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Publicado el 06-20-2011

The Truth about Energy Profits

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Lawrence J. McQuillan

America's largest oil and natural gas companies recently reported quarterly earnings, and as expected, profits were up. But the caricature of fat-cat energy executives lining their pockets at the expense of the everyman doesn't hold up to scrutiny.

ExxonMobil posted quarterly earnings of $10.7 billion on Thursday, up 69 percent from last year. And on Wednesday, ConocoPhillips reported quarterly earnings of $3 billion, reflecting an increase of 43 percent from a year ago. Impressive, but not shocking given the current price of crude oil.

No less predictable was the outrage voiced by politicians. President Obama called for new taxes on the oil industry, and Senate Majority Leader Harry Reid promised to introduce legislation to that effect when Congress is back in session.

Talking tough when pump prices are high might be safe politically. After all, it's easy to get outraged while people struggle to fill their tanks. But we should consider some facts about the American energy industry before breaking out pitchforks or enacting knee-jerk policies.

Yes, pump prices are high, but companies like ExxonMobil and Chevron have as much control over the price of gasoline as they do the price of speeding tickets. The single biggest factor affecting pump prices is the cost of crude oil, which is set by global futures markets subject to the laws of supply and demand.

Right now the recovering global economy, Mideast turmoil, and declining dollar are driving up the price of crude. The truth is ExxonMobil can't control the price of a barrel of oil, but the higher price naturally results in higher revenues.

No one is asking drivers to shed a tear for gasoline stations forced to charge high prices at the pump. But equally unfair is the assumption that those high prices mean 24-hour champagne and limos for company executives. The U.S. oil and natural gas industry actually operates at lower margins than most American manufacturing.

In arguing for higher energy taxes, politicians cite that America's five largest oil and gas companies had a net income of $484 billion from 2006 to 2010. What they don't tell you is those companies' profit margin during those years was 6.65 percent, below the U.S. manufacturing average.

Because of the large size of the industry, profits sound exorbitant when stated in absolute dollars. But those dollars are distributed to millions of ordinary Americans who are shareholders ...
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