Exxon's $10B fill-up: Cashing in on crunch

Boston Herald ^ | Brett Arends

[Sir Gawain]

Exxon's $10B fill-up: Cashing in on crunch
By Brett Arends
Wednesday, September 7, 2005 - Updated: 04:27 PM EST

Oil companies came under new fire yesterday when it emerged that ExxonMobil's profits are likely to soar above $10 billion this quarter on the back of the fuel crisis.
     That's $110 million a day, and more net income than any company has ever made in a quarter. It's also a stunning 69 percent increase over the same period a year ago and a 34 percent jump from the $7.6 billion Exxon made just last quarter.
     ``Do you realize President Bush has just given a tax break to ExxonMobil?'' thundered Rep. Ed Markey (D-Malden). ``Of all the companies in the history of the world that needed a tax break, this month, ExxonMobil should be at the bottom of the list.''
     The law gives incentives to producers such as Exxon to expand production, such as for drilling for new wells in deeper waters in the Gulf of Mexico.
     ``It makes me angry,'' agreed Rep. Marty Meehan (D- Lowell), noting rising fuel prices ``are going to have a negative ripple effect throughout the economy.''
     Meehan yesterday sponsored legislation on Capitol Hill to penalize price ``gouging,'' assuming it can be agreed what that is. Markey is preparing for Energy Committee hearings on the fuel crisis.
     Even oil company shareholders were critical. Hub fund manager Lee Forker, the head of New England Research & Management, said the profits reflected a failure of oil companies' leadership to invest in future production. ``They're maximizing present cashflows and ignoring the future,'' he said.
     ExxonMobil is spending about $5 billion a quarter buying back its own shares.
     Forker says the oil companies bear responsibility for recent shortages, because they have held back on investment in new production for years due to a fear of a price collapse. ``It could just be a big scam – `Let's just restrict the supply along with the OPEC countries and we'll all get rich together' '' he said.
     Crude oil prices fell yesterday by $1.61 to $65.85 a barrel. Gasoline prices also eased slightly from late last week's panic.
     But Lehman Brothers yesterday became the first Wall Street investment bank to issue a new profits forecast for Exxon following the week of post-Katrina turmoil, when gasoline prices surged as high as $3.59 a gallon in the Bay State and crude oil prices briefly topped $70.
     The new forecast: $1.62 a share, or $10.2 billion in total. Other analysts are likely to follow suit.
     Jacques Rousseau, energy analyst at investment bank FBR, yesterday explained that most of the extra money that consumers are paying for gasoline is going straight through to the big companies' bottom line.
     The reason? Prices are soaring because of perceived shortages while the cost of producing the gasoline is little changed.

[KevinDavis]

So what..

[thackney]

The law gives incentives to producers such as Exxon to expand production, such as for drilling for new wells in deeper waters in the Gulf of Mexico.

We give incentives to produce more US oil, which pays royalties of 12.5% to the US and that is considered a bad thing? Only by people who don't understand math.

[thoughtomator]

Oil company profits are a pittance compared to the tax revenue generated by their activities.

[EagleUSA]

came under new fire yesterday when it emerged that ExxonMobil's profits are likely to soar above $10 billion this quarter on the back of the fuel crisis.
-----
After all that has gone before this, how can anyone be surprised by this?? All you have to do is look at typical stockholder information of ALL the oil companies...read the balance sheet. Of course they are profiteering. Whatever the market will bear, especially in a market that really has NO COMPETITION.

[dakine]

Missed the gravy train, did ya'?

[Alberta's Child]

Oil company profits are a pittance compared to many other industries, too.

With a net profit that is equivalent to about 6% of gross sales, investors in the oil industry can expect a return that is about the same as a 30-year mortgage -- without the collateral of a tangible real estate asset.

Among all the complaints about "record profits for Exxon/Mobil," the name of the company is apparently lost on most people. One of primary factors in these "record profits" was the merger that created one company out of two oil giants.

[atomicpossum]

Nationalize oil production. These companies should only break even. Just like the medical industry, they shouldn't profit by something that people need. And while we're at it, how much money is Nabisco making after they got me addicted to Oreos?

It's the F'ING FREE MARKET. Don't want them to profit? Don't buy their gas.

[Enchante]

Maybe liberal Mass-holes like Markey and Meehan, Kennedy and Kerry, will someday figure out that they are incompetent blunderers when it comes to economic and energy policies, but I won't hold my breath.... they want to maintain maximum 'environmental' blockages on new exploration and production, then they whine about prices and blame everything on big bad oil.....

