It's pop-culture week on Industry Focus, and in this week's energy episode, analysts Sean O'Reilly and Taylor Muckerman tackle the trope of the moustache-twirling, lap-cat-petting, smarmy-smirking oil baron who's just waiting for a sliver of an opportunity to destroy anyone or anything that comes between him and another well.
Listen in to find out why the media seems to hate the folks in charge of Big Oil, where the "evil baron" trope comes from, why it resonates with so many people so deeply even today, how far from reality it is in many cases, and more.
A full transcript follows the video.
This podcast was recorded on Aug. 4, 2016.
Sean O'Reilly: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market every day. Today is Thursday, Aug. 4, 2016, so we're talking about energy, materials, and industrials. I'm joined by Motley Fool Premium analyst Taylor Muckerman. How's it going, man?
Taylor Muckerman: It's going pretty well.
O'Reilly: Enjoying the weather?
Muckerman: Well, I'm inside, but I'm enjoying the thought of the weather.
O'Reilly: The thought of the weather, yeah. There's a nice breeze, it's not humid ... start the show off ...
Muckerman: The podcast is not taped outside, unfortunately.
O'Reilly: We could. It's something to think about. We could go on one of the Fool balconies. So, it's pop-culture week here on Industry Focus, and for today's show, we're seeking to answer the eternal question -- why are oil barons always the bad guy?
Muckerman: That is a good question. They're not all bad.
O'Reilly: You would not know that, looking at pop culture. Actually, I was pretty proud of how you and I prepared for this show. We did a lot of research this week.
Muckerman: Well, it's something we don't already know a lot about.
O'Reilly: Right. You stepped up to the plate with some of these names. Just going down here, we came up with every evil oil guy or gal or whatever we could think of. I'm sure there's more. And they're not always evil, but they're sometimes just weird. When we came in here, I was thinking about the Texas oil guy in the Simpsons, with the giant 10 gallon hat, and he's like, "Yee-haw!"
Muckerman: You're either evil or you're a big joke.
O'Reilly: Yeah, that's the bottom line. And then, of course, there's the other Simpsons episode where there's oil underneath the school, and they have all this money to do education and Mr. Burns steals it all.
Muckerman: A nuclear baron.
O'Reilly: Perfect, same thing. Actually, we should add that to the list. Anyway. When we were brainstorming for this week, the first guy that came to my mind was Daniel Plainview of There Will Be Blood.
Muckerman: Obvious choice, yeah.
O'Reilly: "I drink your milkshake." You saw that, right?
Muckerman: Yes. I didn't for a while, and I was an energy analyst at Fool.com, and Joel South and Robert Coleman ...
O'Reilly: Made you watch it? [laughs]
Muckerman: ... berated me until I watched it. Every week, "Have you watched it?" "No." "Have you watched it? Oh my God, watch it."
O'Reilly: It's awesome, but that ending, man ... I'm not going to spoil it for anybody, but ... hoo, boy.
Muckerman: Tweet us your thoughts.
O'Reilly: Tweet us your thoughts and don't go bowling. The Muppets, that Jason Segel Muppet film that came out in ... 2011?
Muckerman: It was fairly recent.
O'Reilly: Yeah. Tex Richman, he's actually the villain.
Muckerman: Great name, by the way.
O'Reilly: Yeah, points for originality.
Muckerman: Low-hanging fruit there.
O'Reilly: Oil was underneath the Muppets' studio, so of course you have to bulldoze it. He's not quite a villain, but he's interesting. J.R. Ewing of Dallas. I never actually watched that, because I was 2. Actually, I was googling for this show, and there's actually a musical artist called Evil Oil Man.
Muckerman: Why not? That has to be some Texas cover band.
O'Reilly: I think, it's techno-y hipster-type stuff.
Muckerman: Oh, yeah?
O'Reilly: Yeah, it was weird. Elektra King in the Bond film The World Is Not Enough -- it's a horrible film; don't see it -- she kills her father to take over his oil business and then destroy Istanbul to monopolize the oil market.
