Exxon, Chevron Post Record Profits
Saturday February 2, 1:43 AM EST
HOUSTON (AP) ? Suppose Exxon Mobil decided to return the favor and buy you a tank of gas. Then again, why stop there? The oil giant turned a profit last year fat enough to buy a fill-up for every car, truck and SUV in America ? four times.
Beating its own record to rack up the largest annual corporate profit in American history, Exxon Mobil Corp. said Friday it earned $40.6 billion for the year, reaping the benefits of crude-oil prices around $100 a barrel.
Exxon Mobil also topped its own record for profit in a single quarter, posting net income of $11.7 billion for the final three months of the year ? about $1 billion more than the same period in 2005, the previous quarterly record.
The annual profit was enough, at $3 a gallon, to buy nearly four 15-gallon fill-ups for the roughly 243 million registered passenger vehicles on American roads. Put another way, it's almost equal to what Microsoft has offered to buy Yahoo outright.
And the quarterly profit alone is about the same as the size of the entire economy of Iceland or Namibia. The previous record for annual profit was $39.5 billion, posted by Exxon Mobil in 2006.
Chevron Corp., No. 2 behind Exxon Mobil among U.S. oil companies, also had its best year ever in 2007, saying Friday that it banked a profit of $18.7 billion.
The results were eye-popping but not a total surprise: For most of the fourth quarter, oil prices hovered around $90 a barrel, 50 percent higher than a year earlier. Crude reached an all-time high of $100.09 on Jan. 3 but has fallen about 10 percent since.
Revenue at Exxon Mobil rose 30 percent in the fourth quarter to $116.6 billion from $90 billion a year ago. For the year, sales rose to $404.5 billion ? a figure just slightly lower than the U.S. Defense Department's fiscal 2007 budget.
Exxon Mobil, which produces 3 percent of the world's oil, pegged high commodity prices as the driver for its results but also touted its far-reaching businesses.
"We continued to supply crude oil and natural gas volumes to meet the world's energy needs through disciplined development and operation of our globally diverse resource base," said Chairman Rex Tillerson.
But at a time when many fear the U.S. economy is sliding into a recession ? or is in one already ? not everyone was applauding the results.
With the economy weakening and the prospect of $4-a-gallon gas looming for spring and summer, the hefty oil profits immediately renewed charges that Big Oil was profiting at the expense of most Americans.
Within hours of Exxon Mobil and Chevron reporting their results, Sen. Charles Schumer, D-N.Y., a member of the Senate Finance Committee, urged Congress to repeal tax breaks for the oil industry.
"Congratulations to Exxon Mobil and Chevron ? for reminding Americans why they cringe every time they pull into a gas station and for reminding Washington why it needs to act swiftly to break our dependence on foreign oil and roll back unnecessary tax incentives for oil companies," Schumer said.
The Foundation for Taxpayer and Consumer Rights called for greater regulation of energy trading markets. The watchdog group has said congressional moves for more market oversight have been blocked by the oil industry's powerful lobbying efforts.
Many analysts believe speculative investors played a role in driving oil prices above $100.
"There's no excuse for continued inaction by Congress and the White House," said Judy Dugan, the consumer group's research director.
The criticism is nothing new to Irving-based Exxon Mobil, which has reported gargantuan profits in recent years during spikes in commodity prices. Those spikes typically make it more costly for consumers to fill their tanks and heat their homes.
In 2005, when the price for a gallon of gas first hit $3, top oil executives were hauled before federal lawmakers to explain profits and assure customers they weren't being gouged.
Industry representatives say it's important to note oil companies invest large portions of their profits back into their businesses. Exxon Mobil, for example, said Friday its spending on capital and exploration projects increased to nearly $21 billion last year, up 5 percent from 2006.
It also noted its U.S. tax bill from 2002 to 2006 was $59.9 billion, and that its worldwide effective income tax rate for 2006 was 43 percent.
What's more, finding new supplies of oil and gas is becoming increasingly more expensive and difficult. The recent boom has pushed up prices for labor and equipment, and forced the companies into more remote, challenging environments.
"These companies continue to face formidable reserve replacement, production growth and cost challenges," Moody's Investors Service said in a recent note.
Higher commodity prices were clearly evident from earnings at Exxon Mobil's exploration and production arm, where net income rose 32 percent to $8.2 billion.
Exxon's production increased nearly 1 percent from the fourth quarter of 2006, driven by higher demand for natural gas in Europe. Excluding Exxon assets that were taken over by the Venezuelan government last year and other factors, production rose nearly 3 percent.