[hobbes1]

Prices are soaring because of perceived shortages

And who to blame for that???? (MSM)....

[RinaseaofDs]

I'm sorry, but this is not defensible. Not only is it not defensible, it is going to hurt Exxon in the long run.

Japan is completely committed to hybrid technology. 95% of their energy is imported, and they have been working with regular tinkerer types in the US to modify their cars so that their hybrids indeed get 250 miles/gallon.

Meanwhile, GWB has ties to oil and Exxon makes it look like conservatives think this is all OK.

The plain truth of it is that the actual cost of producing a gallon of gas, on average, hasn't changed much, but they have made billions on the fear created by the crisis.

It's not a leap for a liberal to claim, "Why are we worried about poor people stealing TV's from a Wal-Mart when Exxon is stealing billions from all of us?"

This is going to be an election year issue unless the prices come back into line. The problem with prices coming back into line in time for the election is that it raises another election year issue - Big Oil adjusting their prices in time for the mid-term elections.

[trubluolyguy]

Just a free market at work.

[sharktrager]

If I am not mistaken, their profit margins have remained consistent, and were rather modest (8% iirc). Yes, they make more cash, but should they cut their profit margin because speculation and consumption are driving up prices?

[tom paine 2]

I proudly own 650 shares of XOM and with the share buyback and a dividend increase, it's looking like I made a good deciscion to buy four months ago. You should buy some too. The P/E ratio is in the low teens.

[kennyo]

Raising the price of food,water,diapers,and gasoline is not gouging.

[Radioactive]

So what..

So what...I like that reply. It covers it all.

So what if you just paid 130 dollars to fill you pickup truck.

So what if it will cost you a lot more to heat your home.....so what?

I like that...when anyone tells me..I have to make a choice between staying warm or paying the mortgage...I'll always say...so what.

If you reply to this post.....so what?

You've got a terminal disease?....so what!

All our tax dollars going to rebuild New Orleans?...so what!

Tinfoil you say????........SO WHAT!

[rellimpank]

--but this is not defensible---

and I suppose selling your house at market price is--or do you intend to be a good citizen when the time comes and sell it at, say, 20% under market?

[Pessimist]

"and they have been working with regular tinkerer types in the US to modify their cars so that their hybrids indeed get 250 miles/gallon."

Got any proof?

[Paradox]

Liberals should be happy. Higher gas prices are finally making people reconsider purchasing SUV's and looking into hybrid cars. Alternative fuels are going to get a second look. You see, they aren't unhappy that the prices are so high, they are unhappy that somebody is PROFITING from it. If that money were instead burned in a big pit, they wouldn't be so upset. They are anti-profit bigots.

Ok, I'll say though that PR wise, its going to be tough on Exxon, but their response to this is entirely up to them.

[KevinDavis]

Whatever Comrade...

[txhurl]

Don't know about that. They did little or nothing to lower prices (prices we were CHOKING over! I miss those days) prior to Nov. 4.

[KevinDavis]

Wasn't the liberals who advocated high gas prices in the first place??

[oblomov]

http://biz.yahoo.com/ap/050813/hybrid_tinkerers.html?.v=1

[richardtavor]

I guess when we were losing our asses in 2000 (about 20% of the companies went under) and from 1986 to 1998 (about another 40%) we were profiteering then too. I didn't hear too many screams that we needed to give incentives to drill when the price was $9.59 per barrel in 1999 and 2000, when we increased our dependence on foreign oil by another 10%. Oh well, I guess it must just be me. Look at who they quote--New England Research and Management. I'm sure they are experts--in fact I'm sure that that person thinks you find oil by looking under your car.

[dts32041]

Gee how can you have profits when you have to repair old equipment when you can't build new facilities, have to repair rigs that were damaged rebuild port facilities.

And buy product you can't produce when your facilities are damaged?

Looks like to me they actually might be losing money

[oblomov]

The 250 mpg hybrid is a plug-in hybrid.

[rightupnorth]

I'm skeptical of the need for tax incentives right now. $60-$70/bbl oil should be enough incentive for exploration.

[DaisyCutter]

That is incredibly misleading. The person in the article jammed his hybrid full of extra batteries to power the electric motor, then charges those batteries by plugging it in to an electrical source, which most likely gets its power from burning gas, oil, or coal.

[Looper]

As a shareholder of Exxon, I thank its outstanding management team and regret only that I did not purchase more shares back in 1995 when I first became a shareholder. My stake has more than quadrupled since that time.