Muckerman: That's no small feat, destroying the biggest city in Europe.
O'Reilly: No, it's really tricky, setting off a nuclear weapon and all that. Victor Mattiece in The Pelican Brief. I've never seen that either. You came up with this one ... do you like Aquaman comic books? How did you find this? [laughs]
Muckerman: No, just Google.
O'Reilly: All right. Jordan Wiley is an enemy of Aquaman, and he is, of course, a deep-sea oil driller, which messes up Aquaman's home.
Muckerman: Yeah, so they try to destroy his offshore oil rigs.
O'Reilly: This character was created in the '80s, but it really hits home with the Deepwater Horizon.
Muckerman: I can only imagine how unstable offshore oil rigs were back in the '80s.
O'Reilly: Oh, you're right! Has safety improved a bunch since then?
Muckerman: Yeah, of course.
O'Reilly: That actually hits close to home.
Muckerman: And they're not being attacked by a mischievous, mysterious superhero who lives underwater.
O'Reilly: And talk to fish. And, I'm sure there's more, but the other one we came up with was the villain in the animated film Cars 2, who was basically Big Oil.
Muckerman: Big Oil vs. renewable energy, yeah.
O'Reilly: Oh, dear. So, why do you think we hate oil barons? This is a constant theme.
Muckerman: Yeah. I guess, everybody hates them, except for the Beverly Hillbillies. They were probably the one oil family that wasn't --
O'Reilly: Oh, my gosh, how could I forget?
Muckerman: Because they weren't evil, they were just ...
Muckerman: It was just dumb luck. Shooting possums out there.
O'Reilly: [laughs] In Beverly Hills!
Muckerman: Striking oil.
O'Reilly: What do they do? They hit oil, then they get in the crappy car and drive to California?
Muckerman: Yeah, they make it big. Can't forget your roots, John.
O'Reilly: No, you can't.
Muckerman: I don't know why they think all oil men are evil. Maybe because a lot of it has been dumb luck, and these people just become instantly rich who weren't necessarily business-minded. They just found oil and turned it into gold, essentially.
O'Reilly: I also think, because, you remember a couple years ago, when gas prices were going up and giving $4 a high-five, everybody was grumbling. The bottom line is, we need oil/gasoline to run our civilization right now, and whenever it goes up in price, people are like, "Oh, those evil oil men, they're sticking it to us."
Muckerman: That might be why, yeah.
O'Reilly: Because it's so essential, that's basically what I'm saying.
Muckerman: Yeah. Especially back in the day, more energy, more power came from oil. Now, you have to go to developing countries to look at oil as an energy source. But, clearly, people need it to drive and get around in the United States especially.
O'Reilly: Yeah. Completely a side note, but I wanted to mention this to you because we're here and it popped into my mind -- I just flew to Indianapolis International Airport; that's where I was last week. And there's always tons of land that's unused around airports, and it was completely filled with solar panels now. It was awesome.
Muckerman: Were they for the airport?
O'Reilly: Yes. I can't begin to tell you how many stinking solar panels there were. It was ...
Muckerman: Did you happen to see a sign of who put them there?
O'Reilly: No. I probably should have ... was it SunPower, or ... I'll do market research next time I'm in Indiana. I have another theory that I wanted to share with our listeners. I think it goes all the way back to your friend and mine, John D. Rockefeller.
Muckerman: Would there be an oil industry in America without him?
O'Reilly: No, because at its peak, Standard Oil controlled, like, 92% of the market here in the U.S. No one has ever come close.
Muckerman: ExxonMobil (NYSE:XOM) is --
O'Reilly: It is a fraction of what was once Standard Oil. And ExxonMobil is a $360 --
Muckerman: But wasn't it spun out of -- well, not Exxon and --
O'Reilly: Yeah. Exxon was Standard Oil of New Jersey. Mobil was Standard Oil of ... I'm butchering this and I'm sorry ... Louisiana or something.
