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HonestChieffan
08-16-2011, 06:53 PM
http://3.bp.blogspot.com/-8PJ4dVOyGv8/TkbKp-tGs-I/AAAAAAAAA2E/5scwVkDFuhI/s400/gastax.jpg


So, what does government do with all that damn money?

alnorth
08-16-2011, 07:19 PM
The criticism of the oil companies has always been very silly. Yes, through sheer volume they make a lot of money, but the profit margin is incredibly tiny, to the point where one wonders why they are in the oil business at all. Maybe Exxon should liquidate, stop selling gas, and become an investment bank instead.

I'm fine with getting rid of any special or unusual tax breaks they might get, but the people will have to be fine with them making maybe 4 or 5 cents a gallon instead of 2.

orange
08-16-2011, 07:20 PM
State Gas Taxes - I imagine most States use it for roads.

suzzer99
08-16-2011, 07:36 PM
Pretty sure they give it all to medicaid for Viagara prescriptions so illegals can make more anchor babies.

Donger
08-16-2011, 07:42 PM
LMAO

HonestChieffan
08-16-2011, 08:10 PM
Bad= 2 cents profit
Good = 46 cents profit

banyon
08-16-2011, 08:13 PM
Exxon makes more profit than any other company in the world, I think they are doing just fine.

Would you guys rather run a lemonade stand that sells 30 cups of lemonade with a 75% margin, or sell a coca-cola to every man woman and child in China at a 3% profit margin?

Margin isn't really the issue when we're talking about one of the largest companies in the world. It was so large when it was Standard Oil that the Justice department broke it up back when they had some balls. Now, through decades of corporate mergers it is almost back to its former size.

HonestChieffan
08-16-2011, 08:16 PM
Exxon makes more profit than any other company in the world, I think they are doing just fine.

Would you guys rather run a lemonade stand that sells 30 cups of lemonade with a 75% margin, or sell a coca-cola to every man woman and child in China at a 3% profit margin?

Margin isn't really the issue when we're talking about one of the largest companies in the world. It was so large when it was Standard Oil that the Justice department broke it up back when they had some balls. Now, through decades of corporate mergers it is almost back to its former size.

Are you serious?

Donger
08-16-2011, 08:19 PM
Margin isn't really the issue when we're talking about one of the largest companies in the world.

No, it actually is the only issue of relevance.

banyon
08-16-2011, 08:20 PM
No, it actually is the only issue of relevance.

So, you'd rather own the lemonade stand and market share and operating revenues (and revenue growth) are not factors you think people should care about in evaluating a company?

banyon
08-16-2011, 08:21 PM
Are you serious?

Well I hope your simplistic chart wasn't.

Donger
08-16-2011, 08:22 PM
So, you'd rather own the lemonade stand and market share and operating revenues (and revenue growth) are not factors you think people should care about in evaluating a company?

I was referring to the demonization of oil companies. I don't really care about your lemonade stand.

banyon
08-16-2011, 08:24 PM
I was referring to the demonization of oil companies. I don't really care about your lemonade stand.

Why shouldn't you, it has very high profit margins and that's the only thing that matters, right?

In fact nearly every major company that grows loses margin as it gains market size and share and it's a tradeoff that most companies are more than happy to make because they enjoy the extra revenues.

alnorth
08-16-2011, 08:35 PM
Exxon makes more profit than any other company in the world, I think they are doing just fine.

Would you guys rather run a lemonade stand that sells 30 cups of lemonade with a 75% margin, or sell a coca-cola to every man woman and child in China at a 3% profit margin?

Margin isn't really the issue when we're talking about one of the largest companies in the world. It was so large when it was Standard Oil that the Justice department broke it up back when they had some balls. Now, through decades of corporate mergers it is almost back to its former size.

Think about that for a second. Because Exxon is so gigantic, they can afford a tiny profit margin. But, due to volume they make a ton.

So, we break Exxon up and.... well, since you are now talking about smaller companies, by your logic they should each now make a larger profit margin. What does that do to gas prices?

