11
Exxon Mobil reports outsized profits
An Exxon gas station sign in Burbank, Calif.
To view this content, Javascript must be enabled and Adobe Flash Player must be installed.
Kai Ryssdal: I'll set up this next story by mentioning that oil closed at almost $113 a barrel today. Thus you won't be surprised when I mention that Exxon Mobil reported a quarterly profit this morning that topped $10 billion. Royal Dutch Shell came in at almost $7 billion. Chevron reports tomorrow.
When numbers like that come out, you know what tends to follow: politicians teeing up the evil-oil industry rhetoric and knocking it right down the fairway. Both parties do it. Except they're leaving one thing behind.
The facts.
From the Marketplace Sustainability Desk, Scott Tong reports on oil politics and political mythology.
Scott Tong: Issue number 1: Big Oil is not who you think. Forty years ago, the Seven Sisters companies like Shell and Texaco lorded over 85 percent of world production. Now, the Seven Sisters are more like Seven Dwarves, compared to -- well, let's call them, "Big, Big Oil."
John Hofmeister: Such as Saudi Aramco or Gazprom.
Former Shell president John Hofmeister.
Today's behemoths are owned by governments, in Saudi Arabia, Iran, Russia and Brazil, and today they control most reserves while the multinationals hang at the kid's table.
Hofmeister: They're essentially locked out of state-owned oil company reserves, unless they are invited in.
U.S. firms also pay higher taxes then competitors, which takes us to Issue 2: tax breaks. President Obama wants to cancel some $4 billion worth. But Charles Ebinger at the Brookings Institution says brand-name oil companies don't get most of those preferences. Smaller drillers are far more dependent on subsidies and if they went away:
Charles Ebinger: I think you would see some degree of fall-off in domestic oil production and attendantly the loss of jobs in that particular part of the business.
Domestic production: Issue 3. Oil-friendly politicians want more drilling in the Gulf of Mexico, figuring that would push down American prices. Except that oil prices are set by global forces -- and the biggest is galloping demand in emerging countries.
Morningstar analyst Allen Good.
Allen Good: Even though we're producing oil here in the U.S., there's little we can do in the U.S. to determine what the Chinese are going to pay or what the Indians are going to pay or so forth. So if there's buyers elsewhere in the world, it's going to drive up U.S. gasoline prices.
He says politicians have few levers to pull on energy prices. That may be a fact, but in this town, facts can be overlooked.
In Washington, I'm Scott Tong for Marketplace.
Pages
MMJ,
I'm sorry to report that you know nothing about the industry. Have you seen the breakdown of price of a gallon of gasoline? Oil companies make roughly 7 cents to 10 cents on the gallon of gas. That sort of razor thin profit margin is the reason why most of the oil majors are continuing to shed retail stores and selling them to private owners. The ten billion dollars in profits that are being reported are a majority from upstream ventures. Gasoline is not the major driver here.
Oil and Gas companies operate on a roughly 8 to 9% profit margin. The scale is huge so people are shocked when they hear numbers in the billions, but scale that down to a small business and what do you get? Just your run of the mill shop. Companies like google and apple are regularly over 20% profit margin but no one makes a blip about it because their products are shiny and don't have the attached stigma of environmental affects. I suppose its a futile exercise, but I hope someone wakes up and sees the world for how it really runs.
The statement that oil companies make outrageous profits and pay minimal taxes seems to be accepted without question. Do those making these statements ever check their facts? I used Yahoo Finance (free to all at: http://finance.yahoo.com/) to check three measures – profit margin, tax rate and return on capital employed – to see how a cross section of oil companies compared with other familiar American companies such as Whole Foods, Apple, Ford, Pfizer, GE, Bank of America, Caterpillar, and 3M.
It is easy to see why ExxonMobil makes such large profits: they have very large revenues because they sell a lot of products. Examining their profit margin – the ratio of net income to revenues – indicates how many cents they earn for every dollar they sell. ExxonMobil sold $383 billion in products in 2010, and made $31 billion in profits. This is a profit margin of 8%, which is comparable to GE (9%) and Caterpillar (6%). By comparison, Whole Foods had a 2010 profit margin of 3% and Apple had a profit margin of 22%.
Next comes taxes. ExxonMobil paid $22 billion in taxes in 2010, for a tax rate of 41%. This is typical for oil companies. I looked at Chevron, Apache, Anadarko, Occidental and ConocoPhillips, and all paid about the same tax rate in 2010. In comparison, Ford paid a tax rate of 8%, Pfizer paid 12% and 3M paid 28%. Whole Foods paid taxes at a rate of 40% - a bit less than ExxonMobil.
Finally, how well did oil companies do at generating profits from their investments (their ‘capital employed’ in accounting terminology)? ExxonMobil was the clear leader, with a return on capital of 13%. Other oil companies were as follows: Chevron – 12%: Occidental – 10%; ConocoPhillips – 9%; Apache – 8% and Anadarko – 2%. A similar spread in results can be seen in the cross section of comparable companies: Apple – 26%; 3M – 17%; Bank of America – 10%; Whole Foods – 7%; Ford – 6% and Pfizer – 5%.
