Are Oil Companies Still Relying On An Overly Pessimistic Price Projection?

The answer given by this Reuters story would seem to be "yes":

Oil firms are spending more than ever in the hunt for new reserves but their investment is dwarfed by the tens of billions of dollars they are handing back to their shareholders.

Record high prices are translating into record profits for big oil. Yet the rate at which the likes of Exxon Mobil, BP and Royal Dutch Shell are reinvesting their cash is falling, according to investment bank Goldman Sachs.

As a result the industry is now sitting on $500 billion -- money that French Prime Minister Dominique de Villepin has argued oil firms should use to satisfy consumer demand.

But when oil firms open their wallets, more often than not it is to hand cash to their shareholders in the form of dividends and share buybacks.

BP chief executive John Browne has pledged to distribute "100 percent of all excess free cash flow to shareholders". Last month, unveiling big profits, BP said it would buy at least $10 billion of its shares this year.

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Part of the problem is that oil companies evaluate drilling projects using an oil price of around $20-25 a barrel. But oil has more than doubled over the past two years and hit a record $67.10 earlier this month.

"Although it is argued that oil companies are short of investment opportunities, they actually have more options available today at current price levels than ever before," Goldman Sachs said.