Over the latest four quarters for which financial data are available, ExxonMobil has spent a greater proportion of its record profits ($36.7 billion) and cash flow repurchasing its common stock ($20.5 billion) than investing capital in oil and gas exploration ($19.1 billion). If Congress is disturbed by this juxtaposition, it ought to do something about it. In fact, Congress has the power to establish an investment climate in which ExxonMobil would be far more likely to use a much larger share of its cash flow drilling for oil and gas than spending the money boosting its stock price by reducing the amount of outstanding shares. To its credit, the House of Representatives has recently taken a major step in this direction. Now, Bill Frist, the Senate majority leader and a 2008 presidential aspirant, has a golden opportunity to make voters forget about his April venture, when he proposed offering taxpayers a $100 rebate to defray the soaring cost of gasoline.
Late last month, the Republican leadership in the House marshalled a bipartisan majority that passed legislation effectively repealing a 25-year-old federal moratorium on offshore drilling for oil and gas in many areas of the Outer Continental Shelf (OCS). The potentially liberated OCS area, where federal rules have banned drilling, is believed to contain 19 billion barrels of oil and 86 trillion cubic feet of natural gas. Given that current U.S. proved reserves total 22 billion barrels of oil and about 190 trillion cubic feet of natural gas, the OCS oil and gas reserves unleashed by the House last month represent a huge step in the right direction. With the support of 40 Democrats, the Deep Ocean Energy Resources (DOER) Act passed the House by a 232-187 vote.
Under DOER, drilling would still be banned for the first 50 miles off the coast. However, with the approval of a state's governor and legislature, a state could repeal that ban by petitioning the federal Department of Interior to authorize drilling within that 50-mile limit. Unless a state petitioned Interior to maintain the moratorium beyond 50 miles, DOER would permit drilling in waters 50 to 100 miles offshore. To induce states to permit expanded drilling, DOER offers them a larger share of the royalties. In a concession to Florida, DOER bans drilling within 100 miles of the state's west coast.
Mr. Frist's Senate will soon be considering a much more limited bill, which would authorize drilling in Lease Area 181, a 3-million-acre area on the Gulf of Mexico that contains an estimated 5 trillion cubic feet of gas. Located more than 100 miles off the Florida coast, area 181 is not currently covered by the federal moratoria. In 1997, President Clinton proposed authorizing lease sales in area 181. Now, Florida Democratic Sen. Bill Nelson is promising to filibuster the Senate bill, which received bipartisan support in committee. If the Senate wants ExxonMobil and other companies to direct more of their considerable cash flows to capital investment, it must open more areas for exploration.