I think I'll visit Exxon tonight and fill up my wife's SUV.

[oblomov]

>>this is not defensible

OK, here's the solution: invent alternative energy technology that is cheaper than gasoline. Then everyone will buy it instead of gasoline, you will get rich, and Exxon will be put out of business.

[doug from upland]

So what? They are just asking for the government to do something. Unfortunately, it appears that oil companies have colluded to not build new refineries. Environmentalist whackos don't get all the blame.

Our country is on the verge of an inflation explosion. Because of fuel prices, huge numbers of people can no longer afford to drive their cars to work.

I certainly believe in profits, but this is terrible PR. It opens the door for Hillary and the Democrats to demand more regulation and even price caps. If people can't drive their cars, there will be a groundswell for government intervention, and not just by the lefties. The oil companies better do something to get the prices down.

[oblomov]

Not necessarily. With NG at >$10/bcf and oil >$60/bbl, wind is looking ever more attractive to private investors and utilities. Solar is still not economic on its own, but may pay off with all the tax subsidies we are throwing at it.

[Paradox]

It is an "apparent" 250 mpg, because they are dismissing the fuel required to generate the electricity that they are using to charge the batteries in their modified (extra battery) hybrids. For example, with extra batteries, they can drive 125 miles with hardly using the gasoline engine. Say the gasoline used is 1/2 gallon... do the math, 250 apparent MPG.

[Extremely Extreme Extremist]

...and they have been working with regular tinkerer types in the US to modify their cars so that their hybrids indeed get 250 miles/gallon.

Will it also fly in the air like the Jetsons' vehicle?

[Alberta's Child]

Because of fuel prices, huge numbers of people can no longer afford to drive their cars to work.

Oh, please. Do you know anyone who has quit his or her job because of high fuel prices?

I never expected to hear an "Al Gore" story from you, Doug!

[aShepard]

...." ExxonMobil is spending about $5 billion a quarter buying back its own shares."......

That's the bad news in this release.

If exxon can't find a better investment to fund their future, they spend $20 billion a year to buy back about 2%their stock. So it sounds like they have not found any other investments that have the potential for gains, other than cutting their dividend cash outflow of 2.0% of share price.

Sad!

[Looper]

Head back to DU.

How can you possibly equate people trespassing and stealing from Walmart to Exxon benefiting from the tremendous risks of capital that it has taken around the world. If you think the price is too high, don't buy the gas.

[KevinDavis]

If the government does intervne there are going to be more problems.. I hope the people understand that the left has been trumpting around that gas prices should be high so people can make the right descisions their way...

[Ben Mugged]

The DemoRats want to further the perception that large companies are a few fat cats smoking cigars and laughing while millions slave under the yoke of their control. The companies need to do some spin control and take out some ads showing individual stockholders as teachers, firemen, soldiers, retired Americans and other investors. I'll just bet you the Senate retirement 401K is vested in oil stock.

[oblomov]

The energy used at the consumer outlet is much cheaper than that from gasoline. A recharge maybe costs 50 cents. Of course the car needs gasoline to accelerate and to maintain speeds suitable for highway driving. So some gas is consumed, but less than an ordinary hybrid.

[doug from upland]

You have FReepmail.

[Looper]

Buying back shares is not bad news. It benefits shareholders--you know, the folks to whom Exxon's directors and officers are responsible, not sniveling whiners.

[EagleUSA]

Gee how can you have profits when you have to repair old equipment when you can't build new facilities, have to repair rigs that were damaged rebuild port facilities.
------
Isn't it amazing? And remember too, in spite of what the fuel industry says, their entire operation does not revolve around the Gulf area either...and many refineries are reporting they are back on line....amazing, isn't it? Yet too, in California we have been told our natural gas, for heating, is going up FORTY PERCENT this winter.

[doug from upland]

Yes, there will be more trouble if the government intervenes. But the publicly perceived greed is going to lead to just that. The PR is not good.

[You Dirty Rats]

$60-$70/bbl oil should be enough incentive for exploration.

The problem is that there is no assurance the price of crude will stay that high. The oil industry has been burned before when they have poured money into investment when prices are high, only to see prices fall by the time the exploration reaps product.

[doug from upland]

In California, because of housing cost, you cannot believe the number of people who have moved to outer areas where they can afford housing. The cost of commuting is growing tremendously. What do you think this is doing to truck drivers? What will it do to the cost of everything we buy?

[<1/1,000,000th%]

Bank of Amercia's profit margin is twice as high as ExxonMobil's.

People don't borrow money in Boston?