Profit margin is everything because it determines the premium we pay, total profit is irrelevant. I'm fine with eliminating any special tax breaks they get, but that will increase the price of gas, because they will pass on the tax.

alnorth
08-16-2011, 08:38 PM
So, you'd rather own the lemonade stand and market share and operating revenues (and revenue growth) are not factors you think people should care about in evaluating a company?

If I had $X of money, I'd buy the business with the better margin. If I had any money left over, I'd invest it. If I'm a public company and I had no way to deploy the extra money to benefit the shareholders, I'd pay a dividend.

Margin is the only thing that matters. If we decide oil companies don't need special tax breaks, then fine. However, I do object to demonizing them for the size of profit, while ignoring the margin.

banyon
08-16-2011, 08:38 PM
Think about that for a second. Because Exxon is so gigantic, they can afford a tiny profit margin. But, due to volume they make a ton.

So, we break Exxon up and.... well, since you are now talking about smaller companies, by your logic they should each now make a larger profit margin. What does that do to gas prices?

Well by growth companies I mean the development of the industry. Now that the industry is more or less where it is going to be for a while, they may lose economies of scale and margins would go down.

But more and smaller companies typically mean increased competition which is advantageous to consumers and generally means lower prices.

HonestChieffan
08-16-2011, 08:39 PM
Well by growth companies I mean the development of the industry. Now that the industry is more or less where it is going to be for a while, they may lose economies of scale and margins would go down.

But more and smaller companies typically mean increased competition which is advantageous to consumers and generally means lower prices.

Any examples of this?

banyon
08-16-2011, 08:46 PM
Also it appears to be a gross exaggeration:

http://answers.yahoo.com/question/index?qid=20110528212604AA1zyac

Is Sen. Rand Paul's claim that oil companies earn only 7 cents per gallon of gas factual?

In opposing the Senate bill to repeal tax breaks for oil and gas companies, Paul claimed that the federal government makes more money in taxes on a gallon of gasoline than oil companies earn in profits. He presented a chart that carried the header "Regular Gasoline Tax v. Oil Company Profit, Per Gallon," showing 7 cents per gallon for the oil companies and 18.4 cents per gallon for the federal government. (In his May 17 speech (link 1 below), he said 7 cents and 18.4 cents per dollar, but it was clear from his chart that he meant per gallon.)

But the 7-cents-per-gallon figure grossly underestimates the industry's earnings. It includes only earnings from the sale of gasoline and not earnings on producing and selling crude oil. There are no independent figures on how much oil companies earn on a gallon of gasoline.

Paul's per-gallon figure is consistent with a claim ExxonMobil Vice President for Public and Government Affairs Ken Cohen wrote in his blog, "Perspectives (link 2 below)," when the company released its 2011 first quarter earnings in April.

"Cohen, April 28: During the first three months of this year, for every gallon of gasoline and other products we refined and sold in the United States, we earned about 7 cents."

I called ExxonMobil and asked how Cohen arrived at his figure. Spokeswoman Kristen Hellmer said it was determined by dividing ExxonMobil's "downstream earnings ($694 million) by the number of gallons of gasoline and other products refined and sold during the quarter in the U.S. (9,355 million gallons). The result is 7.4 cents per gallon." Downstream earnings are what the company earns from refining crude oil into gasoline and other petroleum products and then selling it. But that ignores "upstream earnings," which is how much Exxon earns in producing and selling crude oil. And the cost of oil exceeded $100 a barrel in the first quarter of 2011.

Oil industry analyst Kloza called the 7-cents-per-gallon figure "disingenuous," because it ignores high earnings from oil production. "Bringing crude oil to market has been incredibly profitable," Kloza said. "It is disingenuous to say in the downstream we are making only this much."

ExxonMobil reported (link 3 below) that its upstream earnings were $8.7 billion in the first quarter — up $2.9 billion, or 49 percent, compared with a year ago. As of August 2010, it was the third largest (link 4 below) oil refiner in the U.S.

