Up Against The Wall!
My first question is “What is the return on investment?” Yes, 9.9 Billion is a big profit but then again avagadros number is very large as well, yet a mole of anything is still pretty small when you compare it to a pound of potatos.
As a related aside and as an educational opportunity may I suggest that you read what Dr. Williams has to say-
http://www.townhall.com/opinion/columns/walterwilliams/2005/11/09/174865.html
And lastly, if you don’t like the price, don’t buy the product.
Posted by yatalli
11/09/2005 at 09:34 PM
I guess you’re not into the whole capitalism thing, huh Skipper?
Posted by Magoo
11/09/2005 at 09:52 PM
Capitalism is one thing, Magoo. Ripping me off to line somebody else’s pockets is another thing entirely. Don’t even get me started on the back-stabbing, low-life, sleazy criminals at Bank Of America who cheat me out of nickels and dimes on my bank account every time I turn around. GRRRRRRRRR
Skipper,
I love your web site, but I am going to prove you wrong on this.
1. There is a big difference from between high profits and large profits. High profits occur when you make something that gives a large rate of return, for example computer or software related industries often have high profits. For relatively small capital outlays, computer or software giants can (or could) achieve huge profits. Look at Bill Gates, Bill Hewlett, Dave Packard, Steve Jobs and those Google guys (who are buying a Boeing 767); all of these people started out in their garages and yet they became immensly wealthy. ExxonMobile didn’t start in someone’s garage. It requires huge amounts of money just to break even. The Valdez disaster cost 4 billion dollars which was equal to an entire years worth of profit when it happened. ExxonMobile employ’ thousands (perhaps hundreds of thousands) of employees worldwide. It owns billions of dollars worth of equipment. It takes enormous risks. And for all this it makes 9% on its investment. ConocoPhilips made 7%. I have a commercial loan higher than 9% and the bank has security on the property. No one has security on a dry hole.
2. Oil companies are publicly traded. If ExxonMobile’s profits are so great, then why don’t you and everyone else harping about obscene profit sell every stock you own and invest 100% of it in ExxonMobile. Because that would be risky and 9% isn’t all that great? I made several hundred per cent on XM sattelite radio. I don’t even pay a subscription for cable TV much less the radio. But many very sweet little darlings were just itching at the opertunity to toss money right out the window and into my pocket. If I had invested $10,000.00 in ExxonMobile several months ago, I might have made $900.00. If I had invested $10,000.00 in XM satelite radio, I would have made $37,900.00. Think of how many millions of people it has taken to invest $100’s of Billions of Dollars to arrive at that paltry 9 billion dollar profit.
3. Oil companies take enormous risks and are currently generating in this time of “excess” 7 to 9 cents of profit per gallon of gas. The government is earning 46 cents of profit per gallon of gas with absolutely no risk at all.
4. Companies exist for one purpose. To make money. You wouldn’t go to work if no one paid you. If some idiot stood up and said, “Computer services cost too much. Everyone is dependant on computers and the cost is going to therefore be controlled. From this day onwards computer guys will only be allowed to earn enough for coffee, food (no more than 2500 calories per day, 3000 calories after a new release of Windows), three new pairs of underwear per year and payments on a second hand Yugo.” You would quit and start drilling for oil. Oil companies cannot be held hostage to stupid laws. If they can’t make money drilling they will drill less and we will pay more. Before Henry Ford, high profits were made by a bunch of small companies that built cars for the very wealthy. Henry Ford made Large profits by building cars that everyone could afford.
5. The company I work for in Houston had its roots in the 1970’s. They made high profits by supplying Schlumberge and others with large equipment for drilling in the Gulf of Texas and the Gulf of Louisiana. Carter was president and North African oil was $36.00 a barrel by 1980 ($80.00 in todays dollars). The grip of OPEC was supreme. Shortly after Reagan was elected, the Saudi’s mysteriously increased production of oil and prices dropped to the range of $20-25 a barrel. OPEC’s grip was gone and so was the incentive to drill for oil in the Gulf’s of Louisiana and Texas. Schlumberge canceled orders for equipment that was already in production and the parent of the company I work for went bankrupt within months. Although the lower price of oil was good for the ecomomy of America, it was bad for the companies related to domestic production. I never heard anyone complain about the loss of production companies due to low oil prices.
6. China recently tried to buy the American based oil company Unocal. With large (but not high profits), American oil companies will be very valuable and will have the cash and power to withstand the determined takeover bids of Chinese oil hegemonies and to mount takeover bids on their own. The Chinese are laughing their MaoTseTungs off at how easy it is to get their dream come true. All they have to do is line the pockets of a few politicians with paltry sums of money and they can have legislation supported by the common American idiot to limit the profitabilty of American oil companies. With American oil companies now weakened and devalued, they will get to buy ExxonMobile for pennies on the dollar and charge the common American idiot whatever they please if they choose to sell us a gallon of gas at all.
