Exxon Mobil Profits For Second Quarter 2008

[Belegon]

So, in these hard economic times, with unemployment rising, the housing market in a freefall and the average American watching both their future prospects and their 401K balances decline, isn't it nice to see that the big oil companies are hurting too? I mean, Exxon Mobil Corp. reported their second quarter profits today and they missed Wall Street expectations and saw their stock drop three percent. Guess they made some sacrifices on behalf of their customers. Oh, wait... what is that on the AP wire?

HOUSTON — Exxon Mobil Corp. reported second-quarter earnings of $11.68 billion Thursday, the biggest profit from operations ever by any U.S. corporation, but the results were well short of Wall Street expectations and its shares slumped 3 percent.

Okay, I don't know what is worse. That Exxon is posting the biggest quarterly profit for any corporation ever by amorally ransacking the pockets of their customers despite the trying times... or that The Street thought they were going to do so on a grander scale.

When we are actively engaged in prosecuting a war in the middle of the largest oil producing region in the world, with a President whose family made their money in that business, at a time when the world stands at a crossroads of environmental change and when the average U.S. citizen is feeling a shortage of the pocket book due to prices at the pump and the increased costs of good due to the increased cost of the gasoline required to transport those goods... this is not profit-taking that needs to be addressed?

Calling this war profiteering would not be a dramatic exageration. In the midst of the Second World War, or even Korea or Vietnam, would this have resulted in outrage and government action? Almost certainly.

The predicted response from the Bush Administration and John McCain? Outrage indeed. Outrage that their stock dropped three percent.

(taken from my blog)

 

[KLCK]

Well hopefully one day a massive new breakthrough in electric cars will make oil obsolete.

I hope if Obama is elected that he will do something about this, he seems to have little if any ocnnection to big oil.

 

[Belegon]

Well hopefully one day a massive new breakthrough in electric cars will make oil obsolete.

I hope if Obama is elected that he will do something about this, he seems to have little if any ocnnection to big oil.

We shall see... regardless of whom is elected, it is absolutely necessary for us to attack on the demand side, not just the supply. We must curtail our need.

China and India will continue to grow and consume more oil. Worldwide demand would rise even if the US were to completely cease oil imports.

The prices are only going higher.

 

[cantdog]

Okay, I don't know what is worse. That Exxon is posting the biggest quarterly profit for any corporation ever by amorally ransacking the pockets of their customers despite the trying times... or that The Street thought they were going to do so on a grander scale.

When we are actively engaged in prosecuting a war in the middle of the largest oil producing region in the world, with a President whose family made their money in that business, at a time when the world stands at a crossroads of environmental change and when the average U.S. citizen is feeling a shortage of the pocket book due to prices at the pump and the increased costs of good due to the increased cost of the gasoline required to transport those goods... this is not profit-taking that needs to be addressed?

When they had lean years, they didn't have us bail them out, did they? Nobody cried they needed support from the government when they were not making any money! Now that they are, the Liberals, like vultures.. oops

Why, yes, they did. I have to check "no" on the oil-depletion allowance on my tax form. Well, never mind. I guess you might be right. We could at least quit the corporate welfare subsidies.

 

[Zeb_Carter]

I expect you, Bel, to be smarter than that. There is a big difference between profit expressed in a dollar amount, which might seem big, huge even and profit margin as a percent.

Their net profit margin is still less than 10% somewhere around 7.5% I believe.

Would you begrudge a company who one quarter only made $250 and then the next they made $250,000?

Or the company that was consistent at 10% of gross earnings?

And where they talking gross or net?

And what about a company like DeBeers? 300% markup. Sound fair to you?

I question the drug companies profits as well and what they charge for their product for the first 7 years of it's life. Of course the minute the patent expires they lose to the generic brands that are produced.

 

[cantdog]

Beat you to it, Zeb

I just knew you were going to say "what about when they were not making that kind of money?" Well, then, my boy, the taxpayer was made to support them. Now, I think it's high time we withdrew the welfare check and the tax breaks.