In a February 2011 report called "What's Up with Gas Prices?" the American Petroleum Institute reported that on average oil and gas companies earned about "6 cents for every dollar of sales" — not every gallon — in the third quarter of 2010. Rayola Dougher, API’s senior economist, said she arrived at that figure by dividing net income by total revenues for about two dozen integrated oil companies and independent producers. By her unofficial calculations, Dougher said, the average so far in the first quarter of this year is 7.6 cents per dollar of sales. “If you are a producer and getting more money for a barrel your profits go up,” she said.

But energy experts say the API method is also flawed, as was detailed in a 2008 article (link 5 below) on this very topic. As was said at that time, the Energy Information Administration does not attempt to calculate how much oil companies earn on a gallon of gasoline. EIA economist Neal Davis told us in 2008 that trying to calculate a per-gallon average profit for gasoline would be "heroic at best" and "sadly misinformed … at worst."

banyon
08-16-2011, 08:47 PM
Any examples of this?

Examples of lowered prices after the breakup of a monopoly or oligopoly?

Donger
08-16-2011, 08:50 PM
Why shouldn't you, it has very high profit margins and that's the only thing that matters, right?

In fact nearly every major company that grows loses margin as it gains market size and share and it's a tradeoff that most companies are more than happy to make because they enjoy the extra revenues.

I don't care if a company has extremely high profit margins, either. Look at Microsoft. I don't demonize them, either.

banyon
08-16-2011, 08:54 PM
I don't care if a company has extremely high profit margins, either. Look at Microsoft. I don't demonize them, either.

People don't have to buy Microsoft's products to get their kids to school or to travel to work.

Also, on your theory, Microsoft's profit margins have soared lately, but their stock price has been stagnant for years, how can that be? Profit margin is the only relevant factor!

Donger
08-16-2011, 08:55 PM
People don't have to buy Microsoft's products to get their kids to school or to travel to work.

That's a good thing, too. I'd hate for those people to have to buy a product with such an exorbitant PM. Good thing that gas is so cheap, eh?

Donger
08-16-2011, 08:56 PM
Also, on your theory, Microsoft's profit margins have soared lately, but their stock price has been stagnant for years, how can that be? Profit margin is the only relevant factor!

With regard to how "evil" a company is, yes, it is.

banyon
08-16-2011, 08:57 PM
That's a good thing, too. I'd hate for those people to have to buy a product with such an exorbitant PM. Good thing that gas is so cheap, eh?

It ain't. It's at record levels which means something to people living paycheck to paycheck.

And the claim is false see the above post.

banyon
08-16-2011, 08:58 PM
With regard to how "evil" a company is, yes, it is.

Not, really. Companies can do all kinds of things that are evil. Look at Enron or Tyco. Had nothing to do with profit margins.

Donger
08-16-2011, 08:59 PM
It ain't. It's at record levels which means something to people living paycheck to paycheck.

No, it isn't anywhere near record levels.

And the claim is false see the above post.

What claim?

Donger
08-16-2011, 09:00 PM
Not, really. Companies can do all kinds of things that are evil. Look at Enron or Tyco. Had nothing to do with profit margins.

I was under the impression that this thread was about PM.

banyon
08-16-2011, 09:02 PM
I was under the impression that this thread was about PM.

It was about a simplistic chart, but you brought up demonization, which can be for all sorts of reasons. There are plenty of reasons to dislike XOM besides just their PM. But if you want to limit the scope to just PM, that's fine by me.

It's wrong. 2 cents a gallon is not their profit margin.

Donger
08-16-2011, 09:04 PM
It was about a simplistic chart, but you brought up demonization, which can be for all sorts of reasons. There are plenty of reasons to dislike XOM besides just their PM. But if you want to limit the scope to just PM, that's fine by me.

It's wrong. 2 cents a gallon is not their profit margin.

Oh, you weren't demonizing XOM?

And yes, their overall PM is ~8%

banyon
08-16-2011, 09:06 PM
No, it isn't anywhere near record levels.



What claim?

The claim that all Exxon gets per gallon of gas is 2 cents. It's an intentional linguistic trick that distorts reality.

