AZ Republic Takes Shot at Oil Companies
In a remarkable example of an anti-business hit-piece called "Fueling Contempt" on the front page of the AZ Republic, the Republic leads with this line:
Reaction to major oil producers' staggering profits ranges from rage at
the pumps to calls for profits to be reinvested in exploration,
alternative-energy research or simply returned somehow to the public.
The article is mainly focused on the profit announcement at Exxon-Mobil, so I will use their numbers to put "staggering" into context. E-M announced profits of $9.9 billion on sales of $101 billion. For those who cannot divide, that is a profit margin of 9.9% of sales. Since when is a profit margin at a cyclical peak of 9.9% considered "staggering"? Microsoft makes 30%, in good times and bad, with a fraction of the investment or risk X-M takes. From this chart, you can see the average for all industry is about 8%, with the oil industry generally below this number in all but cyclical peak quarters and banks, pharma, software, semiconductors, financials, household products and many others all consistently over 10%. Procter and Gamble makes a margin of nearly 13% of sales selling toothpaste and detergent but we are going to begrudge oil companies 7.6% on average and 10% in their best quarters?
The article does absolutely nothing to put the profits in their proper context, though I was able to do it in one paragraph. This is the only context the article offers:
The oil companies assert that their profits are no larger than other
businesses and that they just look big because it is a big business.Exxon Chairman Lee R. Raymond said in a statement that the company
"acted responsibly" in its pricing and said its fourth-quarter profits
would come nowhere close to the $9.9 billion in the third quarter.That doesn't necessarily wash with Adrienne Valdez of Phoenix.
"I can't afford to buy socks because I am paying twice what I used to
for gas," she said. "It's not right that they should be making billions
at our expense."In Phoenix, gas prices soared to $3.14 after Hurricane Katrina hit the
Gulf Coast. The average Valley price per gallon, which has been falling
in recent weeks, was $2.72 Thursday, according to AAA Arizona.Bruce Trushinsky, owner of the former Moon Valley Exxon station at 1901
W. Thunderbird Road in Phoenix, called Exxon Mobil's $9.9 billion
quarterly profit "disgusting."He became so upset at the $7.6 billion profit posted by the company in
the second quarter that he canceled a longtime branding agreement."I ripped down all the Exxon signs and threw them in the garbage,"
he said. Now, after 30 years, Moon Valley Exxon is Carmel Automotive
and Fuel. Trushinsky said the high wholesale prices charged by Exxon
were devastating to his business and that the last straw was when the
company canceled its dealer-incentive program."They cut us off, then they announced their (second-quarter) profit increased $2 billion."
This is populist crap, and is the reason the MSM cannot be taken
seriously when they say that they are neutral reporters. They are not
reporting, they are cheerleading an anti-oil company bigotry that has
existed for decades. I think that the E-M management should be embarrassed to make such a small return in their best quarter. Shareholders should take management to the woodshed for investing and risking so much in a cyclical business and making so little. For gods sakes, they make a lower margin than Jif peanut butter earns. Is anyone suggesting that we impose a windfall profits tax on Charmin?
I find the title of the article "Fueling Contempt" interesting - I am not sure if it was meant to refer to high oil company profits or if it was just a statement of intent for the article.
Since 1977, governments collected more than $1.34 trillion, after adjusting for
inflation, in gasoline tax revenues"â€more than twice the amount of domestic
profits earned by major U.S. oil companies during the same period
This is just gasoline taxes - it does not include income tax payments, property tax payments, and oil lease royalty payments.
TJIT:
What is pathetic to me is that not one major oil company has made any effort to make this type of information available to the general public. No breakdown of where the earning came from (I suspect most of the increase earnings is from crude oil sales not gasoline refining), no inflation adjusted plots of gasoline prices showing just how cheap it has been for many years, no examples of just how expensive and complicated producing petroleum can be.
Given the political environment this is an almost reckless lack of diligence on managements part.
October 29, 2005, 8:59 amA Stitch in Haste:
Are Large Profits "Obscene"?
Anyone remember the Saturday Night Live commerical spoof, I think a parody of Citiblob, in which an employee describes the bank's highly competitive changemaking services? It went ...
