08-31-2005, 11:41 PM
Oil companies report higher profits
11/02/2004 - 7:48:23 am
ChevronTexaco, the last major U.S. integrated oil company to report results this quarter, said total revenues jumped to $40.72 billion from $30.84 billion a year earlier.
San Ramon, TX-based Chevron-Texaco said Friday that it earned $3.2 billion, or $1.51 per share, during the three months that ended in September. That compared with net income of $1.98 billion, or $1.01 per share, at the same time last year.
Exxon Mobil Corp. and ConocoPhillips, the largest and third-largest U.S. oil companies, both also reported sharply higher profits thanks to oil prices of more than $50 a barrel.
Exxon Mobil Corp., the world’s largest publicly traded oil company, said that quarterly profit surged 56 percent, driven by soaring oil prices and strong results from refining operations.
ConocoPhillips, based in Houston, reported a 53 percent jump in quarterly profit.
Oil prices, which have ballooned 60 percent this year due to fears of supply disruption in countries like Nigeria and Russia coupled with demand from growing economies like China and India, have delivered a windfall for oil producers.
Exxon’s third-quarter net income jumped to $5.68 billion, or 88 cents a share, compared with $3.65 billion, or 55 cents a share, in the year earlier period.
The Irving, TX-based company reported record earnings of $6.23 billion – its highest quarterly operating profit ever. Profit of 96 cents a share on that basis also easily beat Wall Street forecasts of 87 cents a share.
On an annualized basis, Exxon’s record earnings would surpass even the gross domestic product of nations like Paraguay and Afghanistan.
08-31-2005, 11:52 PM
Figures comes from Conoco Philliops home page
Oil Company Profits
What do oil companies make on a gallon of gasoline?
In the most recent study of profit per gallon, the American Petroleum Institute concluded that oil company profits amounted to an estimated 7.3 cents on each gallon sold.1 This estimate represents an industry average, but a multitude of factors can affect an individual oil company's profit on gasoline sales.
Profitability factors include the efficiency of the firm's refining, distribution and marketing system, as well as its source of raw material. In times of rising oil prices, companies that own and produce a considerable portion of the crude oil used in their refineries may benefit more than other companies that must purchase most or all of their supplies on the open market.
Crude oil generally represents the single greatest cost component of gasoline, which explains why gasoline prices rise and fall so quickly with changes in the world price of crude oil. As an international commodity, crude oil is bought and sold 24 hours a day, so its price is changing constantly. In the matter of a day or two, crude oil prices can move up or down by several dollars, depending upon supply and demand factors.
In general, crude oil accounts for roughly half of gasoline's price. Other expenses include refining, distribution (pipelines and tanker trucks) and marketing (service stations and convenience stores). These so-called "downstream" costs have been falling as companies have made operations more efficient. When gasoline reaches the pump, another major factor comes into play - federal, state and local taxes, which average 20 percent to 30 percent of the pump price. The federal tax is 18.4 cents per gallon, while state taxes vary from 14 cents to nearly 33 cents per gallon. The gas pump graphic shows the latest available data.
1 Estimate was based on an average pump price of $1.20 per gallon between January 1997 and September 1999. The estimate was derived by dividing the net income of the gasoline-related operations of major oil companies by the total number of gallons sold by those companies.
Find out more out at...
Weekly Update on Gasoline Prices, a report compiled by the U.S. Energy Information Administration.
Gasoline and the American People, a report by Cambridge Energy Research Associates, an independent energy research and consulting organization.
Why are oil company profits so large?
When the profits of major oil companies reached a record $53 billion in 2003 and far surpassed the results from 2002, the big percentage increases in profits helped support the impression that oil profits are excessive. Much less public attention was drawn to the fact that the $21 billion the industry earned in 2002 represented nearly a 50 percent nosedive from 2001 profits of $38 billion.
Although big upward swings in profits make headlines, business analysts stress that other measures should be considered in assessing a company's or industry's profit picture. Business Week magazine, for example, regularly monitors the profitability of various companies and industries by comparing their profit margins. To determine profit margin, the magazine divides net income by total revenue. In the case of oil and gas companies, total sales consists of the money they receive from selling their products, as well as revenue received from any other sources. Net income is the money left over after all costs and taxes are paid.
As the chart indicates, the Business Week analysis of the data from the five-year period 1999-2003, shows that the profitability of oil and natural gas companies (5.3 cents per dollar of sales)2 has been slightly below the profitability all industries combined (5.4 cents per dollar of sales).
2 Not to be confused with profit margin on each gallon of gasoline sold, as described in the first question.
How do oil profits compare with those of other industries?
Business Week magazine regularly compares the profitability of various industries and companies on the basis of profit margin, which is calculated by dividing net income (profit) by total sales and other revenues. For example, a software company that clears $90 million in net income on product sales of $1 billion would earn a profit margin of 9 percent or 9 cents on each dollar of sales.
