Santa Monica, CA — In announcing its $10.5 billion third-quarter profit, ExxonMobil casually noted that it spent $8.4 billion for the quarter, and $21.2 billion in the first three quarters, on buying up its own stock. That expenditure does nothing but boost the stock price and provide a “bank” for windfall profits, said the Foundation for Taxpayer and Consumer Rights. It also has tens of billions of dollars of cash on hand.
The stock buyback comes to far more than the company has spent on exploration and production, which at least has the possibility of boosting oil supplies, said the nonprofit, nonpartisan FTCR. And Exxon has spent virtually nothing on alternative energy, less than one-hundredth of one percent of total profits.
“Every time a busy mother puts her hand on a pump to fill the family minivan, she should understand that she has no practical alternative to paying whatever the oil companies choose to charge at the moment,” said Judy Dugan, research director of the nonprofit, nonpartisan FTCR. “Exxon, more than any other oil company, is intent on ensuring that she continue to have no alternative.”
Exxon‘s enormous cash hoard, $37 billion, is more than the yearly gross domestic product of Kuwait or Lithuania. “That $37 billion would allow it to gobble up, at any price, any company that developed a process or product that threatened to become an economically viable, well-marketed alternative to oil,” said Dugan. “It can also buy up smaller oil companies at will, further concentrating its power in the petroleum market.”
Another use for the cash hoards of Exxon and the other major oil companies is in political influence. Government reports through June show the industry contributing $13.6 million to federal parties and candidates in the 2004-06 election cycle — 83% of it to Republicans — according election watchdogs at the Center for Responsive Politics. (See http://www.opensecrets.org/industries/indus.asp?Ind=E01&cycle=2006). A final accounting when the election is over will add millions to that total.
Among the federal reforms most opposed by Big Oil is any broad increase in the fuel efficiency of automobiles. Those industrywide standards have not been improved since 1990, despite technology advances that would justify at least a 10 mpg increase from the current 27.5 mpg automobile fleet average. Efforts to reduce or eliminate tariffs on cheap sugar-cane ethanol from Brazil have also gotten nowhere in Congress, with the combined opposition of oil companies and Midwest industrial agriculture. “The White House has also chosen to leave alternative energy development to private markets — even though the biggest hoard of money in the private markets rests with Big Oil, which has a vested interest in keeping the oil business as profitable as possible,” added Dugan.
In California, the oil and gas industry have contributed $3.2 million to Arnold Schwarzenegger alone since 2003, according to FTCR figures. Schwarzenegger opposes Proposition 87 on the Nov. 7 ballot, which would tax oil companies to fund large-scale development of alternatives to oil.
Exxon‘s profit figures show how easily the company can absorb the current pre-election slide in pump prices, said FTCR. “Its profits were so enormous in July and August that the beginning of the slide in September shows up as barely a notation about lower refinery profit margins,” noted Dugan. The drop in margins will probably be more pronounced in the fourth quarter, but Exxon needs a profit of only $7 billion in that quarter to smash last year’s all-time worldwide profit record of $36 billion.
Consumers have recently focused on the drop in oil prices leading up to the election. Federal statistics indeed show that in the last three election cycles, oil companies have taken lower refining margins compared to the previous non-election year, if not lower prices overall. The pattern may well be deliberate. But the current price drop pales in comparison to the increasing highs of the pump-price roller coaster. “It’s a pattern that looks like a camel’s hump that gets bigger every year,” said Dugan. “Motorists — and the U.S. economy — were badly squeezed by last summer’s $3-plus per gallon prices. The pattern has developed over three years. So look for the same ‘hump’ of prices to start earlier and last longer next year.”
– 30 –