes of business Any such proposal however raises the question of what effect divestiture might have not only on oil companies but also on various parts of the general economy Raising capital could be a far more critical problem for a fractionated company than it is already for the leading integrated integrated in in- integrated firms What might the impact be on share values of oC oil company stocks consumer costs research and development development development develop develop- ment and foreign competition and trade Looking further into the question of oC financing a major company today requires huge amounts of capital for constantly constantly constantly con con- more costly onshore and offshore drilling operations pipelines and production platforms It is obviously difficult for any anyone anyone anyone one company adequately to finance a large operation Hence a combine of companies in a joint venture should not be considered a monopoly by industry industry in in- industry detractors but rather a pooling of effort to provide adequate capital with minimal risk The Alaskan pipeline construction for example could never be handled by any single company especially in such inflationary times without unacceptable risk |