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Big Oil and vinegar Print E-mail
Friday, 31 July 2009

By John Goff

Energy giant Exxon Mobil reported a steeper-than-expected drop in quarterly profit, as crude oil prices plummeted from a year ago.

"Global economic conditions continue to impact the energy industry both in the volatility of commodity prices and reduced demand for products," Rex Tillerson, Exxon's chief executive, said in a statement.

"It looks disappointing," added Argus Research analyst Phil Weiss, in an interview with Reuters.

Disappointing? To whom? Sure, Exxon's shareholders will be absolutely gutted that the company barely managed to scrape by in the second quarter, throwing off a measly profit of about $4 billion.

But CFOs at the thousands of companies that depend on gasoline or natural gas in their operations probably won't be sending any 'Because I Care' cards to Rex Tillerson.

The truth is, Big Oil is the most disliked producer in America, with the possible exceptions of Phil Specter and whoever it was that came up with "Rad Girls." Remember last year, when Exxon Mobil was reporting a jaw-dropping annual profit of $40 billion, and you were paying $4.50-a-gallon to fill up your company's fleet of delivery trucks? Remember how the veins in your neck began to resemble an aerial photo of the canal system in Venice?

Outside of the oil industry—and its covey of associated businesses—few corporate types will be feeling overly sorry for Exxon Mobile and it's $4 billion quarterly profit.

Those with long memories—or short fuses—will recall how Big Oil execs last year defended their record-setting profits.

"I saw someone characterize our profits the other day in terms of $1,400 in profit per second. Well, they also need to understand we paid $4,000 a second in taxes, and we spent $15,000 a second in cost," Tillerson told ABC News' Charles Gibson. "We spend $1 billion a day just running our business."

And of course, CFOs across America who heard this jumped up and yelled "Profits! You made record profits, not record revenues!" Indeed, if large oil companies had set record revenues, they may have had a point talking about how godawful expensive it is to run an oil company. They may have had a point talking about the rise in crude, from $40 a barrel to over $100.

But Exxon and others generated record profits, not revenues. What's more, a spokesman for Exxon told members of a Congressional committee that "our earnings, although high in absolute terms, need to be viewed in the context of the scale and cyclical long-term nature of our industry."

Finance executives at say, a paper and pulp business or a mining company, will probably not be overly sympathetic to Big Oil's burdensome cycles.

And of course, reps for the energy companies failed to mention that oil producers are plagued by 'scale' because they've undertaken a series of acquisitions and mergers designed, at least in part, to eliminate competitors.

To be fair, business is business. And oil companies are out to maximize profits for shareholders. But Big Oil execs shouldn't expect a whole lot of sympathy from their counterparts in other industries—nor from the financial press. When the retail price of your main product plunges by about a third in a year— and you still manage to turn a $4 billion quarterly profit—you don't have a lot to complain about.

It sure beats the heck out of the pants business.


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