My take?
They should enjoy it while it lasts.
While the oil big-wigs may be popping champagne corks and lighting Cuban cigars with hundred dollar bills now, the oil pools that stuff their pockets with seemingly endless wads of cash are quickly drying up.
Struggling to Keep Above Water
Despite Royal Dutch Shell's record annual net profit of $23 billion, the highest ever for a listed British firm, the company was only able to replace roughly 75% of the oil it produced with new reserves last year.
In 2004 the replacement rate was even lower...under 50%.
ExxonMobil also broke corporate records in 2005. The company enjoyed the largest annual net profit of any American company ever last year, a mouth-watering $36 billion.
Nonetheless, according to the formula set by the SEC, Exxon only managed to replace 83% of the oil it pumped with new reserves.
Replacing previously produced crude with new reserves is the no doubt the most significant problem facing the world's petro-monsters.
Crude production from fields in the North Sea, the Gulf of Mexico and Alaska, which the big Western oil and gas companies have depended on since the 70s, are in rapid decline. And new discoveries are anemic at best.
As a result, these companies have had to scour each of the four corners of earth for new reserves, often coming up short.
As we know, the majority of the world's remaining oil supply is located in the Middle East. While these fields are officially stated as containing hundreds of billions of barrels of crude, western firms are essentially banned from exploration and development there due to restrictions set by state-run energy companies.
So instead western oil and gas companies have been forced to explore other far-off places like West Africa and the Caspian Sea. Not surprisingly however, this has proved to be a much bigger headache than exploiting the reserves that were closer to home.
Shell has had to butt heads with militants over its involvement in Nigeria. The company has been blamed for having an overly friendly relationship with the Nigerian government, accused of stifling any political opposition in the oil-rich producing regions.
Consequently, Shell has paid the penalty. Shell's crude oil output has been recently curbed by pipeline attacks by local militants upset that they are getting the short end of the stick.
Furthermore, extracting oil in nearly inaccessible places, such as oil pools situated under the deep waters off Brazil, often requires costly technology and capital expense often making these reserves uneconomical to exploit.
That's Not All Folks
The world's major oil companies are also suffering from the mounting competition for assets in other regions.
Chinese and Indian oil firms are insatiably swallowing up smaller rivals around the world to satisfy their respective economies' apparent never-ending demand for energy.
This has led to harsh political recoil in some western countries.
I'm sure you remember last year's CNOOC debacle when the Chinese state-run oil firm lost out to Chevron in the battle to buy Unocal... thanks to strong resistance in Congress.
Still, western oil firms do have some advantages over the competition.
Technological advances that are forced upon them as they seek out oil in difficult places may help with the exploitation of unconventional hydrocarbons...such as Canadian oil sands.
Western oil firms also have the capital and know-how needed to extract and transport natural gas in liquefied form.
But when you boil it down, if the big western oil and gas companies lose the battle to replace reserves, the era of mega-profits will come to a screeching halt, regardless however high the price of oil climbs.
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