Smarter Money: Energy Companies Aren't the Enemy

Everyone's taking aim at the oil and gas complex and blaming it for our woes at the pump. We want to blame the refiners for gouging. We want to put the heat on Exxon Mobil (XOM Quote) and Texaco (TX Quote) and Chevron (CHV Quote) and Royal Dutch(RD Quote). We want to force someone to make less money now, so we don't have to pay so much.

What a pile of hooey. So Valero(VLO Quote), after suffering for a decade, finally gets to make some money. So Philips and Unocal (UCL Quote) and Conoco get to have some good earnings. I guess that's what triggers a witch hunt in this country these days.

Energy Plays?

Pump Prices Preying on Economic-Rebound Promises

Bush Energy Plan: Add More Juice

Smarter Money: Energy Companies Aren't the Enemy

Last night I pulled up with Keith Bailey, chairman, chief executive officer and president of Williams(WMB Quote), and had a frank discussion with him about how this industry is being falsely demonized. Bailey, if you don't know, has steered his company to a 1,200% return over the last decade, the best performing stock in the group, even better than Enron's(ENE Quote) Ken Lay. Bailey's about making money for shareholders and he has taken this acquirer, explorer and transporter of energy about as far as you can take an oil and gas company. He's always been my kind of guy.

Bailey knows the truth: The patchwork of regulation and politics that has gotten in the way of energy in this country is just a travesty. He knows that drilling and conservation are the paths to energy independence. But, more important, he knows that the industry itself has been put through ridiculous hoops by every locale. The reason gas costs so much is that, if there is a shortage in one area of the country, we can no longer ship refined gasoline to that area to bring the price down.

The only way to compare the morass we are in is to analogize to another industry. Can you imagine if, in 14 different areas of the country, we had 14 different types of computer -- and yours wouldn't work somewhere other than your home area? It would be incredibly inefficient, not just for you but for the computer companies. That's how gasoline is now in this country. We simply can't de-bottleneck it, because it is differently formulated, mostly for political reasons, in every area of the country.

The funny thing about this is that, whether you believe in conservation as a precept of policy, as I do, or drilling as a prerogative, as the Bush administration does (and I have come around to thinking we have to, aggressively) it won't matter unless we resolve the problem nationally, not state-by-state or locality by locality.

Why should we care? Because if you own these stocks or are looking to buy in this complex, these next few days are crucial. Right now there are moves afoot all over the country to demonize these oil and gas companies. Right behind that will be investigations and price controls, if we are not careful, and you will have to sell these stocks with reckless abandon. You think I am wrong? The specter of drug price regulation -- just the specter -- has knocked three or four multiple points off the drugs for six years now. It would crush the Valeros and the Enrons and the Philipses and the Unocals.

Bailey knows this. Bailey's afraid like I am afraid. He's a businessman in the business of making money for his shareholders. Always has been. He's afraid he won't be able to, if the political griddle gets too hot. He is right to be worried. If you own these stocks, you should be, too. You have to hope that this energy policy gets spelled out in a way that doesn't demonize business, but recognizes that the problems come from the politics of energy, the resistance of people to sacrifice personally and the refusal of politicians to work out compromises that allow more power without excessive pollution. The problems do not stem from the companies. They are doing the best they can.