Muckerman: Some other state, yeah.
O'Reilly: And they eventually merged. BP (NYSE:BP) bought what was once Standard Oil of Ohio.
Muckerman: You know you're a monopoly when you have to get broken up by state.
O'Reilly: Yeah. You had Teddy Roosevelt in there doing his trust-busting. Rockefeller was the poster child for this. You had Ida Tarbell writing History of the Standard Oil Corporation, which, of course, contributed to the case for breaking it up and antitrust legislation. Fun fact our listeners may not be aware of -- Ida Tarbell's dad was put out of business by Rockefeller back in the day, and that is why she hated ...
Muckerman: It was a little bit of revenge, huh?
O'Reilly: Yeah. He had a refinery and he just got run into the ground by Rockefeller.
Muckerman: Interesting. The power of the word.
O'Reilly: So you have that. What did you say to me when we were brainstorming? You were like, "Oil execs are not doing themselves any favors." Then I mentioned that, after the Deepwater Horizon spill that BP experienced, CEO Tony Hayward took that little sailing trip ... right after it ...
Muckerman: Yeah, why not? Had to clear his head. Lot of pressure.
O'Reilly: Like ... dude, don't do that ... [laughs]
Muckerman: Well, it was probably already planned. He didn't want to have to pay the fee to break his tickets. Who knows?
O'Reilly: I don't know. There are certain responsibilities a CEO has when things go bad.
Muckerman: He was probably sailing to check on other rigs, Sean.
O'Reilly: Yeah [laughs] ... in a Catamaran.
Muckerman: Well, you have to get there quickly.
O'Reilly: ... Fine. [laughs]
Muckerman: Come on.
O'Reilly: You, of course, had Andy Hall, the oil trader who made a $230 million bonus as part of Citigroup during the financial crisis. That totally went over well. Jean Paul Getty, he was always wacky. It's kind of like, we need a villain in culture, and often that's business in America.
Muckerman: Yeah. Even though that's the American Dream, it's vilified when you get too big.
O'Reilly: That's actually a good point.
Muckerman: If you dream too big, your dreams become other people's nightmares.
O'Reilly: You flew too close to the sun. [laughs]
Muckerman: Exactly right.
O'Reilly: I don't know, I go back and forth. There was this trend, at some point, where we were like, "Yeah, these guys are all evil." But I don't think that's entirely the case. I did a little research going into this, because I wanted to come up with something good these guys have done. You actually came up with some really good real-world examples. I wanted to do, slightly older, but what Rockefeller had done. By the time he died in 1937, he had donated $580 million.
Muckerman: Which was a lot of money during his time.
O'Reilly: What do you think that is today? You see these estimates of what these dudes would be worth today ...
Muckerman: What year should we set the benchmark at?
O'Reilly: 1937, I guess, I don't know. But he started donating in, like, 1900.
Muckerman: Let's just do 1937. It's probably not going to calculate it fast enough.
O'Reilly: I did the inflation thing, and it's equivalent to $10 billion today.
Muckerman: How much was it -- $580,000?
O'Reilly: $580 million.
O'Reilly: Yeah. It was like half his net worth.
Muckerman: That would be $9.8 billion.
O'Reilly: Yeah, that's what I came up with. But I've seen these other estimates which are supposedly more accurate, and they compare Rockefeller's wealth to percentage of U.S. GDP, and at its peak it was at 2% of GDP. That would put him at, like, $300-400 billion today. You look at the size of ExxonMobil and BP and all of them, and he owned 25% of Standard Oil. So I don't know, but it seems like he'd be in the tens of billions. Anyway.
Good things he'd done ... he may have been an unsavory guy to compete with in business, but --
Muckerman: But he didn't compete long. He at least put you out of your misery.
