"Obscene" Profits

ABC anchor Charles Gibson attempted to represent the common man when he grilled Exxon-Mobile CEO Rex Tillerson. With profits close to $22 billion for the first half of the year alone, many feel "Big Oil" is gouging consumers.

But here are some numbers that put things in perspective:

  • $1,400 profits per second
  • $4,000 taxes paid per second

So, who is getting rich here? Stockholders like the little old ladies in Florida? Or the recipients of "Big Government’s" largesse?

Another way of looking at things that’s been discussed around the net for a few weeks now:

  • Exxon-Mobile had an 8.5% net profit margin for the first half of the year
  • Disney has a 9% net profit margin over the past five years, 13.2% last year, and a 13.9% net profit margin last quarter (anyone see a trend here? That’s right, Disney is raping the consumer!)
  • Eli Lilly posted a 15.9% net profit margin over the last five years, and an 18.6% net profit margin last quarter
  • Apple posted a 14.6% net profit margin last year
  • Bank of America has posted a stunning 51.5% net profit margin over the last five years

Chuck Gibson and the common man need to understand that large corporations mean large numbers, even in profit. 8.5% net profit isn’t all that much, but because sales are in the region of $400 billion the profit numbers seem excessive to the average Joe that thinks in terms of thousands of dollars per year when he runs his household. But Chucky should know better.

Now let’s get to the scary stuff. Why did the world’s biggest oil company fail to meet the second-quarter numbers that analysts predicted?

"They are not growing,” said Philip Weiss, an analyst at Argus Research in New York who rates Exxon Mobil shares ‘buy” and owns none. "Production is becoming more and more of a concern. For these guys, access to reserves is a very big issue.”

Chief Executive Officer Rex Tillerson, 56, is spending $52 million a day to search for new fields after reserves fell in 2007 by the most in at least a decade. . . .

"If oil prices are going up $20 and $30 a barrel a quarter like they have been, it hides a lot of flaws,” said Brian Gibbons, an analyst at New York-based CreditSights Inc. "The question on everyone’s mind is, how do these guys expect to grow production given the restrictions on access to reserves?

Tillerson, who succeeded Lee Raymond as CEO in January 2006, is facing increasing barriers to oil and gas exploration in Russia, Alaska and the South China Sea as governments limit access or raise the costs of tapping natural resources.

Price Impact

New York oil futures, which had never traded as high as $112 before the second quarter, surged to a record $143.67 in June.

Drill here. Drill now. Reduce prices now. Believe it.

Posted August 16th, 2008 Filed in Energy