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The Poor Rich Guys

It's not every company that can register $11.68 billion in quarterly profits -- and still disappoint the analysts. Yet Exxon Mobil Corp. is a special company in many ways, and analysts have their own view on the world.

Poor Exxon. Its profit margin is a meager 8.5 percent of sales. It doesn't have enough places to drill. Costs are going up. Skilled manpower is scarce. Despite all that, it is still under attack from members of Congress, consumer groups and environmental groups. And now the analysts are disappointed too!

As usual, it helps to take a step back to put things in the right perspective. First, a word on Exxon's behalf. Most people don't appreciate just how enormous the oil business is. Exxon Mobil is operating in 200 countries. It has a staggering number of refineries, gasoline stations and, most important, oil wells. It has a huge chemical business. As it pointed out several times today in conference calls, it has 119 projects underway to bring on more oil and gas production. Its $25 billion capital spending program for this year is two and a half times the amount Boone Pickens wants to spend on a giant wind farm over the next three years. The spending program is two and a half times as big as the combined revenues of half a dozen of the world's biggest solar companies and the biggest wind turbine company put together. Our addiction to oil is an expensive habit.

Having said that, it's hard to feel sorry for Exxon. Most of the oil it is pumping out of the ground was found and developed when oil prices this high were something that couldn't be imagined. Less than three years ago, its chairman said that the then-$60 a barrel price of oil included $20 of speculation. The increase in price - after subtracting taxes and cost increases -- is what economists would call a windfall. The oil companies correctly note that finding new oil reserves will cost more than it did to find the ones we're using now. Still, it seems only natural for consumers to wonder whether that windfall is being put to good use.

Read Related: Who's to Blame for Oil Profits?

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Comments (16)

not a greenie:

companies around the world should be required by law to return value to shareholders as long as that does not harm the world and its people, in fact they should be required to improve the quality of life for humanity in some shape or form. the beauty of capitalism is that companies would just find a way to return to profitability because they would hav to! companies are currently allowed a free ride at the cost of our children, our health and our world! As shareholders please encourage YOUR companies to be responsible and forward thinking.

erika van heusen:

Who is to blame?

The stupid Americans who wake up at home in the middle of the night and use the car to go from the bed to the bathroom!

david hunkins:

Suppy & demand, capitalism...it is supposed to work!
Not so fast....when one has something that can not be shut off for obvious reasons..without a plan...then it is a commodity that can be set at any price and we have to pay it. This is a Commodity Market miracle...pay what you need to get the wholesale price..then sell it for the margin as needed....a real deal.
Now I think that...in some cases....like this...Socialism has a place in our society....most of the world feels the same way....
Yes we could do better in planning...but we are only human...so socialism must step in to keep the fat cats from eating us alive...when it is determined that a segment of our absolutely needed overhead of life is being speculated in excessive profits to benefit a few.
Also...are we aware that Europe pays $8.00 a gallon for Gas...this seems to help to stay calm until we tell the gov't to step in.

Van:

It's easy to post big profits when you're the number one recipient of welfare in the world. If free markets really work then legalize industrial hemp(ditchweed) for fuel and the price of oil should drop dramatically.
Ditchweed could replace our need for foreign oil and drop world prices, something about supply and demand is what we are told.
I'm sick and tired of bowing to the alter of fossil fuels and lining the pockets of the most corrupt industry in the world.

Jack:

How's this for an idea? Why not give tax incentives to businesses to vanpool employees to work. Ronald Reagan did it - and it worked then - why couldn't we do it again - GW Bush knew about it - (I wrote to him and reminded him about it in 2006) - 14 people in a vanpool - 20mpg * 14 = 280 mpg looks like a winner to me.
You don't have to be a genius to figure your way out of this mess - just not be an ideologue - if you get my drift.

G:

Umm, why is it considered a radical idea to try to limit one's consumption of a product in order to save money?

I mean, it's like complaining about the BG&E rate hike. I knew it was coming. I don't LIKE it, but I planned for it and I'm not taking a huge financial hit.

We've all known for a long time that oil isn't limitless, it can't be. Most prices rise over time.