It's like the lemonade stand that you don't like formed a subsidiary for just selling (and marketing) the lemonade. The parent corp then "produces the lemons" and "manufactures the lemonade" and then sells it back to the subsidiary at 30 cents a cup. The selling corp then sells the lemonade for 32 cents a cup and then they claim, "but our selling operations only net us 2 cents a cup!"

banyon
08-16-2011, 09:08 PM
Oh, you weren't demonizing XOM?

And yes, their overall PM is ~8%

Then you agree the chart is a distortion, since 2 cents of @3.50 a gallon is more like .57% and not 8%?

Donger
08-16-2011, 09:08 PM
The claim that all Exxon gets per gallon of gas is 2 cents. It's an intentional linguistic trick that distorts reality.

It's like the lemonade stand that you don't like formed a subsidiary for just selling (and marketing) the lemonade. The parent corp then "produces the lemons" and "manufactures the lemonade" and then sells it back to the subsidiary at 30 cents a cup. The selling corp then sells the lemonade for 32 cents a cup and then they claim, "but our selling operations only net us 2 cents a cup!"

See above. Overall, they get about 8% PM. Gasoline is one of the least profitable products they produce. I don't know what the PM is on gasoline alone.

Saul Good
08-16-2011, 09:11 PM
Then you agree the chart is a distortion, since 2 cents of @3.50 a gallon is more like .57% and not 8%?

That's just bad math. There is more to the cost of a gallon of gas than oil.

Donger
08-16-2011, 09:12 PM
Then you agree the chart is a distortion, since 2 cents of @3.50 a gallon is more like .57% and not 8%?

No, I do not. I wouldn't be surprised at all if the PM on gasoline is 2%

Saul Good
08-16-2011, 09:12 PM
No, I do not. I wouldn't be surprised at all if the PM on gasoline is 2%
$0.02 or 2%?

banyon
08-16-2011, 09:13 PM
No, I do not. I wouldn't be surprised at all if the PM on gasoline is 2%

So not .57%?

Saul Good
08-16-2011, 09:14 PM
So not .57%?

It would be .57% if Exxon made $0.02 per gallon, and the entire cost of gasoline was the oil. That isn't the case, obviously.

Donger
08-16-2011, 09:14 PM
So not .57%?

Your .57% figure is nonsense. You are talking retail pricing.

Donger
08-16-2011, 09:16 PM
$0.02 or 2%?

2% PM

Saul Good
08-16-2011, 09:17 PM
2% PM

Where is 2% coming from? That figure just appeared out of nowhere.

banyon
08-16-2011, 09:17 PM
Your .57% figure is nonsense. You are talking retail pricing.

So, you don't think the fact that they earn much more money drilling for and producing the same oil that winds up in the gallon of gas is relevant to the discussion?

Saul Good
08-16-2011, 09:19 PM
So, you don't think the fact that they earn much more money drilling for and producing the same oil that winds up in the gallon of gas is relevant to the discussion?

You're missing the point here. When backing into Exxon's profit margin, you can't take their profit per gallon divided into the retail price of gasoline. The retail price of gasoline has a lot more in it than just Exxon's cost plus profit.

Donger
08-16-2011, 09:20 PM
Where is 2% coming from? That figure just appeared out of nowhere.

Heh. Sorry. My mistake. $0.02 Multitasking and failing.

banyon
08-16-2011, 09:23 PM
You're missing the point here. When backing into Exxon's profit margin, you can't take their profit per gallon divided into the retail price of gasoline. The retail price of gasoline has a lot more in it than just Exxon's cost plus profit.

I understand that. Profit margin is revenues minus costs divided by revenues.

What you're missing is that they are artificially manipulating that equation by taking their oil exploration and production revenues and costs out of the equation.

Donger
08-16-2011, 09:26 PM
I understand that. Profit margin is revenues minus costs divided by revenues.

What you're missing is that they are artificially manipulating that equation by taking their oil exploration and production revenues and costs out of the equation.

Evidence of that assertion?

Saul Good
08-16-2011, 09:26 PM
I understand that. Profit margin is revenues minus costs divided by revenues.

What you're missing is that they are artificially manipulating that equation by taking their oil exploration and production revenues and costs out of the equation.

