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Oil industry under fire as it posts billions in profits
Max Jarman
The Arizona Republic
Oct. 28, 2005 12:00 AM
Reaction to major oil producers' staggering profits ranges from rage at the pumps to calls for profits to be reinvested in exploration, alternative-energy research or simply returned somehow to the public.
Exxon Mobile Corp., the world's largest publicly traded oil company, said Thursday that it earned an industry record $9.9 billion in this year's third quarter, $4.2 billion, or 74 percent, more than it earned a year earlier. Other companies have reported similar results.
But the soaring oil and gasoline prices that are the source of the oil company's third-quarter profits have created hardships for consumers and eaten away at the profits of many businesses. Some economists believe they will lead to an economic slowdown and possibly a recession.
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The oil companies assert that their profits are no larger than other businesses and that they just look big because it is a big business.
Exxon Chairman Lee R. Raymond said in a statement that the company "acted responsibly" in its pricing and said its fourth-quarter profits would come nowhere close to the $9.9 billion in the third quarter.
That doesn't necessarily wash with Adrienne Valdez of Phoenix.
"I can't afford to buy socks because I am paying twice what I used to for gas," she said. "It's not right that they should be making billions at our expense."
In Phoenix, gas prices soared to $3.14 after Hurricane Katrina hit the Gulf Coast. The average Valley price per gallon, which has been falling in recent weeks, was $2.72 Thursday, according to AAA Arizona.
Bruce Trushinsky, owner of the former Moon Valley Exxon station at 1901 W. Thunderbird Road in Phoenix, called Exxon Mobil's $9.9 billion quarterly profit "disgusting."
He became so upset at the $7.6 billion profit posted by the company in the second quarter that he canceled a longtime branding agreement.
"I ripped down all the Exxon signs and threw them in the garbage,"
he said. Now, after 30 years, Moon Valley Exxon is Carmel Automotive and Fuel. Trushinsky said the high wholesale prices charged by Exxon were devastating to his business and that the last straw was when the company canceled its dealer-incentive program.
"They cut us off, then they announced their (second-quarter) profit increased $2 billion."
Besides Exxon's 74 percent jump in profits, Royal Dutch Shell reported Thursday that its third-quarter net income rose 68 percent to $9 billion and Conoco Phillips on Wednesday said that its third-quarter profit rose 90 percent to $3.8 billion. ChevronTexaco is expected to report earnings Friday of $3.9 billion, a jump of 53 percent over the third quarter of 2004.
The soaring oil companies' profits prompted U.S. Senate Majority Leader Bill Frist on Thursday to call for hearings with oil companies on high energy costs.
Arizona Attorney General Terry Goddard also has called on Congress to look into the oil industry profits, particularly in light of the tax breaks the industry was awarded in the recently passed energy bill.
"The energy bill has billions of dollars in benefits for oil companies, and they show their gratitude to consumers by cranking prices through the roof," Goddard said.
Others have called for a windfall-profits tax on oil companies and want them forced to reinvest the money in new oil refineries to ease supply constraints.
David Cowley, a spokesman for AAA Arizona, believes such a requirement may be reasonable.
"There is evidence that they caused the supply problems by earlier closing refineries," he said.
The industry says the answer is the expansion of existing refineries, not building new ones.
And despite its profits, Exxon says it has no plans to invest any of those earnings in developing alternative or renewable energy, something other oil companies do.
"We're an oil and gas company," Exxon spokesman Dave Gardner said. "In times past, when we tried to get into other businesses, we didn't do it well. We'd rather re-invest in what we know."
Neither will Exxon significantly step up how much money it puts into finding oil or refining it into gasoline, which could help ease tight supplies that have driven oil and gasoline prices to records this year.
Denise McCourt, a spokeswoman for the American Petroleum Institute in Washington, D.C., defended the industry's profits as being in line with those of other industries.
"The reason the numbers look so large is because we are such a large industry," she said.
But instead of greeting the oil industry profits as a sign of economic prosperity, investors appeared to perceive the news Thursday as a harbinger of economic problems ahead. Their pessimism sent the Dow Jones industrial average down 115 points and the Nasdaq into a 36-point skid. Even Exxon's stock fell 60 cents to $55.60.
Indeed economists blame high fuel costs for rising inflation and declining consumer spending.
Timothy Hogan, an economist with the Seidman Research Institute at Arizona State University, believes the high fuel costs will translate into an economic slowdown in the fourth quarter.
"The energy costs are working their way through the system, but they will eventually mean higher costs for almost everything," he said.
The high fuel costs have been particularly tough on the airline industry. Delta and Northwest partially attributed their recent Chapter 11 bankruptcy filings to high fuel costs.
Phil Gee, a spokesman for Phoenix-based US Airways, said fuel has now eclipsed labor as the airline's chief operating cost. The airlines have been able to pass some of the costs along to consumers by raising fares.
But, like other industries, they have been unable to recover all of the higher fuel costs that have become a hit to their bottom lines.
