Exxon Mobil shatters U.S. record with $45.2 billion annual profit

Oil giant Exxon Mobil shattered a U.S. record Friday, reporting a $45.2 billion annual profit despite a year-end oil plunge.

http://www.msnbc.msn.com/id/28931011/


Exxon Mobil Corp. on Friday said fourth-quarter net income fell 33% to $7.82 billion, or $1.55 a share from $11.66 billion, or $2.13 a share in the year-ago period. Analysts surveyed by FactSet Research forecast earnings of $1.52 a share. The world's largest corporation and component of the Dow Jones Industrial Average said lower oil prices impacted its profit by about $3.2 billion. Capital and exploration spending rose 11% to $6.8 billion. Oil equivalent production fell 3%. Excluding the impacts of lower entitlement volumes, OPEC quota effects and divestments, production fell 1%

http://www.marketwatch.com/news/story/exxon-mobil-profit-falls-33/story.aspx?guid=%7BDA07243C%2DDE06%2D4B99%2D8173%2D85B928AC7437%7D&dist=TQP_Mod_mktwN

20% windfall profit tax = 20% higher gas prices.

Unless you will just tax XOM and none of the other oil companies.
If you tax all of them then the cost of business just went up 20%.
They raise their prices 20% to cover shareholder interests.

Nice 20% regressive tax that hurts the poorest of Americans.

The MOST fundamental accounting/financial knowledge -- junior high school -- seems sadly uncommon on DU. Appalling.

In 2007 XOM:
sold 404.552 bllion worth of product (revenue)
made a gross profit of 86.264 billion

Gross profit is reduced by non production COSTS like taxes, interest, R&D, etc.
XOM paid 30 Billion in taxes.

Their NET PROFIT (is AFTER TAXES) and it was 40.6 Billion.

So lets say we enact a 20% WINDFALL tax on the $40 Billion. That would mean XOM "costs" went up $8 B and their profit has fallen from $40B to $32B.

To make shareholders happy XOM will try to bring that back up to $40B.

They need to raise their revenue (products sold) $8B without raising their other costs so it will take an $8B rise in prices.

Now that sounds like a lot except XOM sold $405B worth of product. They simply need to sell $413B instead of $405B.

A massive 2% rise in prices. It took a 300% rise in gasoline prices to drop demand 2% does anyone think if XOM raises the price of gas 2% demand will drop? Honestly.

So XOM sells $415B (same amount of product just sold @ 2% higher prices)
NET PROFIT after "normal taxes" is now $48B.
government takes their 20% cut and XOM makes $40B AFTER the "windfall tax".

So who paid the $8B? You did a the pump. Instead of gas being $1.79 it was $1.83 instead.

Nobody will undercut XOM because all the oil companies will be sharing in this new tax = new cost. They all will raise prices ~2% and after the tax make the same amount of money.

Taxes on profits are not part of the cost of producing oil.
They are an expense deducted off the bottom line after the oil has been sold.
A windfall profits tax would not raise the cost of producing oil and gas since the two are unrelated.
Therefore a price increase to cover the cost of a tax on profits would not be required.
In any business, profit in not guaranteed, especially outrageous profits.
The shareholders can console themselves with the reasonable profits left after a windfall profits tax.

Taxes are uniform across oil services industry.

Especially the giant integrated oil companies. XOM, BP, CVN and couple others ship, refine, transport, and sell virtually every gallon of gasoline in the United State.

Maybe it isn't fair but it is the reality.

So IF you raise taxes one one of them.... say XOM then your right gasoline prices wouldn't be affected. The others would keep prices the same and XOM would be forced to reduce profits by paying higher taxes yet selling gas for the same price.

IF you raise taxes on ALL of them there is no risk of an upstart undercutting them they ALL KNOW that each of them are in the same boat. They will simply raise the price of their wholesale gasoline.

There is nobody unaffected (no small green oil company) to jump in there and provide supply at the lower price point. They will raise uniformly and the tax will be passed on to the consumer.

To cover a 20% windfall tax XOM would need to raise prices 2%.