 

[desertslave]

Please consider doing a little financial homework. The oil companies currently report annual profit margins of 6-11% (Exxon 10.5%, Chevron 8.6%, Conoco-Phillips 6%). Compare that to, say, some of the leading drug companies: Merck (20%), Lilly (19%) or Pfizer (18%). Just for kicks, Bank of America reports 18% and Microsoft 29%.

You speak of rising unemployment. Do you have any idea how many JOBS Exxon provides? (Over 100,000). Do you have any idea how many seniors manage to live off of something better than basic social security because of dividends? (Currently $1.60/share.) My Mom is one of them, thanks to some smart investments by my Dad, years ago.

The oil companies are not solely responsible for setting the current prices. Demand contributes, production costs contribute, speculators contribute, and let's not forget taxes. Did you know that there's not a single spare oil rig to be had in Gulf of Mexico? Incidentally, Transocean, a major lease provider of oil rigs, is showing a profit margin of 46%. Frontline, a major oil tanker company, is reporting a 42% margin. Exxon and other companies have to PAY these companies to obtain and transport their oil. If you were to combine all of the US oil companies, they control roughly 5% of the world's oil supply. How on earth can you explain that they can manipulate a world price market? It doesn't matter which talking head is in the White House, global demand is driving this market, not our petty politics.

P.S. Does anyone remember "windfall profits taxes?"

 

[Selena_Kitt]

Well hopefully one day a massive new breakthrough in electric cars will make oil obsolete.

GM made a perfectly good electric car - the EV-1. The test subjects who leased it LOVED it - every single one of them wanted to buy it. GM took them all back - and crushed them.

Then they said the market wouldn't bear electric cars.

 

[Zeb_Carter]

I just knew you were going to say "what about when they were not making that kind of money?" Well, then, my boy, the taxpayer was made to support them. Now, I think it's high time we withdrew the welfare check and the tax breaks.

I never said what about when?

Please consider doing a little financial homework. The oil companies currently report annual profit margins of 6-11% (Exxon 10.5%, Chevron 8.6%, Conoco-Phillips 6%).

And so I was off by .86 % on the avg. profit margin. Kick me in the ass for that.

 

[desertslave]

And so I was off by .86 % on the avg. profit margin. Kick me in the ass for that.

Absolutely not! I wasn't trying to correct you...I was typing (and checking my numbers) while you posted. I'm not just a slut...I'm a research slut, too.

 

[Belegon]

I expect you, Bel, to be smarter than that. There is a big difference between profit expressed in a dollar amount, which might seem big, huge even and profit margin as a percent.

Their net profit margin is still less than 10% somewhere around 7.5% I believe.

Would you begrudge a company who one quarter only made $250 and then the next they made $250,000?

Or the company that was consistent at 10% of gross earnings?

And where they talking gross or net?

And what about a company like DeBeers? 300% markup. Sound fair to you?

I question the drug companies profits as well and what they charge for their product for the first 7 years of it's life. Of course the minute the patent expires they lose to the generic brands that are produced.

Do all of your research, Zeb.

Exxon Mobil has consistently posted record profits. And in a time where their core business is publicly claiming duress, they are showing no signs of it whatsoever.

Setting U.S. profit records has become commonplace for Irving-based Exxon Mobil. The $11.68 billion topped its own U.S. record of $11.66 billion, posted in the fourth quarter of last year. Right behind that was the $10.9 billion it reported to start 2008.

In fact, if one-time gains like bankruptcy settlements and spinoffs are stripped away from other companies, Exxon Mobil owns the record for the top 10 most-profitable quarters for a U.S. company, as well as the largest annual profit.

United Airlines' UAL Corp. reported first-quarter profits of $22.9 billion in 2006, but that reflected a bankruptcy settlement, not true profit. The airline would have posted a $306 million loss if those gains were stripped out.

Ford Motor Corp. reported profits of $17.6 billion in the first quarter of 1998, but that included a $16 billion, one-time gain from the spinoff of Associates First Capital.

