Every other industry would jubilantly flip the proverbial summersault in celebration, but the oil business was subdued and almost apologetic, and fast to provide explanations that this was an aberration, a one-shot deal (even though it had been essentially repeated for several quarters), and nothing to celebrate about. Times of forthcoming difficulties, even famines, were implied.

To be sure, a bit of circumspection is always a good thing in business. Markets have been known to punish companies and industries that fail to meet expectations. Falsely perceived future growth can take an industry to unsustainable heights and catastrophic collapses (dot.coms or Enron, anyone?). Real but slowed growth is also punishable, no matter how unrealistic the original expectations were (see Google.)

But at sustained $60 plus oil, with no upper limit in sight regardless of what OPEC’s ministers say, it is amusing to note the lengths to which the oil industry has recently gone to prove to the world that is not really doing that well. It must be hard to be so rich and so much in the public eye.

A first explanation for the somber words is that the record profit announcements were an obvious public relations disaster. This is nothing new and has been repeated before and often. High gasoline prices and especially, high heating costs always bring out the consumer advocates and the politicians to rail against “obscene profits.” Energy for most people in America is not a commercial commodity, it’s a divine right. Oil companies are mere vehicles, mostly a bothersome and suspect nuisance, whose job is to deliver the goods at minimum profit or no profit at all. Oil company earnings scalp the nation, and are only tolerated if the companies claim huge exploration costs, R&D, or the “cyclical” nature of the industry.

Of course exploration is now diminished, R&D is practically non-existent, and thanks to OPEC’s lack of excess capacity and geopolitical upheavals, there hasn’t been a cycle in years.

The industry’s bad-boy environmental image, deserved or not, does not help one bit. The attempt to overcome this image results in gimmicks like BP’s “beyond petroleum” – incredulously, imitated by others. Every chance it gets, the company trumpets that its future is “wind, solar, hydrogen, and natural gas” and, only as an afterthought, “oh yes, oil.” Never mind that oil accounts for the overwhelming portion of the company’s profits. It is hard to fathom the sanity of the company’s campaign.

Large oil company executives in public and private complain that their stock prices don’t seem to move up commensurate with their earnings. But if you were the proverbial little old lady in tennis shoes from Peoria, Illinois, would you want to buy stock in a company that misses no chance to announce that its product is a has-been commodity? I have often wondered what the “beyond petroleum” PR campaign is supposed to accomplish, except to discourage people from believing in the company’s present.

Huge profits notwithstanding, if I were sitting in the boardroom of a large multinational I would be worrying not about the viability of oil as an energy source, but where to get it and how to continue doing business. Shut out of reserves by the national oil companies in an oil world, increasingly hostile or unresponsive to the west and especially the United States, the big energy company of the future will be very different from the oil company of the past.

This is not merely a prediction. The current partyline states that even if reserves are hard to come by, oil companies still have the technology asset. True enough, but only to a point. Many functions have been farmed out to service companies, and it’s hard to envision mighty ExxonMobil competing with Halliburton or Baker Hughes; a battle they would probably lose if it were on the basis of technology. Headed by Schlumberger, Halliburton, BJS, and Baker Hughes, service companies are more highly evolved regarding technological prowess.

The reserves-to-production ratio (R/P), a very important yardstick of the future viability of any oil company, has been going down for the major multinationals and in some cases, such as the reserves scandal that had befallen Shell a couple of years ago, has taken a hit from which it will be very hard to recover. As the Energy Review has already published on other instances, the R/P ratio of the multinationals vegetates between 10.9 for BP to 13.7 for ExxonMobil with an average of just over 12. By comparison, Russia is at least 40, Saudi Arabia is probably much more than 70, and both, for different reasons, have effectively shut off any foreseeable involvement of real substance by the large multinationals. Iran and Venezuela, two countries which would be ideal operating grounds, are positively hostile. Iraq, well you read the news.

Whether investors clearly see a problematic future looming or the oil companies shoot themselves in the foot with their alternatives rhetoric, the end result is that stock prices of American multinationals do not seem to follow the positively spectacular growth of their foreign counterparts. For example, a $10,000 investment in equal shares from ExxonMobil, Chevron, and ConocoPhillips in March 2004 would be worth about $14,900 today. But the same $10,000 of shares from China’s PetroChina and CNOOC and Brazil’s Petrobras now would be worth $27,500. By comparison, a $10,000 investment in the three largest service companies, Schlumberger, Halliburton, and Baker Hughes, would be worth a very respectable $18,800.

Of course, I’m not ready to write off the American multinational oil companies. For starters, their stocks, even if they did not do as well as others in the energy industry, have done quite well against the market. For example, a $10,000 investment two years ago in the Dow Jones blue chips would be worth just $10,500 today. The energy companies mentioned above have performed far better. Further, the American multinational oil companies are loaded with cash and can raise tens of billions of dollars of additional capital in a heartbeat. And that cash gives them a myriad of options. But they will have to change their strategies in order to compete in the rapidly evolving global market.