Traditionally, oil companies have trailed many other industries in this measure of profitability. As indicated in the graphic, the profit margin of oil and natural gas companies was slightly above that of all industry in the third quarter of 2004. However, the industry's profitability remained below the profit margins of many other industries, including banking, financial services, pharmaceuticals, insurance and computer software and services.3
3 The Business Week 3rd quarter 2004 data encompasses these companies: Royal Dutch/Shell, ExxonMobil, BP, ChevronTexaco, ConocoPhillips, Marathon, Amerada Hess, Occidental, Murphy, Devon, Unocal, Anadarko, Burlington Resources, Apache, Kerr-McGee, Chesapeake, EOG Resources, Pioneer, XTO Energy, Valero, Sunoco, Premcor, Ashland, Tesoro and Frontier.
Find out more out at...
Oil and Gas Industry Profit Margins, compares industry profit margins against other industries in the second quarter of 2004. Compiled by the American Petroleum Institute using Business Week data.
Energy Finance, a gateway to energy industry financial and operating data compiled by the U.S. Energy Information Administration.
Shouldn't the government regulate oil profits?
History serves as a helpful teacher on this question. As part of a general effort to combat high inflation in the early 1970s, President Nixon placed price controls on the oil industry and many other sectors of the American economy. Eventually the controls were lifted from other industries, but they remained in place for U.S.-produced oil as the government tried to partially protect consumers from the jump in world oil prices caused by the oil embargo of 1973-74.
A so-called windfall profits tax was imposed on the industry in 1980, when again world oil prices rose dramatically as a result of supply disruptions stemming from conflicts in Iran and Iraq. The government began phasing out the tax in 1981.
Although various price and profit control programs did limit income to oil companies, it's questionable whether they benefited consumers in the long run. Between 1974 and 1980, imported oil prices averaged about 50 percent more than the price for oil produced in America. As a consequence, U.S. oil companies were discouraged from exploring for and finding supplies of oil and natural gas at home. Meanwhile, industrial and individual consumers were shielded from higher prices that might have encouraged greater energy conservation.
A report by the U.S. Energy Information Administration (EIA) that surveyed the events in the 25 years following the 1973-74 oil embargo concluded that federal price controls and allocations systems not only "failed to resolve these problems (electricity brownouts and rapidly rising prices), they seemed to aggravate them."
Oil company profits are highly influenced by world oil supply and demand conditions, which can change markedly in a period of months. Over the long haul, however, oil profits generally remain below those of other major industries. The graphic compares the profit rates (measured as profits divided by net investment in place) of the EIA's sample of U.S. oil companies with those of the Standard & Poors Industrials. In the 15-year period shown, oil company profit rates averaged 7.2 percent compared with 11.7 for overall industry.
What happens to those oil profits?
Basically oil company profits are used for two purposes — to pay dividends to shareholders in the business and to pay for capital investments to find, produce, process and deliver energy products to consumers.
Shareholder Dividends: Millions of Americans own stock in oil companies either directly as shareholders, as owners of mutual fund shares or as participants in pension fund and other retirement accounts. Each year, dividends paid by oil companies put hundreds of millions of dollars into the hands of the public.
Capital Investments: By far the largest portion of oil profits goes back into the business to find and develop resources and improve and expand facilities. Consumers most often see industry capital investments in the form of new or upgraded marketing outlets, such as local convenience stores. But in reality, investments in the retail marketing business are small when compared to the massive amounts of money spent by the industry in places that few consumers ever see — such as the middle of the North Sea, the Alaskan North Slope or the deep waters of the Gulf of Mexico. In these far flung locations and in countless other places around the world, companies must search for new resources of oil and natural gas to replace the supplies that are being depleted daily by consumer demand.
The graphic indicates that, on average, exploration costs — for both successful wells as well as "dry holes" — make up about half the industry's capital expenditures. Capital expenditures tend to decline when oil prices slump and increase when oil prices rise, providing greater incentive to look for oil and gas in more remote, expensive locations.
The oil industry is termed a "capital intensive" industry because so much of its work requires the expenditure of millions and sometimes billions of dollars even for a single project. Here are some examples based on actual costs compiled by the American Petroleum Institute:
$1.5 billion for a deep-water offshore platform.
$2 billion for offshore and onshore natural gas project facilities.
$400 million for a refinery modernization or revamping.
$1 million for a new service station.
$2 million for a large aboveground distribution terminal storage tank.
$1.1 million per mile of new pipeline constructed on land.
Find out more out at...
Economic State of the U.S. Petroleum Industry, a long-term view of how fluctuation in energy prices affect industry investment, employment, taxes and royalties. Prepared in 1999 by the American Petroleum Institute.
Last Updated: Mar 14 2005, 02:55:15 pm
09-01-2005, 07:27 AM
Who cares? We all know that those profits will trickle down to the rest of us, improving our economy, don't we? Right? Don't we? Ummm..guys?
09-01-2005, 07:29 AM
Wow, this news is a BIG shock...........
09-01-2005, 11:29 AM
Did any one even read the figures in the thread header:
$3.2 Billion profit on sales of more than $40 Billion. That is less than 10% margin. Unless these figures are wrong, there can be no valid claims of gouging.
09-01-2005, 03:11 PM
Thanks Uncle Dick!
America's Oil Tycoon's salute you.
BTW: When does Halliburton win the no-bid contract to bulldoze NOLA?
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