Posted by No Blood For Frogs
11/09/2005 at 11:30 PM
No Blood For Frogs: you comments are thought-provoking and interesting. However, your comparison of the oil industry to the software industry makes no sense. You compare apples to oranges, my friend. The crash of the so-called “internet bubble” in 2000 is a case in point. The crash only proved that the whole industry was vastly over-inflated in value due to investors throwing wads of cash at it expecting big returns that never came. Yes, some big names like you mention got rich but the ordinary worker-bees got large (five-figure) salaries which actually proved to be less than minimum wage when you consider that the majority of them were working 80-100 hour work weeks to meet impossible deadlines (I know, I was one of them).
I guess the big difference here that I and most Americans can’t understand is this: what is the difference between Exxon jacking gas prices up from $2.00 per gallon to $3.30 per gallon when people are already suffering from a natural disaster like Katrina on one hand and on the other the crooks who drive to disaster areas and sell water for $10 per gallon and ice for $10 per bag. What choice did we have? Could we go down the street and buy gas cheaper from a competitor? No, we could not. It’s what is called a “captive audience”. Either you buy gas from them or start walking. No computer hardware or software manufacturer ever had that kind of stranglehold on consumers to my knowledge.
Then to issue a quarterly earnings statement that basically says, “Oh, look! We just made more money in one quarter than in our entire history and more profit than any company has ever made in one quarter ever!” is arrogance and an outright slap in the face to all of their “customers”.
Now, if Exxon is re-investing that money in new oil fields or new refineries that would be OK. They could boost sales and make even more money while keeping prices at the pump low. If, however, they are paying off a lawsuit because one of their ship’s captains smashed up a ship full of oil while drunk on duty (again, the Exxon Valdez), then the consumer is being asked to pay for their malfeasance. That is wrong. To date, I have heard absolutely nothing from Exxon about building new refineries or sinking new wells. Where is the tiger in my tank?
These men are in front of Congress now because of the “perception” of wrong-doing. A perception, I might add, that is widespread and with good reason. Gasoline prices always seem to start going up before shortages begin and dont’ come down until well after the shortages are over. I’ve been through several of these “gas price bubbles” in my life (1973-1974 was the most fun). It seems to me (and most Americans) that Big Oil is hedging its bets every time and walking away with windfall profits due to these pre-emptive increases and lagging decreases.
With that said, I do agree that government makes too much profit on gasoline sales.
I’m with NBFF on this. This profit is around 10% of turnover. That’s nice but it’s not excessive. The ones really making a killing are the well-owners (OPEC & co) and taxes. Governments don’t make profits on gas sales per se, they just see a flow of money and stick their shovel in. You don’t need to tell me (as a Brit) about tax gouging. LyndonB can keep you up to date from day to day on UK petrol prices.
About the lack of investment in new wells and refining capacity, you have a point. But the bean-counters will want assurance that these high prices will be around for longer than the expected ROI time. We’re looking at 10 years at least.
Skipper,
It’s called supply and demand.
I’m not sure where you saw the gas go from 2.00 to 3.30 after, but in Houston the price was already 2.25-2.50 before the hurricanes, and went up to just under 3.00. It’s now back down to its pre-hurricane prices. That was actually artifically low for the market.
When we were trying to evacuate from Rita, the problem wasn’t that we couldn’t afford the gas… it was that the stations were running out of gas. The low prices made this situation worse. (Of course, the big factor was the fact that people who were well inland were needlessly evacuating and jamming the roads, but that’s another rant.)
(There would also be more competition, more refineries, and more exploration if the smaller oil companies hadn’t been driven out of business by Carter’s punative tax system but that’s yet another rant.)
Posted by Magoo
11/10/2005 at 09:03 PM
Given that the choices are either 1) overpriced petroleum products, or 2) even MORE .gov interference with business and the free market, I’d personally rather pay higher prices.
“3. Oil companies take enormous risks and are currently generating in this time of “excess” 7 to 9 cents of profit per gallon of gas. The government is earning 46 cents of profit per gallon of gas with absolutely no risk at all.”
Boy aint THAT nice! I’d like to find a way to take that particular cash cow away from the .gov. They’ve got too damned much money as it is. Why dont they take some of the hundreds of billions of dollars they throw away in the form of ‘aid’ to every contry with a hand to hold out, and either give it back to the people they stole it from (us!), or invest it in things like, oh, I dont know, upgrades to oil refineries or maybe, god forbid, alternative energy sources?
Posted by Wyrm
11/11/2005 at 01:36 AM
I’ll back up the Skipper on this one...I find it abhorrent that the oil companies complain about how these hurricanes have negatively impacted their ability to refine oil, deliver product, etc., etc...as a pretense to raising prices, yet they post record profits? Wait! I thought they were raising prices in order to MAINTAIN a profit or to mitigate losses.
Nope...they got us by the balls and they know it. I understand and agree thet they are “hedging their bets”...but it sucks when it is at the consumer’s expense. And I agree that its all about “supply and demand” (I am by NO means an economic wizard). Nevertheless, it doesn’t make what they did right. Unfortunately, the oil companies will continue to raise prices to the brink where demand drops off in favor of other modes of transportation.
I hope someone gets prison time for these shenanagans.
=end rant=
If you want to continue to get gouged, leave “Big Oil” alone.
If you really want to get fucked, get Congress involved.
11/10/2005 at 03:57 AM
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