So in response to the assertion that oil companies make outrageous profits and pay minimal taxes, I draw the following conclusions from the data:
• Oil companies make large profits because they sell a lot of products, and therefore have large revenues. Their profit margins are in line with other major American companies – less than some, and greater than others
• Oil companies pay taxes at a higher rate than most other US companies. During the 2007 – 2010 period, oil companies paid a tax rate of 39%, on average. By comparison, the non-oil US companies paid at a rate of 25% during the same period. Oil companies pay taxes at about the same rate as Whole Foods Markets
• Oil companies are slightly more efficient with their invested capital than other US companies. During the 2007 – 2010 period, average oil company returns on capital were 12%, whereas non-oil US companies listed above had returns of 10%
I suspect that the above facts will not persuade those who wish to hate oil companies, but at least they will be better informed.
Finally, this analysis suggests that, based on profit margins and return on capital, ExxonMobil, Apple and 3M are excellent companies that should do well for their shareholders.
I read an article the other day that got me thinking: Here's the article that got me thinking:
http://marketplace.publicradio.org/display/web/2011/04/28/pm-exxon-mobil...
quoting the article: "Forty years ago, the Seven Sisters companies like Shell and Texaco lorded over 85 percent of world production. Now, the Seven Sisters are more like Seven Dwarves, compared to -- well, let's call them, "Big, Big Oil."
That's right, 40 years ago the trouble started -- when Repwublican Prewsident Nixon (no offence to Elmer Fudd ) and his Republican Congress helped the Arabs get their oil industries started .............. they called it OPEC! So don't blame the Democrats, we didn't do it.
further quoting the article: "Today's behemoths are owned by governments, in Saudi Arabia, Iran, Russia and Brazil, and today they control most reserves while the multinationals hang at the kid's table."
but you see, THOSE "behemoths" don't over-charge their customers -- in fact those are Socialist countries -- and they charge their citizens a mere fraction of what they could squeeze them for if they were Capitalist, like here in the USA, or England, or etc.
Where, further quoting the article: "you won't be surprised when I mention that Exxon Mobil reported a quarterly profit this morning that topped $10 billion. Royal Dutch Shell came in at almost $7 billion. Chevron reports tomorrow."
That's right - at these rates some capitalist oil companies will squeeze their customers for 40 billion US Dollars in profits ........ in just one little year. At the same time, some of those state owned "behemoths" charge their citizens as little as 27 cents for a gallon of gas -- AND ....... its higher quality than US gas, often their regular has an octane rating of 92 and still has the critical lubricants in that gas, lubricants missing in US gasoline ........ that's right, in Socialist countries ............ regular is 92 and premium is 98.
Remember when all that changed in the USA? -- it was back in the 1980's, when that Republican President Reagan and his Republican Congress ruled the USA (and do you also remember the housing and credit crisis of 1987 ? No? You'd better go look, cause the Republicans did it to us little peons again under GW Bush and his Republican Congress of the 2000's) And yes I do remember that the Nixon fiasco took some years to develop -- it first came to a head under a Democratic President named Jimmy Carter -- isn't it strange, that, although the crisis started under Nixon, big oil waited until a Democrat was elected to raise prices? I wonder if any of these companies had Democratic CEO's and Democratic Board Members --- what do you think?
So what's the big issue this year for the Republicans and their big oil friends ? ? ? ?
Quoting the article: "Issue 2: tax breaks. President Obama wants to cancel some $4 billion worth." That's right, with one little company making a paltry 40 billion US Dollars in profits in an average year --- the Republicans and their big oil friends are complaining about having to pay taxes ............. YOU pay taxes ............. why shouldn't they?? Not only do they get favorable tax rates .......... they also get "tax breaks" --100's of millions in tax breaks -- billions in tax breaks !
and they don't want to pay their fair share,
I'm disgusted ...........
JD Wolfe.
Wow, I was waiting for the April Fool's punchline on this one! Woops, it's almost May, isn't it? Is it me, or is the quality of Marketplace's reporting starting to go down? Underneath this story is your unspoken premise that since the big oil companies no longer account for the vast majority of the world's oil production, they are not somehow "evil" or making extravagant profits. You should talk to a fisherman in Louisiana who had to help BP clean up its mess if that's the basis of your story. Oh, wait, BP probably had him sign a non-disclosure agreement and would bury you under a lawsuit your non-profit cannot afford if you did. Never mind.
The entire rest of the developed world pays at least 50% more for fuel than we do. Why should Americans be exempt from reality. Oil is a rapidly disappearing resource. What is it going to take for Americans to realize this and seriously curtail their consumption - the only thing that has worked so far is increased prices. As soon as prices drop, consumption goes right back up - it's like another shot of novacaine.
Heh Chuck, take a course in math, accounting, a foreign language or read more than one newspaper or listen to someone besides Rush Limbaugh. I speak four languages, hold a Ph.D. have traveled 51 countries and maintain contact in six. I don't just bash oil companies I want them nationalized.
Your kneejerk defense of 50- year oligarchhic manipulation by big oil makes birthers look like genius ensemble.
I agree with MMJouan. I don't care about global circumstances, your own report gave us huge numbers (10B$ for one co./one qt.)and you never adressed that.You are shills or your reporters are on the take. Kye, you are not to dumb to investigate.
Sure, global demand is a big factor in oil prices. But another is how much OPEC is willing to produce, and at what price---if at all---they're willing to sell to us. Have we entirely forgotten the embargo?
In any case, more supply is more supply, and would mean lower prices than the increased demand would otherwise create.
And even if oil weren't mostly controlled by a cartel of oligarchs, it would still be far better for the American economy if the money we spent buying oil went to other Americans rather than to possibly hostile foreign countries who don't buy much of our goods, and if a larger fraction of the world's oil buyers bought from American producers.
Pages