Exxon Mobil, which produces 3 percent of the world's oil, got its biggest boost from its exploration and production arm, where earnings rose 68 percent to $10.01 billion from $5.95 billion a year ago. The main driver was record crude prices, partially offset by lower sales volumes and higher operating costs.

Margins are often distorted when you look at them across all industries instead of within a business model. And when the company is continually posting record revenues in the face of, by their own reports to Wall Street, an 8% drop in demand?

Nor is this a product where we can legitimately say it is a luxury item, like DeBeers (a monopoly for most of it's existence, BTW.) Most people can not simply quit using oil, like we could if, say, strawberries suddenly went through the roof.

Gasoline is a product where a large portion of their sales is consistent regardless of price. Their pricing policies have zero link to actually cost realities, as you should know. When oil costs per barrel go up, the effect on Cost of Goods Sold will not be legitimately affecting their business for months at the very least. Yet prices increase in a matter of hours.

Also, the cost of oil has a dramatic and predictable effect on other goods and services.

The behavior of the oil companies is not illegal. Unethical? Opinions on that clearly differ.

 

[Zeb_Carter]

Do all of your research, Zeb.

Exxon Mobil has consistently posted record profits. And in a time where there core business is publicly claiming duress, they are showing no signs of it whatsoever.

Exxon Mobil, which produces 3 percent of the world's oil, got its biggest boost from its exploration and production arm, where earnings rose 68 percent to $10.01 billion from $5.95 billion a year ago. The main driver was record crude prices, partially offset by lower sales volumes and higher operating costs.

The profit came not from them sticking it to us, but the speculators sticking it to us.

If you profit margin is 10% and and the cost of the raw materials goes up 100% what is the dollar amount of your profit? Twice as much.

Crude was $50 a barrel the profit works out to be 5.95 billion, then crude jumps to $100 a barrel I would expect your profit it double to say $10.01 billion give or take a peso. Wouldn't you?

 

[Belegon]

Please consider doing a little financial homework. The oil companies currently report annual profit margins of 6-11% (Exxon 10.5%, Chevron 8.6%, Conoco-Phillips 6%). Compare that to, say, some of the leading drug companies: Merck (20%), Lilly (19%) or Pfizer (18%). Just for kicks, Bank of America reports 18% and Microsoft 29%.

You speak of rising unemployment. Do you have any idea how many JOBS Exxon provides? (Over 100,000). Do you have any idea how many seniors manage to live off of something better than basic social security because of dividends? (Currently $1.60/share.) My Mom is one of them, thanks to some smart investments by my Dad, years ago.

The oil companies are not solely responsible for setting the current prices. Demand contributes, production costs contribute, speculators contribute, and let's not forget taxes. Did you know that there's not a single spare oil rig to be had in Gulf of Mexico? Incidentally, Transocean, a major lease provider of oil rigs, is showing a profit margin of 46%. Frontline, a major oil tanker company, is reporting a 42% margin. Exxon and other companies have to PAY these companies to obtain and transport their oil. If you were to combine all of the US oil companies, they control roughly 5% of the world's oil supply. How on earth can you explain that they can manipulate a world price market? It doesn't matter which talking head is in the White House, global demand is driving this market, not our petty politics.

P.S. Does anyone remember "windfall profits taxes?"

Basic economics 101: Demand falls while supply remains consistent. What should happen to prices?

What IS happening to prices? (And don't preach COGS. Those Costs have not traveled through the infrastructure yet and you know it.)

It is the nature of a business to try to maximize it's profits. Indeed, it is their reason for existence.

However, this business is not the corner market or the guy mowing lawns or even the monopoly selling diamonds.

 

[Belegon]

The profit came not from them sticking it to us, but the speculators sticking it to us.

If you profit margin is 10% and and the cost of the raw materials goes up 100% what is the dollar amount of your profit? Twice as much.

Crude was $50 a barrel the profit works out to be 5.95 billion, then crude jumps to $100 a barrel I would expect your profit it double to say $10.01 billion give or take a peso. Wouldn't you?

