Records are made to be broken, but twice in one day - that’s going some. But that’s what Shell and then Exxon Mobil managed last week - leading to inevitable calls for windfall tax on both sides of the Atlantic, but in an imaginative defence, the world’s largest oil company said that before you criticise it for making too much money, make sure you are not comparing oranges with apples.
Like BP earlier in the week, the hurricanes took their toll. But this time around it’s BP which seems to have the biggest problems, what with the damage to its massive Thunder Horse platform, BP’s profits were less than expected and lower than in the previous quarter.
Royal Dutch Shell, on the other hand, with its new united board, and with the problems of its disappearing oil reserves receding into the background, had a bumper quarter. Despite a fall in oil production from 3.6mn barrels a day last year to 3.2nm this quarter- thanks to the hurricanes, profits rose to a stunning $9.39bn in the third quarter, compared to just $5.62 a year ago. Profits for the last six months came in at $17.5bn, compared to $17.6bn in the whole of 2004.
But just as analysts were taking in the huge scale of Shell’s results - along came Exxon Mobil with even bigger profits - net income of $9.92bn - the biggest in US corporate history, and the company is on course to enjoy the highest level of turnover of any US company this year.
By the time 2005 is up, it is thought that the world’s biggest five oil companies, that’s Shell, Exxon Mobil, BP Chevron and Total will have made a combined profit of in excess of $100bn, and inevitably, calls for a windfall tax are growing
But, in an imaginative defence, Exxon Mobile said: “Our earnings are indeed at a record high, driven largely by the price of the commodities we sell. But if you compare profits per dollar of revenue across a wide range of U.S. companies — a true “apples to apples” evaluation — you see that oil earnings are not out of step with other major industries. “Apparently oil and gas industry earnings averaged 7.7 cents per dollar of revenue during the second quarter compared with the overall U.S. industry average of 7.9 cents. Exxon Mobil earned 8.6 cents.
“But,” said the company, “While earnings rise and fall with oil prices, our investments do not. $15 billion was invested in a year when the oil price averaged just below $40 and earnings were high. But we also invested $15 billion in 1998, when oil dipped to $10 a barrel and annual earnings — at $8 billion — were far lower. In fact, averaged over the last ten years,our annual capital investment for the future of the company exceed our earnings. Ours is a capital-intensive business where investments can take many years to develop. A thoughtful, long-term approach to investment — regardless of the volatility in prices and earnings — ensures the apple tree continues to bear fruit in the best and worst of times.”
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