I'm not missing anything. I never claimed otherwise. All I stated was that it was poor math on your part to back into their margin the way you did, and I was entirely correct.

banyon
08-16-2011, 09:52 PM
I'm not missing anything. I never claimed otherwise. All I stated was that it was poor math on your part to back into their margin the way you did, and I was entirely correct.

Yes, you are correct about that.

But that doesn't change that the claim by Exxon is deceptive.

banyon
08-16-2011, 09:55 PM
Evidence of that assertion?

The evidence in in the report links back in post 18. This info comes directly from Exxon's own company quarterly reports and is available for anyone to see.

Donger
08-16-2011, 10:10 PM
The evidence in in the report links back in post 18. This info comes directly from Exxon's own company quarterly reports and is available for anyone to see.

So you are asserting that XOM's PM is higher than 8-10%? They are lying?

Dave Lane
08-16-2011, 10:12 PM
http://3.bp.blogspot.com/-8PJ4dVOyGv8/TkbKp-tGs-I/AAAAAAAAA2E/5scwVkDFuhI/s400/gastax.jpg


So, what does government do with all that damn money?

This is for their service stations not the pumping and refining business. Yes the gas stations only clear 2 cents a gallon the main company makes a lot more.

HonestChieffan
08-16-2011, 10:14 PM
This is for their service stations not the pumping and refining business. Yes the gas stations only clear 2 cents a gallon the main company makes a lot more.


What led you to this statement?

suzzer99
08-16-2011, 10:58 PM
This is for their service stations not the pumping and refining business. Yes the gas stations only clear 2 cents a gallon the main company makes a lot more.

LOOL I knew that thing was dead wrong.

suzzer99
08-16-2011, 10:58 PM
What led you to this statement?

Aside from basic common sense?

Amnorix
08-16-2011, 11:15 PM
I don't care if a company has extremely high profit margins, either. Look at Microsoft. I don't demonize them, either.


I don't demonize oil companies, which of necessity must be ginormous to do what they do.

I do demonize Microsoft, however, which in my view has historically engaged in unethical and illegal conduct, and whose products generally SUCK. I hate Microsoft passionately.

Amnorix
08-16-2011, 11:18 PM
It ain't. It's at record levels which means something to people living paycheck to paycheck.

And the claim is false see the above post.


You realize that none of the oil majors has all THAT much control over the price at the pump, right? The price of oil is beyond the specific control of OPEC (except in a very broad sense), much less Exxon.

Exxon's enormous profits are a result of its vast holdings across the entire oil production/distribution supply chain, and not as a result of any specific action/inaction on its part (other than, of course, being massive and investing widely and wisely in the business).

prhom
08-16-2011, 11:33 PM
This is for their service stations not the pumping and refining business. Yes the gas stations only clear 2 cents a gallon the main company makes a lot more.

It's got to be, retailing a commodity is never going to be a high-margin business for anyone. This 2-cent figure can't possibly take the upstream business into account. It seems unlikely that any company could justify reinvesting profits into assets that are only going to return margins like that.

HonestChieffan
08-17-2011, 07:39 AM
Aside from basic common sense?

Does Exxon own the retail stores?

ROYC75
08-17-2011, 11:08 AM
When I was an Asst. Mgr at a 24 hr gas station/truck stop back in 1977, the profit margin on gas was .02 cents per gallon and diesel was .03 cents per gallon. The owner for years worked off of .05 & .06 and was furious when the gas wars started and his son ( Manager ) dropped it so low. For a while it went down to .01 and .02 but trend after the gas wars were .02 & .03.

I do not know were they are now for station owners, I'm going to go on a limb and say about the same, so much competition out there, I just can't see where it would be any different.

As for big companies, back in the days of the 60's & 70's oil boom, oil was much higher, we are talking big bucks.

patteeu
08-17-2011, 11:39 AM
So, you'd rather own the lemonade stand and market share and operating revenues (and revenue growth) are not factors you think people should care about in evaluating a company?

Your question is biased in favor of the coca-cola company because you've removed all risk.