Maintaining a consistent profit margin is healthy for the business. In this case, is it healthy for the country?

RE: Speculators

So then, what was the purpose of us establishing a federal oil reserve? Is it ONLY to guard against an embargo or interruption of supply in imported oil? (serious question, BTW)

 

[The Greek]

The profit came not from them sticking it to us, but the speculators sticking it to us.

If you profit margin is 10% and and the cost of the raw materials goes up 100% what is the dollar amount of your profit? Twice as much.

Crude was $50 a barrel the profit works out to be 5.95 billion, then crude jumps to $100 a barrel I would expect your profit it double to say $10.01 billion give or take a peso. Wouldn't you?

Excellent illustration. The oil companies can hold themselves innocent claiming that they have maintained thier historical profit levels.

I understand the other side of the arguement as well, however, as the Oil companies have the luxury of passing on along all of their costs and their fixed profit margin to the consumers, even with the cost of good doubling or more. Using your illustration, In effect the oil companies gave themselves a 100% profit $ raise without producing any more oil. This is a luxury of producing a product which is a necessary good and has very little demand elasticity to price changes.

I do not feel what the oil companies are doing is illegal. They are, however, taking advantage of the rise of input costs to inflate their profit in real $ while not producing more product or adding any new value. This is a windfall for stockholders but is not winning them a popularity contest with the general public.

 

[Belegon]

Just to bring up a profit margin from another company with a product that has a "necessity" kind of status, and from a company that is also one of the national leaders in it's field, Albertson's grocery stores reported a net profit margin of 5.1% in their most recent annual report.

 

[The Greek]

Just to bring up a profit margin from another company with a product that has a "necessity" kind of status, and from a company that is also one of the national leaders in it's field, Albertson's grocery stores reported a net profit margin of 5.1% in their most recent annual report.

Interesting. Basic food products such as milk are probably one of the closest comparable products to oil.

Even Albertson's does not have the same profit fixing luxury that the oil companies have. The oil companies can currently sell every gallon of gas they produce. For Albertsons to compare on par, they would have to be able to sell every unit of product on their shelves even if they double their price.

 

[Weird Harold]

So then, what was the purpose of us establishing a federal oil reserve? Is it ONLY to guard against an embargo or interruption of supply in imported oil? (serious question, BTW)

The "Federal Oil Reserve" is the continuation of a Strategic Policy in place since the inter-war years -- The reserve enough oil to feed the US demand for one year of total (conventional) warfare, both direct military requirements and essential industry requirements.

The Strategic Reserve was misused by Nixon during the 70's OPEC Embargo because the reserve was never intended to support price levels for the general public, but to insure a rationed minimum supply to essential industries. It's use was envisioned and designed to come after rationing and travel restrictions, not to avoid rationing and travel restrictions.

 

[Zeb_Carter]

Maintaining a consistent profit margin is healthy for the business. In this case, is it healthy for the country?

RE: Speculators

So then, what was the purpose of us establishing a federal oil reserve? Is it ONLY to guard against an embargo or interruption of supply in imported oil? (serious question, BTW)

RE: Fed Oil Res. = See Harolds post.

As for the health for the country or not...only time will tell.

I have a question... in what year was the last refinery built in the US? Let's see 35 years ago would make it...1973.

Why have no more refineries been built?

Then there is government regulations...every quarter, due to lack of facilities, the refineries have to shutdown and switch over to producing a different grade of gasoline, diesel or some other petroleum product. When that happens shortages happen, causing the price to blip at the pump. When the shortage goes away the price comes down.

Now the world oil speculators get into the fray and drive the price of crude oil up. Now those products cost twice as much, big blip at the pump.

I have no animosity toward the oil companies...it's the politicians who drag their feet and vote subsidies and brakes for big oil. If they did their jobs (which is to serve us not big oil) then we wouldn't be in this mess.