Oil industry under fire as it posts billions in profits
Max Jarman
The Arizona Republic
Oct. 28, 2005 12:00 AM
Reaction to major oil producers' staggering profits ranges from rage at the pumps to calls for profits to be reinvested in exploration, alternative-energy research or simply returned somehow to the public.
Exxon Mobile Corp., the world's largest publicly traded oil company, said Thursday that it earned an industry record $9.9 billion in this year's third quarter, $4.2 billion, or 74 percent, more than it earned a year earlier. Other companies have reported similar results.
But the soaring oil and gasoline prices that are the source of the oil company's third-quarter profits have created hardships for consumers and eaten away at the profits of many businesses. Some economists believe they will lead to an economic slowdown and possibly a recession.
advertisement
The oil companies assert that their profits are no larger than other businesses and that they just look big because it is a big business.
Exxon Chairman Lee R. Raymond said in a statement that the company "acted responsibly" in its pricing and said its fourth-quarter profits would come nowhere close to the $9.9 billion in the third quarter.
That doesn't necessarily wash with Adrienne Valdez of Phoenix.
"I can't afford to buy socks because I am paying twice what I used to for gas," she said. "It's not right that they should be making billions at our expense."
In Phoenix, gas prices soared to $3.14 after Hurricane Katrina hit the Gulf Coast. The average Valley price per gallon, which has been falling in recent weeks, was $2.72 Thursday, according to AAA Arizona.
Bruce Trushinsky, owner of the former Moon Valley Exxon station at 1901 W. Thunderbird Road in Phoenix, called Exxon Mobil's $9.9 billion quarterly profit "disgusting."
He became so upset at the $7.6 billion profit posted by the company in the second quarter that he canceled a longtime branding agreement.
"I ripped down all the Exxon signs and threw them in the garbage,"
he said. Now, after 30 years, Moon Valley Exxon is Carmel Automotive and Fuel. Trushinsky said the high wholesale prices charged by Exxon were devastating to his business and that the last straw was when the company canceled its dealer-incentive program.
"They cut us off, then they announced their (second-quarter) profit increased $2 billion."
Besides Exxon's 74 percent jump in profits, Royal Dutch Shell reported Thursday that its third-quarter net income rose 68 percent to $9 billion and Conoco Phillips on Wednesday said that its third-quarter profit rose 90 percent to $3.8 billion. ChevronTexaco is expected to report earnings Friday of $3.9 billion, a jump of 53 percent over the third quarter of 2004.
The soaring oil companies' profits prompted U.S. Senate Majority Leader Bill Frist on Thursday to call for hearings with oil companies on high energy costs.
Arizona Attorney General Terry Goddard also has called on Congress to look into the oil industry profits, particularly in light of the tax breaks the industry was awarded in the recently passed energy bill.
"The energy bill has billions of dollars in benefits for oil companies, and they show their gratitude to consumers by cranking prices through the roof," Goddard said.
Others have called for a windfall-profits tax on oil companies and want them forced to reinvest the money in new oil refineries to ease supply constraints.
David Cowley, a spokesman for AAA Arizona, believes such a requirement may be reasonable.
"There is evidence that they caused the supply problems by earlier closing refineries," he said.
The industry says the answer is the expansion of existing refineries, not building new ones.
And despite its profits, Exxon says it has no plans to invest any of those earnings in developing alternative or renewable energy, something other oil companies do.
"We're an oil and gas company," Exxon spokesman Dave Gardner said. "In times past, when we tried to get into other businesses, we didn't do it well. We'd rather re-invest in what we know."
Neither will Exxon significantly step up how much money it puts into finding oil or refining it into gasoline, which could help ease tight supplies that have driven oil and gasoline prices to records this year.
Denise McCourt, a spokeswoman for the American Petroleum Institute in Washington, D.C., defended the industry's profits as being in line with those of other industries.
"The reason the numbers look so large is because we are such a large industry," she said.
But instead of greeting the oil industry profits as a sign of economic prosperity, investors appeared to perceive the news Thursday as a harbinger of economic problems ahead. Their pessimism sent the Dow Jones industrial average down 115 points and the Nasdaq into a 36-point skid. Even Exxon's stock fell 60 cents to $55.60.
Indeed economists blame high fuel costs for rising inflation and declining consumer spending.
Timothy Hogan, an economist with the Seidman Research Institute at Arizona State University, believes the high fuel costs will translate into an economic slowdown in the fourth quarter.
"The energy costs are working their way through the system, but they will eventually mean higher costs for almost everything," he said.
The high fuel costs have been particularly tough on the airline industry. Delta and Northwest partially attributed their recent Chapter 11 bankruptcy filings to high fuel costs.
Phil Gee, a spokesman for Phoenix-based US Airways, said fuel has now eclipsed labor as the airline's chief operating cost. The airlines have been able to pass some of the costs along to consumers by raising fares.
But, like other industries, they have been unable to recover all of the higher fuel costs that have become a hit to their bottom lines.
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