Do you honestly think if XOM "costs" increase 2% (and yes businesses all consider profits a cost) they won't raise wholesale prices 2% to compensate? They board isn't smart enough to "figure out" how to pass the cost on to the consumer

Look at it another way:
Governments put punitive excise taxes on cigarettes. Why? To raise the price and reduce smoking. Personally I think it is stupid but someone agrees that higher prices = less demand. Phillip Morris COULD keep the retail price them same by lowering their wholesale by the amount of the tax. i.e. excise tax goes up $0.20 MO could drop wholesale price $0.20. They would have less profit and keep the price the same. Why don't they?

They don't because they know every other tobacco company will pass the price on to the consumer. Since all tobacco is taxed equally it is a uniform "cost". Why NOT let the consumer pay for it is the logic.

Same thing applies to oil companies. If every oil company sees their costs go up by x% (and a 20% tax on profit will be about 2% increase in operating costs) they will just raise prices by 2%. As long as the market demands it. Why wouldn't they?

Absolutely NOTHING you've spewed indicates a comprehension of the most basic term: PROFITS.

It's ludicrous that you'd pose an "example" of excise taxes and obfuscate the discussion with a "taxes equal taxes" presumption. Complete, utter nonsense.

Simple version.

XOM made $40B in PROFITS.
Make a 20% windfall tax on PROFITS = $8B.
Now XOM post-winfall PROFITS are $32B.

So how can XOM make $40B PROFITS instead of $32B PROFITS.

Simple. Raise prices.

XOM sold $405B worth of product to make $40B in PROFITS.
So since none of their costs have gone up except this new windfall tax they simply need to raise prices.

XOM raise prices at the pump 2% (maybe 3%) and now they sell $417B.
They don't sell any more physical product just charge 2%-3% more.

So XOM now makes $48ish B (per windfall) PROFITS.
The govt "teaches them a lesson" by taking 20% =$8B or so.
So after windfall XOM has $40B same as they had before the windfall.

2% price hike isn't going to affect demand. Oil is very inelastic.
Nobody is going to come in and undercut XOM. Why? Because they are trying to raise prices to cover their windfall tax.

End result you pay 2%-3% more at the pump, govt gets another $8B and XOM keeps same $40B they had.
If you think XOM isn't smart enough to figure that rasing prices 2% will cover their windfall tax and let them keep the same PROFITS well you are just naive.

doesn't matter, & they can choose their profit margin at will.

who talked about raising gasoline prices 200,000%.

Of course price does matter BUT price is VERY VERY inelastic. The change between % in price and % in demand is not linear. Not even close.

To cover a 20% windfall they would ONLY need to raise prices 2%.
Sure raising prices 2000% would reduce demand but they don't need to raise it 2000% or even 200%, hell not even 20%. To cover a 20% windfall tax XOM would need to raise retail prices a mere 2% (4 extra cents on $2.00 gasoline).

Gasoline tripled (300%) and that finally caused demand to reduce a massive 2%.
How much do you think demand will fall in response to a 2% price hike?
300% price hike = - 2% demand
2% price hike = -?% demand.

Maybe .001%? Ok so they need to raise prices 2.5% instead of 2%.
Even better they will blame the high prices of the windfall and the right wing media will run with it.

http://apps.nccd.cdc.gov/statesystem/StateSystem.aspx?selectedTopic=100&measure=3&ucName=UCTimeTrend&dir=epi_report&fromSubmit=yes&subTopic=49-57-58-59-60-61-62-63-64-65-66-67-50-51-53-56-55-54-52&State=NJ&year=2007-2001-1995-1991&combinedYear=2007-2001-1995-1991&oneValue=1&graph=line&showData=yes&export=html


Issue on tax is getting the price right (& facilitatiing consumption alternatives, e.g. transit) to encourage less consumption.

Not that I expect the corp-owned gov't to do it.

My point is merely that your argument amounts to:

1. Oil biz is collusionary monopoly (true, & in that case, should be nationalized)

2. Price doesn't matter (false)

3. Price can be rigged at will (true only to a point).


Tobacco is also a collusionary monopoly, btw.

I didn't say prices (to any extreme don't matter).
I said prices are inelastic in energy sector.
A small change in price will not greatly affect demand.
At best a large change in price will make a small change in demand.

Prices don't have to be rigged, each company can reach similar conclusions.
Take rush hour. If some people (even 20%-30%) would wait 1 hour before driving home everyone one would get home earlier.
However the individual goal is to get home first (just as individual goal w/ oil companies is to protect margins).
Drivers aren't colluding to create a traffic jam but they do everyday.