October 29, 2005, 10:08 amWill Franklin:
Great post. This "excessive profits" nonsense really raised my ire earlier this week on my blog, as well.
October 29, 2005, 11:50 amBridgetB:
Hi Coyote!
Thanks this was awesome. I wonder, would they be happier if EXXON went into the red this quarter? Sheesh. They act as if they get no benefit from what EXXON sells them. Its sad. Doesnt anyone appreciate what these companies provide? I for one am glad they are making a nice, tidy profit. This may mean more investment in the future for refining and supplies and the sundry other things that go into getting gasoline to the pump. Yea for money.
October 29, 2005, 6:46 pmThat Guy:
It's reasons like this that keep me from buying fuel from ExxonMobil stations, despite the fact that the closest/most convenient station is an Exxon. I've chosen to become more aware of who imports foreign (middle East) oil, and have chosen a station chain that uses only locally obtained, meaning this region/Canada. We have 3 local refineries, one being ExxonMobil, another ConocoPhillips and a third co-op refinery. ConocoPhillips uses 0 barrels of imported oil, but they follow the greedy patterns of the other oil companies, despite the huge difference in price-per-barrel that CP pays. The oil is obtained at approximately $20/barrel, yet they charge the wholesale market prices that 'everyone else' does, and reap huge profits in the process. I also try to avoid the CP stations, but for different reasons than EM. The arrogance displayed by the corporate leadership is obvious when the reason given to employees (friends work at the CP refinery) is that they charge the exorbitant amounts because 'everyone else is doing it'. I find it amusing that after gas prices spike well beyond the $3.00/gallon range that locally, gas has dropped in price $.25 in a matter of 3 days this past week. The fact that consumers were finally cutting back on driving, and SUV/big truck sales bottomed out, prices began to drop faster than I've ever seen in the 13 years I've been driving.
October 30, 2005, 11:27 amPorkopolis:
More context:
Oil Companies are big employers...profits allow them to stay in business and employee more people that pay payroll taxes.
Oil Companies provide a service and products in demand...they take multiple risks (political, capital (ever hear of a dry hole?), injury from working in harsh conditions, etc.) in delivering those products/services.
Oil Companies are us/U.S. (as in the United States)...investors in pensions, retirement funds, college funds, 401ks, etc. own the oil companies... those profits go directly back into the economy.
At least 50% of Americans are stock holders and many of them invest directly or indirectly in energy/oil companies. Are those that advocate smaller profits also advocating a smaller pension for grandma?; A smaller college fund for Jimmy and Susie?
See also: Hands Off The Windfall Oil Profits at http://porkopolis.blogspot.com/2005/10/hands-off-windfall-oil-profits.html .
October 30, 2005, 2:04 pmPorkopolis:
See also: Gas Taxes Exceed Oil Companies' Profits at http://taxprof.typepad.com/taxprof_blog/2005/10/gas_taxes_excee.html
October 30, 2005, 2:42 pmPat:
Does anyone wonder why or how so much money can be made by a company at such a time as this. Do we wonder why there is not a public outcry, how can this be ?
October 30, 2005, 5:11 pmWhere are the news reporter....why and how can a company make billions...not millions, and now one says boo....
I think the american public should ban the buying of gas for one day a week... would that make a difference.... I am sick of the rich getting so much richer.please
some one wake up
Porkopolis:
Pat:
Did you read the post or any of the comments?
When did it become an 'outrage' for a company to maximize it profits and also the taxes it pays on those profits?
What 'profit' would be acceptable to you? Let's call that X. Would X + .0001 be OK with you? If not, what about the .0001 difference gives you concern?
Have you considered not buying what the oil companies are selling if it upsets you so much?
Do you have a pension fund, 401K, college fund; any investments? Have you checked to see if any of those invest in the energy sector? If so, feel any different now as a shareholder? If your a shareholder and still feel upset, are you prepared to give up your portion of your gains in energy companies?
October 30, 2005, 5:32 pmPragmatist:
Coyote...don't forget that $1.6 billion of the profit was from restructuring, not sales. That dilutes the oil-related margin even further.
October 31, 2005, 5:53 am