http://blogs.abcnews.com/moneybeat/
Exxon’s Profits and the Lack of Renewable Investment
July 31, 2008 10:18 AM
ABC News’s Bianna Golodryga reports: As the rest of the nation's
economy grapples with record oil and gas prices, deep in the heart of
Texas, things look pretty good -- and Texans can thank ExxonMobil for
that. This morning, the world's largest oil company reported revenues
of $138 billion for the second quarter of 2008. Believe it or not, the
record profits of $11.6 billion, or $2.27 a share, were smaller than
the $2.52 a share Wall Street had expected. Still, the company's
profit topped its previous record of $10.9 billion during the first
three months of the year.
For big oil, 2008 has been a very good year. How good? Well, it's even
better than last year, when the combined sales of the top five oil
companies added up to $1.5 trillion -- that's greater than the GDP of
Canada.
Nm_exxon_080730_main Since then, the price of crude has soared by as
much as 50 percent while the price of natural gas has also taken off.
And though oil has had a significant drop from its high of above $140
a barrel for the second quarter, the benefits of high oil are clearly
noted in balance sheets of the world's largest oil companies.
Exxon's earnings come on the heels of stellar earnings from
ConocoPhillips, which reported a $5.4 billion net income for the
quarter; BP, which posted net profits of $9.47 billion for the
quarter; and Shell, which reported $11.6 billion earlier this morning.
Those kind of figures have sparked calls for alternatives to foreign
oil now more than ever.
The calls for change are coming from big players from former oilmen
like T. Boone Pickens to the oil companies themselves, which have
invested in a media blitz highlighting their support for alternative
energy sources.
But are they putting their money where their mouth is?
We crunched the numbers with Bernie Picchi, oil analyst at Wall Street
Access, who said They are probably spending more on their advertising
than the actual research itself.
To be fair, Exxon has publicly said that it is not in the renewable
energy business, but rather focused on oil and gas. So it should be no
surprise that out of the five largest oil companies, Exxon spent just
1 percent of its $41 billion in profits last year on alternative
energy sources.
But none of the others fared much better.
For its part, Shell also invested just 1 percent of its $32 billion in
profits last year on alternative energy exploration.
While both Chevron and ConocoPhilips invested only 1.3 percent of
their profits on research, the company that invested the most in
alternatives -- BP -- after profiting $21 billion, just $600 million
or 2.9 percent was spent on research.
All in all, between the five companies, $2 billion was set aside for
alternative energy research.
Picchi goes thru the numbers.
This is the largest industry in the world with the exclusion of the
financial service industry. It’s a very large amount of money. The
after-tax earnings of these companies was around $125 billion. You get
the idea that $2 billion, although an enormous amount of money to you
and me, is truly just several drops in the bucket for the industry.
But don’t let the numbers fool you: all is not so great for big oil
either. Contrary to popular belief, Exxon is also feeling the heat of
record high oil prices. The company, which only produces 3 percent of
the world's oil, doesn't produce enough to meet its own refining
demands. And because of that, it too has to shell out big dough to pay
for crude at present-day prices.
And as the run-up in gas prices at the pump has led to a decline in
demand for gas the past few months, Exxon and the rest of the industry
are facing an uphill battle to raise wholesale and retail prices fast
enough to break even with record oil prices and refining costs.
Which leads to the bigger question: why is oil so expensive today?
Supply/demand, manipulation, or policy?
According to one of the country's most prominent oil analysts,
Oppenheimer's Fadel Gheit, the later two explanations are the main
factors. According to a new book “The Oil Card” by Jim Norman, by
allowing financial players to dominate oil trading without regulations
while keeping margin requirement at a low of 5 percent, compared with
50 percent on stocks, the U.S. government is engineering the rise in
oil prices to slow down China's economic growth, which is the most
formidable global challenge, not Iran, or terrorism. It is modern
economic warfare.
In fact, many industry experts are expecting the sharp increase in
demand for oil from China to decline after the Olympics. China, like
other emerging markets, subsidizes its oil, thus making it more
affordable for citizens to buy gas. And with an estimated 1,000 new
drivers hitting the road in China every day, one can imagine how much
