Exxon’s ‘Biggest Profit in the World’ Is Actually Bigger — $8 Billion in Unproductive Share Buybacks Should be Counted, Says Group
Shell, No. 2 Oil Co., Also Hits New Record, But Hoards Less
Santa Monica, CA — ExxonMobil announced the biggest quarterly corporate profit in history today, despite producing less oil and despite stashing away $8 billion in buying back its own shares, said Consumer Watchdog. The reported $11.7 billion 2nd quarter profit, if the stock buybacks were all booked as after tax profit, would have neared $20 billion.
“The big oil companies are wallowing in cash and Exxon is the most aggressive in buying back its stock–instead of taking the risks it should to both find new oil and develop new forms of energy,” said Judy Dugan, research director of the nonprofit, nonpartisan Consumer Watchdog. “Consumers and government deserve a truer picture of where their hard-earned gasoline and heating oil dollars are disappearing to.”
ExxonMobil bought back $29 billion of its own stock in 2006, $28 billion in 2007 and has already bought back $16 billion in the first half of 2008. Even so, it reports $39 billion in cash on hand and is all but certain to report more than $40 billion in profit, along with $32 billion in stock buybacks, for all of 2008.
“Exxon is pumping cash, not oil,” said Dugan. “Its oil production continues to drop, even after excluding political disruptions of supply. Exxon won’t take the risks or spend the money to produce new energy, even in areas where it already has made deals or obtained rights.”
For instance, Exxon refuses to help pay for a pipeline to transport plentiful Alaskan natural gas that goes unused, demanding a better tax deal from the state. It backed out of a deal with Qatar to turn natural gas into diesel fuel. It spends nothing on production or development of renewable energy.
“In a normal market, with prices for a product rising like they have for oil, manufacturers would be spending like crazy to make more of it,” said Dugan. “Yet oil companies including Exxon would rather sit back and make more money by selling less. Even if both U.S. coasts and the Alaska wilderness preserve were handed to them, they’d just demand more tax breaks and not drill.”
The result is that whole economies are stressed, consumers have emptied their wallets and only Exxon benefits, said Consumer Watchdog.
Shell Oil, the world’s 2nd largest oil company, also reported record profits of $7.8 billion to $11.6 billion, depending on how the profit is recorded (the smaller number more generally matches U.S. companies’ accounting). Its stock buybacks, however, were much smaller at $1.1 billion for the quarter.
Return On Capital vs. Percentage Of Revenue
Unlike U.S.-based companies, Shell initially reports its profit percentage as return on capital. Its 24.5% figure shows how profitable the oil business actually is, said Consumer Watchdog. Exxon and others will initially spin their profit as a percentage of revenue, a smaller and grossly misleading figure. Last year, Exxon reported to major investors and the SEC that its return on capital was nearly 32%
As a recent AP story based on Pew Center research noted, the five biggest international oil companies plowed about 55 percent of the cash they made from their businesses into stock buybacks and dividends last year, while investments in new oil have stayed in single digits.
“Oil companies are spiting the future for the sake of cash in hand,” said Dugan. “The companies’ quarterly reports are a testament to management whose sole focus is short-term profits, not a long-term energy future.”
Consumer Watchdog favors the following reforms:
· Robust U.S. oversight of all U.S.-generated energy trades, including limits on purely financial trades between entities that neither sell nor receive delivery of products;
· Higher cost of trading for purely financial energy trades, allowing entities that sell or receive oil and other products to continue hedging at lower margins;
· Reform of taxpayer subsidies to oil companies, including revisions of royalty relief, with proceeds to fund renewable energy development and tax rebates to low-income consumers;
· Regulation resulting in a 30-day average national supply of gasoline (current supply averages 21-23 days), with limits on regional variation of supply. This return to the average levels of the early 1990s would reduce price volatility in both gasoline and crude oil, reduce overall prices and prevent price spikes in the event of supply interruption.
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See Consumer Watchdog’s “Oil Profits Monster,” a database and charts of oil companies’ quarterly and yearly profits since 2000, at www.OilWatchdog.org. The database takes into account companies that merged after 2000, such as Chevron and Unocal in 2005, to give the fairest picture of oil profit increases.