 

[The Greek]

The "Federal Oil Reserve" is the continuation of a Strategic Policy in place since the inter-war years -- The reserve enough oil to feed the US demand for one year of total (conventional) warfare, both direct military requirements and essential industry requirements.

The Strategic Reserve was misused by Nixon during the 70's OPEC Embargo because the reserve was never intended to support price levels for the general public, but to insure a rationed minimum supply to essential industries. It's use was envisioned and designed to come after rationing and travel restrictions, not to avoid rationing and travel restrictions.

Excellent post

 

[Belegon]

If they did their jobs (which is to serve us not big oil) then we wouldn't be in this mess.

Agreed. And part of that job should be removing American dependence on foreign oil, the biggest vulnerability in our economy and in our security.

In 35 years, we have not made appreciable gains in reducing that dependency.

If the oil companies were not making money under the status quo, you can bet your ass they would be working to change that. At this time, they have zero incentive to do so.

The "big blips" at the pump do not correspond with actual Cost of Goods Sold. If they did, increases would come once the goods produced at the higher price reached the market. Those would be logical and legitimate fluctuations.

Also, the change in the cost of gasoline does not directly correspond to the cost of oil, does it? What did oil cost when gas was 1.50? Has the percentage increase in the cost of oil directly mirrored the cost of gasoline?

No new oil refineries have been built. But I guarantee you that if it became necessary for the oil companies to build new refineries in order to maintain their profits, they would do so. Can you name me some other industries that have seen their profits and influence consistently rise without investing in such a primary part of their infrastructure in 35 years?

Is American Airlines still flying the same exact fleet of planes they flew in 1973? Is GM using the exact same production lines? What about Texas Instruments? Procter & Gamble? John Deere? Microsoft?(oh wait, they didn't exist yet.)

ETA: With all the technological growth of the last thirty-five years, I find it hard to believe there would not be significant advantage to having new refineries. If not in actual output, at least in associated costs.

 

[The Greek]

RE: Fed Oil Res. = See Harolds post.

As for the health for the country or not...only time will tell.

I have a question... in what year was the last refinery built in the US? Let's see 35 years ago would make it...1973.

Why have no more refineries been built?

Then there is government regulations...every quarter, due to lack of facilities, the refineries have to shutdown and switch over to producing a different grade of gasoline, diesel or some other petroleum product. When that happens shortages happen, causing the price to blip at the pump. When the shortage goes away the price comes down.

Now the world oil speculators get into the fray and drive the price of crude oil up. Now those products cost twice as much, big blip at the pump.

I have no animosity toward the oil companies...it's the politicians who drag their feet and vote subsidies and brakes for big oil. If they did their jobs (which is to serve us not big oil) then we wouldn't be in this mess.

I agree that the government has it's share of blame in this problem. I would expect that the design/technology of these older refineries could be singificantly improved after 30 years as well.

I think refinery capacity need to be re-evaluated and new/replacement refineries constructed as needed. I also realize that this just avoids the whole issue of dependancy on oil. I would support refining changes only as part of a broader energy plan that includes an enforcable plan for conversion to alternate fuels. Ultimately, I believe we will need fewer/more efficient refineries as domestic oil demands decreases over time.

Also, In regards to increased domestic oil drilling, I would support it under the following conditions:

1. The increased domestic drilling is part of an enforcable policy to move the US to higher usage of alternative energy sources. Domestic oil should reduce oil import volumes, not supplement imports.

2. the government mandates that the oil drilled from domestic leased lands would be required to be used for domestic consumption. I do not want to hear the sound of domestically drilled oil being sucked over to China.

 

[Zeb_Carter]

Agreed. And part of that job should be removing American dependence on foreign oil, the biggest vulnerability in our economy and in our security.

In 35 years, we have not made appreciable gains in reducing that dependency.

If the oil companies were not making money under the status quo, you can bet your ass they would be working to change that. At this time, they have zero incentive to do so.

The "big blips" at the pump do not correspond with actual Cost of Goods Sold. If they did, increases would come once the goods produced at the higher price reached the market. Those would be logical and legitimate fluctuations.

