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Monday, August 07, 2006

Pipeline Disaster: No Rally In Oil Stocks

Stocks: (COP)(EOM)

At first blush, the up-tick in oil prices would seem to favor companies like ExxonMobil and ConocoPhillips, but the stocks are actually trading slightly down. Both companies operate the Prudhoe Bay field along with BP and several other companies.

The problems is that the two big US oil companies may actually have less oil to refine because both get part of the refinery supplies form the large Alaskan field. If the pipeline is shut down for any period of time, the affect on earnings could actually be negative. While both companies have plenty of other sources for oil, with demand near record-high levels, the interruption in supply does neither company any good.

The other, more ethereal, affect of the shutdown is that it undermines the image of the oil companies as being environmentalists at heart. Part of Exxon's corporate profile is that it is "managing the environmental effects of the increase in energy consumption". ConocoPhillips also points to "its repect and care for both the local and global environment".

The pressure from consumer groups to have a "tax" on oil profits has not gone away. Part of that toll is meant to be used for the potential environment side effects of oil spills and other environmental damage that drilling and transporting oil can cause.

The large oil companies do not want another call for a "windfall profits tax", but any event that makes them look irresponsible on evironmental issues helps fan the flames of that debate.

ExxonMobile trades at $69.50, very close to its 52-week price range. ConocoPhillips is at $69, which is also relatively close to its 12-month high of $72.50. Neither company needs the oil industry to be hit with bad publicity when there is already an outcry in some quarters about their profits.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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