Refining and marketing earnings came to $2.3 billion, up from nearly $2 billion in the same quarter a year ago, as improved refining operations offset lower U.S. refining margins.
Refining margins ? the difference between the cost of crude and what the company makes on refined products such as gasoline ? have been squeezed in recent months as spiking oil prices outpaced increases in gasoline prices and other refined products.
They also affected Chevron's quarterly earnings, which rose 29 percent to $4.88 billion as higher oil prices offset weakness in the refining sector. Revenue also rose 29 percent to $61.41 billion.
Exxon Mobil declared a quarterly dividend of 35 cents per share earlier this week ? in line with its past several quarters.
Neither Exxon Mobil nor Chevron gave an outlook for upcoming financial results, though Chevron said "major" project delays have lowered its outlook for 2008 production by about 150,000 barrels of oil per day to 2.65 million barrels.
Some analysts expect refining margins to rebound as the summer driving season approaches and gasoline prices rise.
John Parry, a senior analyst with John S. Herold Inc., said if crude prices remain in the $90-per-barrel range, oil company earnings are likely to be flat or slightly lower than the most recent quarter.
Despite U.S. urging, OPEC decided Friday against increasing the amount of oil it produces, insisting that supplies were adequate and that speculators and geopolitical jitters ? not oil availability ? were setting prices. It said it was focused on near-term expectations.
Exxon Mobil shares fell 45 cents to $85.95 on Friday. They've traded in a 52-week range of $69.02 to $95.27. Chevron dropped 76 cents to $82.49. Its shares have traded in a range of $64.99 to $95.50 in the past year.
I posted this article because while it is seemingly outrageous that oil companies are making record profits from sales of gasoline and other refined products, a quick calculation of their total profit is around 8 percent on each gallon sold or about 24 cents per gallon. In todays deflated dollars that actually isn't that much.
I am no defender of the oil companies, but they do provide a service to the public, don't you think?
What say you?
Well, there is a difference between gross and net profits - but more to the point, neither the oil companies nor any other business is a charity operation. The object of any company is to make as much money as the market will bear. Expecting them to charge less than that out of some sense of "public good" is pretty silly, in my view.Originally Posted by Henry
However, there is arguably a "national interest" objection to be made when it comes to vital staples such as oil (or health care) that most of us have no choice but to purchase (and at whatever price the company providing these things decides to charge us) or upon which the economy is completely dependent.
But that's a question of public policy more so than market economics, etc.
Well, it stands to reason that if they're operating on a fixed profit margin at the retail level, that when prices go up, profits will go up as long as sales don't fall.
Oil companies are expected to capitalise new technology and harder-to-reach oilfields.
The Western World mostly pays over $5.00/gallon already, with various taxes and road funding.
Note that Britain has committed to new nuclear power plants, but the US has not even got fuel-efficiency as a major item of national strategy, ley alone nuke power. I personally favour coal and oil and nuke in sensible proportion. But the US appears not to have any effective national energy strategy.
Rob (NZ)
".. but the US has not even got fuel-efficiency as a major item of national strategy, ley alone nuke power. I personally favour coal and oil and nuke in sensible proportion. But the US appears not to have any effective national energy strategy."
Sadly, this is true. It's egregious and inexcusable that we haven't added any significant bucleargenerating capacity in something like 30 years now....
Nor have you encouraged fuel-efficiency except with bio-additives. Which ain't exactly a strategy.
btw if Hillary and Obama join on a single ticket, the GOP might have to pass on this election. But as you know if they split, McCain has a chance.
at least that's how it looks from here.
Bill Clinton still has a phenomenal power at a personal level.
I remember some GOP subscribers to CARS describing GWB as charisimatic and so bright if you entered debate with him you would feel like you were cut off at the knees...
In the meantime the US appears rudderless.
"Nor have you encouraged fuel-efficiency except with bio-additives. Which ain't exactly a strategy."
You're right... but some of us, including me, do try - on a personal level. For instance, I don't need a full-size truck with a V-8, so I don't drive one. And I work from home (saves a lot of gas all by itself.) And we chose not to buy an enormous McMansion that costs a fortune to heat and cool. Just not our thing - and besides, we think it's smart to live within reason!
Me too.
It's hard to be poor in my country, but people manage it ... you can buy a lot of fresh food and warm accomdation for the price of a plasma TV..
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