Let's give the engineers, etc. credit for brains and creativity and encourage them ($$$) to come up with even better solutions. In the meanwhile, we can exercise self-restraint.

Josh:

@6ftRabbit:
Actually, the State Dept. list ( http://www.state.gov/s/inr/rls/4250.htm ) lists 194 countries, plus Taiwan (special status to avoid pissing off the Chinese) for a maximum count of 195.

So Tired:

I'm so tired of hearing that the oil industry doesn't have enough places to drill. The fact is they have been issued many leases to drill oil in the U.S. (28,776 permits, a 361% increase in the number of permits issued since 1999). But these companies simply have not used them (only 18,954 wells were drilled). We can't keep handing over our nation's lands, when we get nothing for our sacrifice.

More over, it takes several years for this oil to "come online," and our share of the world's oil is not enough to put a dent in the global price of oil. You only need to look at the percentage increase in permits given, and the current percent increase in the price of gas to see that we can't drill out way out of this issue.

http://resourcescommittee.house.gov/images/stories/Documents/truth_about_americas_energy.pdf

FooledAgain:

Their profits are high because the price of oil is high and the price of oil is high because their profits are high. Oh what a wonderful life it is to have your cake and to be able to eat it all by yourself. In my 5 decades of living this is the only product I have ever seen that is in a supposed shortage, yet you may purchase as much as you want as many times as you want, an abundance and a shortage all at the same time, these guys are good!

richard:

You can't blame Exxon for making a profit, because the company is operating, as far as we know, legally and follows normal business practices in the U.S. According to the Houston Chronicle, Exxon bought back company stock to preserve the value of shares held by its stockholders. The company is paying out $2.22 dividend. Not bad for a stock trading at $88/share.

Of course, thinking about Exxon as an efficient corporation, rewarding its stockholders, does not ease the pain of record gasoline and diesel prices at the pump. And yet, Exxon is doing what is expected, delivering oil products to customers.

But I do feel this blog does not place major oil companies, like Exxon, in a global economic context. Oil is traded in U.S. dollars, and the value of the dollar has fallen. The U.S. economy has slipped off the track, food costs are rising, mortgage and financial markets are in trouble. And of course, the invasion and occupation of Iraq have contributed to a huge federal deficit. So the cost of oil has many pressures in a very unstable global economy. Oil is likely one of the most sought after commodities in the world, and is easily transported in large quantities by sea. U.S. industry cannot function without oil, so oil becomes "priceless".

Hunter:

marik7,

The problem with that is the truth be told, much of the crude in the US is really is not ideal for use in gasoline, it's still easier to import foreign crude that is more suitable for gasoline refinement. To dedicate U.S. crude solely for gasoline could introduce a new mess of problems and high prices.

Terry:

What amazes me most in all of these conversations about oil is the fact that we have had since the 1970s to come up with alternatives to fossil fuel. Renewable energy, that is.

We have people in on extended stays in space and send probes to Mars and beyond. Seems the only reason we haven't can be summed up in one word: greed.

6ftRabbit:

Kyle the State Dept. lists 210 countries and a number of territories.

marik7:

I might be willing to see more oil drilled, but I don't expect drilling to lower gas prices in any significant way.

However, here's a proposal. The US allows Exxon to drill but requires that all oil drilled off our shores be required to be sold in US markets at a 50% markdown from the going worldwide retail rates. Now then we might see lower prices, but I don't see Exxon jumping on that deal, since they're not in business to help American consumers.

Or try this idea. Allow Exxon to drill but require them to pay the US government 90% of all profits from those wells they are allowed to drill (after expenses, of course). Bet they wouldn't pick that one up either.

Why? Exxon is an international company, not an American company. Its interests and those of the average citizen have long since gone down very different paths.

Patrick Huss:

What is the point of the comparison to alternative energy companies' bottom lines? That is like comparing the leading whale oil company with the nascent oil industry in the 1800's.
I'd prefer to see a contrast to the amount of subsidies and tax breaks this company gets from the US.

Kyle:

I'd say that Exxon Mobil's oil field exploration division is doing good work anyway. It takes some real vision to operate in "200 countries" on a planet that has at the very most 195.

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