Would you rather invest $25 up front on a lemonade stand that might fail or might lead to 75% profit margins or would you rather invest $25 million on a coca-cola business that might fail or might lead to a 3% profit margin? $25 million is a lot of money to lose.

ChiTown
08-17-2011, 12:25 PM
As a guy that is heavily involved in the O&G industry, I want to thank many of you for the laughs that this thread has brought to me. I hope this thread goes to 5K posts and beyond.

o:-)

FishingRod
08-17-2011, 12:29 PM
Also it appears to be a gross exaggeration:

http://answers.yahoo.com/question/index?qid=20110528212604AA1zyac

Is Sen. Rand Paul's claim that oil companies earn only 7 cents per gallon of gas factual?

In opposing the Senate bill to repeal tax breaks for oil and gas companies, Paul claimed that the federal government makes more money in taxes on a gallon of gasoline than oil companies earn in profits. He presented a chart that carried the header "Regular Gasoline Tax v. Oil Company Profit, Per Gallon," showing 7 cents per gallon for the oil companies and 18.4 cents per gallon for the federal government. (In his May 17 speech (link 1 below), he said 7 cents and 18.4 cents per dollar, but it was clear from his chart that he meant per gallon.)

But the 7-cents-per-gallon figure grossly underestimates the industry's earnings. It includes only earnings from the sale of gasoline and not earnings on producing and selling crude oil. There are no independent figures on how much oil companies earn on a gallon of gasoline.

Paul's per-gallon figure is consistent with a claim ExxonMobil Vice President for Public and Government Affairs Ken Cohen wrote in his blog, "Perspectives (link 2 below)," when the company released its 2011 first quarter earnings in April.

"Cohen, April 28: During the first three months of this year, for every gallon of gasoline and other products we refined and sold in the United States, we earned about 7 cents."

I called ExxonMobil and asked how Cohen arrived at his figure. Spokeswoman Kristen Hellmer said it was determined by dividing ExxonMobil's "downstream earnings ($694 million) by the number of gallons of gasoline and other products refined and sold during the quarter in the U.S. (9,355 million gallons). The result is 7.4 cents per gallon." Downstream earnings are what the company earns from refining crude oil into gasoline and other petroleum products and then selling it. But that ignores "upstream earnings," which is how much Exxon earns in producing and selling crude oil. And the cost of oil exceeded $100 a barrel in the first quarter of 2011.

Oil industry analyst Kloza called the 7-cents-per-gallon figure "disingenuous," because it ignores high earnings from oil production. "Bringing crude oil to market has been incredibly profitable," Kloza said. "It is disingenuous to say in the downstream we are making only this much."

ExxonMobil reported (link 3 below) that its upstream earnings were $8.7 billion in the first quarter — up $2.9 billion, or 49 percent, compared with a year ago. As of August 2010, it was the third largest (link 4 below) oil refiner in the U.S.

In a February 2011 report called "What's Up with Gas Prices?" the American Petroleum Institute reported that on average oil and gas companies earned about "6 cents for every dollar of sales" — not every gallon — in the third quarter of 2010. Rayola Dougher, API’s senior economist, said she arrived at that figure by dividing net income by total revenues for about two dozen integrated oil companies and independent producers. By her unofficial calculations, Dougher said, the average so far in the first quarter of this year is 7.6 cents per dollar of sales. “If you are a producer and getting more money for a barrel your profits go up,” she said.

But energy experts say the API method is also flawed, as was detailed in a 2008 article (link 5 below) on this very topic. As was said at that time, the Energy Information Administration does not attempt to calculate how much oil companies earn on a gallon of gasoline. EIA economist Neal Davis told us in 2008 that trying to calculate a per-gallon average profit for gasoline would be "heroic at best" and "sadly misinformed … at worst."

When a company sells to another for resale, sales tax is not charged. When a profit on this transaction is made and not offset by other operating expenses, various other taxes are paid. Uncle Sam is not excluded from the middle of the party So what if we changed the graph to the oil Companies making not 2 but 30 cents and the Gov. was making 48% ? Would that make the Oil company any more or less evil and the Government any more or less Robin Hood?