It is possible that each oil company trying to protect their individual margins creates a scenario where prices are protected.
That being said I have no doubt some collusion does occur. Proving it is the hard part.

Tax = getting price right. I agree in theory. A large and punitive tax will change demand.

However lets look at 3 factors
1) oil is very inelastic so the pain will need to be very large
2) oil companies can easily pass
3) many people have no alternative so the pain won't change their demand (rural drivers, people who can't afford more efficient vehicles)

Combine all 3 and you have a situation where a LOT OF PAIN will be required to make a meaningful change (say 10% drop in demand). This pain will be felt the most not by voluntary consumers (as in tobacco) but by those with lowest incomes.

Subsidies of alternatives (just please no Ethanol) would be better to support changing demand. A carrot (possibly paid for by idea like in post #27 & #29) would work better than a stick.

price *doesn't* matter, up to the limits where the entire economy is shut down.

You get inflationary spiral as everyone else raises prices to keep up with the price increases originating from the oil sector.

In effect, you've conceded the system grants oil a "divine right" to take whatever percent they want of total economic activity. It's true, & it's pretty much been true since the days of Standard Oil.

Carrots don't work on pirates. You have to kill them.

Killing oil will be very disruptive and disruptive economic events disproportionately hurt the lower income range.

Not all "big oil" is the same. BP has invested heavily in Solar Power. Chevron is moving towards large scale wind generation.
Exxon Mobil is very heavily focused on oil though.

A system that rewards the companies branching into alternate energy while punishing those that don't would work better than just bringing a hammer down on the whole Industry. If you go brute force the pain will spill over onto the consumer.

You don't seem to be able to understand the difference between the normal taxes a corporation pays to produce a product or service and a tax paid on profits. To say that Exxon will just raise prices to compensate is assuming a lot. Your analogy of the cigarette excise tax is out of left field and makes no point. That tax IS paid by the consumer and has no effect on a cigarette company's bottom line other than to discourage the use of their product.

I often agree with you and normally your comments would be true. However. In the case of big oil, we've already learned that the pump price has absolutely nothing to do with the actual cost to provide it to the customer.

Exxon Mobil explores for oil, drills it, refines it, and sells the finished products. An increase in the price of oil has no effect on them because their cost to remove it from the ground remains the same. Even if they have to buy it from another company, they are selling at the same price so its a wash. The price increase only affects the buyers of the finished products.

I heard a similar big number thrown around by Shell the other day. The caveat being that most of these profits were made in the first and second quarter when oil ran up to $150 a barrel. Since September, they've lost a ton as the hedge money was moved out of the energy market to cover the failing banks. Wanna bet we hear these robber barons start crying poor and asking for a bail out and tax break.

It is irrlevent what the price of crude oil is, the oil companies, operating in concert if not colusion, add whatever level of ever increasing profit they desire to every sale no matter what the level of demand. We are being raped by these companies, just like the banks.

to keep the price up, you can't miss.

Now oil companies are a place where I believe we could apply RICO laws.

http://www.marketwatch.com/news/story/Exxon-Mobil-profit-falls-33/story.aspx?guid={09259980-E3A3-4B6F-B3FC-D5309CBAA0EA}

Exxon is "insulated" from falling oil prices because is essentially 4 businesses in 1.

exploration & extraction - very oil dependent
refining - oil neutral (actually does best in slightly rising crude environment).
transportation & distribution - oil neutral (consumption drives margins here)
retail - oil neutral (marketshare & branding drive margins)

So pure exploration companies got destroyed when oil fell. Many saw profits drop 50%+.
Exxon exploration side of the house did the same but the other 3 pieces kept profits from falling as much overall.

Still Exxon saw profits fall 33% in Q4 and they are projecting them flat for Q1 & Q2 (down 40% year over year).

Exxon would prefer higher oil prices it just is that vertical integration insulates them from price swings.

You make excellent points. I'm not to sure about the explanatory comment on the "retail" business though. Market share (particularly the long term contract end of it) would work to their advantage of course but I don't think branding contributes much if anything.

The opening bid value for the refined product hits the market at:

(Crude + Operating Burden + Overhead Absorption) * (1+Required Margin).

Since they're multiplying their actual costs by the required margin, the higher the crude price, the higher the absolute value of dollars in margin.