O'Reilly: Yeah, it would be quick. He took a deep interest in higher education for African Americans. In 1882, he began a series of gifts to the Atlanta Baptist Female Seminary, which became Spelman College, named after his wife. He also donated to other African-American colleges at the time -- Tuskegee Institute and the Morehouse College. He helped found the University of Chicago in 1890 with a gift of $600,000. Another organization that's doing some big things to this day is Rockefeller University, which is primarily a medical university. I just went to their Wikipedia page, and there are dozens of Nobel prizes and medical discoveries and vaccines. It was really impressive. And, I think I'm butchering this, but I think he did something with polio, all kinds of stuff.
Muckerman: Well, and his foundation is completely out of oil stocks.
O'Reilly: Oh, that's right! Did that happen last year?
Muckerman: I think it was last year, yeah.
O'Reilly: They sold completely out of -- yeah, that's right. I forgot about that. Now, more modern examples, you've met National Oilwell Varco CEO Pete Miller, what, three or four times?
Muckerman: He was the CEO when we met him.
O'Reilly: Oh, that's right. And he's a nice guy.
Muckerman: It was a couple years ago, three years straight we went to Houston and met with him. Yeah, the second time we went down, invited myself and Joel and Robert to their annual customer appreciation cookout. Several tons of shrimp were consumed, and hundreds of kegs were drank. He was jolly, inviting everyone there. Good guy.
O'Reilly: How many people? You're talking about National Oilwell Varco, so there's lots of --
Muckerman: Yeah, it was all day long, so people were coming and going. But it was a big outdoor expo of all their equipment, also "come eat with us."
O'Reilly: Taylor Muckerman and I actually --
Muckerman: That's me.
O'Reilly: I'm sorry. Tyler Crowe. Brain flash.
Muckerman: That's OK.
O'Reilly: Yeah, Crowe and I went to Houston last October, and we met with a couple of oil execs, and I got the distinct impression, when I sat down with Robert Workman at DistributionNOW, which used to be part of National Oilwell Varco, he was really just focused on developing his team and talent. They have weekly workshops to develop his executive teams, 30-40 people. He really just seemed to be focused on doing right by his customers. Laser focused on that. He wasn't, like, sitting there with a cat plotting out ...
Muckerman: No, there's no malcontent, at least that you can tell.
O'Reilly: Yeah. I mean, maybe he has a secret lair. But, what was this about Enron or something? The Belfer family?
Muckerman: Yeah, the Belfer family had founded a couple oil companies, one of which was purchased by Enron. They didn't get cash for it. They got stock and convertible preferred shares, so ...
O'Reilly: I Googled this after you mentioned it to me, they lost, like, $2 billion.
Muckerman: Yeah, they eventually floundered. But I think, in the meantime before that, they'd put some cash in some investable markets outside of Enron. And they'd hedged a lot of their Enron stock at some point.
O'Reilly: Oh, they did?
Muckerman: Yeah, so somehow, they still had a ton of money, and they donated tens of millions to various scientific endeavors in the medical field. Out of Enron, I think it was close to $100 million they've donated.
O'Reilly: Yeah. It's not the $2 billion they once had, buy hey, it's not their fault. [laughs]
Muckerman: Hey, if I lost $2 billion, I don't know if I'd be giving hundreds of millions of dollars away. You have to applaud that. Out of the burning ashes of Enron, maybe the cure for some hard-to-cure disease emerges.
O'Reilly: So we've run through all this stuff. Do you think there should be any qualms about investing in oil companies? Are they evil? Is this deserved?
Muckerman: You find evil CEOs in any sector of the economy.
O'Reilly: We're using "evil" loosely here. [laughs]
Muckerman: [laughs] Yeah, this isn't world-domination evil. But, I guess, misdirection, misallocation of assets maybe for their own personal benefit, or just to seize the grandeur, like Valeant (NYSE:BHC) becoming the biggest company on the TSX at one point, because the CEO was doing questionable things in the acquisition market.
O'Reilly: Jacking up drug prices.