Also, the change in the cost of gasoline does not directly correspond to the cost of oil, does it? What did oil cost when gas was 1.50? Has the percentage increase in the cost of oil directly mirrored the cost of gasoline?

No new oil refineries have been built. But I guarantee you that if it became necessary for the oil companies to build new refineries in order to maintain their profits, they would do so. Can you name me some other industries that have seen their profits and influence consistently rise without investing in such a primary part of their infrastructure in 35 years?

Is American Airlines still flying the same exact fleet of planes they flew in 1973? Is GM using the exact same production lines? What about Texas Instruments? Procter & Gamble? John Deere? Microsoft?(oh wait, they didn't exist yet.)

ETA: With all the technological growth of the last thirty-five years, I find it hard to believe there would not be significant advantage to having new refineries. If not in actual output, at least in associated costs.

Agreed, but it's not exactly the oil companies fault that they don't have new, high tech refineries. It's government restrictions that have been imposed every time they wanted to build a new one...the environmentalists have blocked them at every turn. Sometimes with valid points sometimes not.

It's is also the environmentalists which keeps the oil companies from drilling of the Florida west coast and ANWAR in Alaska. And new techniques which have been developed for mining the oil shale in Colorado. Billions of barrels of oil in our own country and we buy from countries like Saudi Arabia, Indonesia, etc.

*shakes head in dismay*

 

[trysail]

Each of the following companies possesses oil and natural gas reserves that are comparable to or exceed ExxonMobil's:

http://www.saudiaramco.com/irj/portal/anonymous
http://www.lukoil.com/
( 1.3% of global oil reserves and 2.3% of global oil production )
http://www.gazprom.ru/eng/
http://www.gazprom.ru/eng/articles/article20150.shtml
( Gazprom has more natural gas than any other gas company in the world, with about 17% of the world’s proven gas reserves, and over 60% of Russia’s reserves. Gazprom Group’s proven gas reserves are estimated at around 29,1 trillion m3. )
http://www.rosneft.com/
( As of December 31, 2007, Rosneft’s total proved hydrocarbon reserves were 21,699 million barrels of oil equivalent. )



China, India, Saudi Arabia, Iran, and Russia (among others) continue to subsidize retail gasoline and other hydrocarbon derivative prices ( thereby encouraging consumption). In so doing, those governments are effectively driving up the price of petroleum (and gasoline) for every other consumer.

The market for petroleum is global; it is a fungible commodity. Prices are set in the global marketplace. Those who supply China, Japan, India, Germany, Australia, Korea, France and every other consuming nation bid for petroleum each and every day. It is as transparent a market as any you'll ever find:
http://www.bloomberg.com/markets/commodities/energyprices.html



The refining business has been a horrible business for much of the last twenty-eight years— for most of that period, it provided relatively low returns on capital employed. It is a tremendously capital-intensive industry. Refining margins (which can be roughly approximated at any point by the "3-2-1 crack spread" [ three barrels of petroleum are processed into two barrels of gasoline and one barrel of heating oil ]) have hovered around $4-7 per barrel ($0.09-0.17/gallon) for most of that period (it is cyclical and one should never assume that the instantaneous crack spread is representative of secular margins). Most consumers are completely oblivious to the fact that ~$0.60 of the price of every gallon (at retail— the exact amount varies depending on the level of state taxation) represents Federal and state taxation.

 

[john-the-author]

The profit came not from them sticking it to us, but the speculators sticking it to us.

If you profit margin is 10% and and the cost of the raw materials goes up 100% what is the dollar amount of your profit? Twice as much.

Crude was $50 a barrel the profit works out to be 5.95 billion, then crude jumps to $100 a barrel I would expect your profit it double to say $10.01 billion give or take a peso. Wouldn't you?

We're stockholders. The stockholder's prospectus makes it fairly clear that Exxon is right up there to their lower lips. Yes, there are speculators, but Exxon is really happy with the way things are going.