If speculation drives the refined price even higher, so much the better, but even without that, the higher the crude price the higher the profit.

So, they take the hit even at wholesale when the oil prices fall, but there's always a positive margin.
GAC

Someone please correct my attempt at a weak analogy here.

When tobacco companies settled their lawsuits with the states, prices when up from $1.50 to $4.00 and higher. People still pay the higher prices, but the cost of manufacturing the end product is pretty much the same. The increased cost of business was passed on to the consumer.

An increase in cig prices means people will smoke less so profits at tobacco companies are down.

Increases in oil prices don't lead to a corresponding drop in demand

Oil consumption dropped drastically in the USA after gas reached $5.00 a gallon. In fact the main reason given for the price of oil falling so drastically is that consumption is way down and they now have a surplus... When did that happen with cigarettes?

Maybe when I'm not at work but then I'll be drinking

Demand for smokes is why down

Demand for oil only declined when people lost their jobs and no longer had to go to work, and businesses stopped shipping stuff since unemployed people don't buy much stuff

Worldwide consumption dropped 3%.
So prices trippled and consumption went down 3%.

All products are elastic to some degree (ratio between consumption & price) however oil is VERY inelastic sure there are some elastic properties but oil triples and demand delines 3%.

Prices won't reduce demand substantially. Consumption is down now not due to prices but due to slowing economic output wordwide.

Phillip Morris even pointed out in their annual report how the excise tax allows the to push higher margins.

Imagine no tax on cigs:
$1.00 retail price = $0.30 profit for MO (Phillip Morris)
Now say MO wants/needs to push profits up 25% = 7 cent price hike. 37 cents instead of 30 cents.
Prices go up 7% = $1.04

Instead with $1.00 tax on cigs:
$2.00 retail ($1.00 product + $1.00 tax) = same $0.30 proit for MO.
A 7% rise in whole prices = 14 cents = $2.14
Profit = 44 cents instead of 30 cents.

However MO profit hasn't gone up 25% it has gone up 46%.

Oil will be even more a push to consumers. Like you said people can stop smoking but it is much more difficult or expensive to substantially cut oil consumption. Try looking into ideas to cut your personal oil cosumption 50%.

So combine high barriers to entry (virtually impossible for some upstart to undercut the big boys prices) with demand which doesn't change substantially with higher prices and the oil companies will find it childsplay to push the "cost" of any tax to the Consumer.

I might get wet

:scared:

That doesn't include the other giant oil companies, either. :shrug: Funny 'bout that.

Only $1.55 a share? My gawd, those poor stockholders will have to give up their gold plated toilet seats! (we can't have THAT!)

They made so much $$$ so quickly that they could not set up 'reinvestments' quick enough to shield it from being classified as income subject to taxation, and will now have to pay income tax on at least a portion of the $$$.

Times are tough for the oil companies ....

They clearly won't reinvest in their infrastructure without some incentives. But I would offset the tax with generous credits for investing in green technology. If they won't behave responsibly for the good of the country and the environment, they need to be forced to.

You should run for Congress.

Simply giving the oil companies do option except to pay higher taxes will just be passed on to the consumer.

If they can avoid some/all of the windfall by doing something else (green technology) then you will see supply & demand work.

Some oil companies like BP (one of largest producers of solar panels) would pay less tax hence they could sell gas for less which would make other companies like XOM have to lower prices and suffer lower profits.

It would actually make oil companies compete with each other. Simply taxing them all equally an extra 20% as a windfall won't do that. They will all raise prices 2% cover the windfall and keep business as usual.

Allowing some of them to reduce their taxes (which is a cost of doing business) by doing the right thing puts the oil companies against each other. The less green ones will have lower profit margins which will hurt their stock and force them to change (or continue to accept lower profitability).

Perhaps we could be a team. :-)

So, how do we get some traction for this brilliant plan?

reduce their taxes so they can use tax $$ to dominate new energy fields.

They'll have to "compete," except they already collude. So they can continue to collude, or they can "compete," & then there'll be 2 energy corps v. 3, then 1 v. 2.

The end of this gov't-subsidized competition is still oligopoly or monopoly.

If Exxon et. al get a guaranteed percent of the global economic pie, everyone else should get the same.

Guaranteed incomes, cut out all the phoney make-work jobs, give people more leisure, & quit pretending we live in something other than high-tech feudalism.