Muckerman: Yeah, jacking up drug prices for very important --
O'Reilly: That's another situation, that goes to my other theory -- we need the drugs, so we hate the guy who jacks up the price.
Muckerman: Yeah, exactly. Especially when he is jacking up the price quite significantly.
Muckerman: There's a reason for that, whereas, I think, at least with oil prices and gasoline prices, a little bit more of a supply-and-demand dynamic there, whereas with these drugs, until they come off their patent and generics come out, you're looking at total lack of competition. So they can basically charge whatever they think they can get away with. Apparently Valeant bumped up against that ceiling. I think they can hand a little bit to Martin Shkreli, or however you pronounce his last name --
O'Reilly: I don't know how to say it, but I know who you're talking about.
Muckerman: He blew the roof off the whole situation, and Valeant got caught up in the backdraft.
O'Reilly: Yeah. Before we wrap up here, when oil prices were crazy high, and everybody was like, "ExxonMobil is evil and they're screwing us," it kind of bothered me, because even at its peak, ExxonMobil's return on capital and profit margins and everything never came close to something like Apple.
Muckerman: Yeah. And you see these high gas prices, and I don't know if everyone realizes, but a lot of that is going to the government. Just because Exxon's brand's name is on the pump doesn't mean they're making all the profits. There's a big chunk of that that's a tax that the government is taking. But they have to compete with the gas station right across the street. Unless the whole industry is in cahoots, it's not just the CEO of Exxon or the next biggest competitor that's driving these gasoline prices up. It's a globally traded commodity.
O'Reilly: Before we head out, completely unrelated, I want to ask you, who do you think is going to be in the World Series this year?
Muckerman: The Cardinals --
O'Reilly: Oh, God. We're going to stop there, because you're just going to plug the Cardinals. I should have known.
O'Reilly: I'm kidding, I'm sorry.
Muckerman: That's all you need, just one team. And, I don't know about the AL, I'll give it to ...
O'Reilly: They're all kind of neck-and-neck with their wins. It's going to be a good rest of the season.
Muckerman: I'll give it to the Rangers.
Muckerman: A repeat of 2006, I think. 2011. When we came back and beat them.
O'Reilly: I'm going to shamelessly plug my hometown, since you just ...
Muckerman: The Indians!
O'Reilly: I swear this is their year.
Muckerman: I think at the 538 blog, they have the second-best odds behind the Cubs to win the World Series.
O'Reilly: That would actually be really cool, if the Cubs did it, too.
Muckerman: No, it would not.
O'Reilly: Come on! [laughs]
Muckerman: Bite your tongue. This podcast is over.
O'Reilly: Why wouldn't you want the Cubs to win?
Muckerman: Because I'm a Cardinals fan.
O'Reilly: They were supposed to win a year or two ago, according to Back to the Future. Oh, fine. This is Cleveland's year, don't you worry. Neither is going to win, it's Cleveland's year.
Muckerman: As long as they beat the Cardinals in the World Series, not the Cubs.
O'Reilly: Oh, God, what would I do, because I lived in Chicago ... anyway.
Muckerman: Is that it?
O'Reilly: Yeah. We're going to have to have a follow-up show in a couple of months.
Muckerman: When October actually rolls around?
O'Reilly: Yeah. We're not going to talk about oil or industrials at all.
Muckerman: We're going to talk about ... OK.
O'Reilly: Perfect. All right, that's it for us, folks. If you're a loyal listener and have questions or comments, we would love to hear from you. Just email us at email@example.com. Once again, that's firstname.lastname@example.org. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against those stocks, so don't buy or sell anything based solely on what you hear on this program. For Taylor Muckerman, I am Sean O'Reilly. Thanks for listening, and Fool on!
Sean O'Reilly has no position in any stocks mentioned. Taylor Muckerman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple, National Oilwell Varco, NOW, and Valeant Pharmaceuticals. The Motley Fool owns shares of ExxonMobil and has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.