Big Oil

There was a lot of tut-tutting this week with the news that Exxon Mobil established a new corporate record with yearly profits just shy of $40 billion. (By comparison, if you think you're the smartest duck on the pond because you bought Google 18 months ago, understand that Exxon Mobil makes more profit in a single quarter than Google makes revenue in an entire year). To serve its obligation of 'objectivity', CNN interviewed an oil industry analyst from Oppenheimer who said that this is really a non-story, since EM 'returns' more than that $40 billion to shareholders.
Aye, there's the rub. It's all fair because the money you pay at the gas pump (or their industrial customers pay for lubricants, etc.) is more than offset by what's realized in stock value and/or dividends by shareholders.
Which brings us to what I contend is the central shift in U.S. economics over the last two decades. Any profitable business has three central choices of where to 'spend' is earnings. First, they can pass along the 'savings' to its customers, in the form of lower prices (or even R and D, which should result in future lower prices). Presumably a competitive advantage--at least lower pricing used to work for WalMart.
Second, the money can go to its own employees--better wages, continued health care, a company pension, maybe even a better annual picnic, etc.
And finally--and these days, most decisively--you pay out to the shareholders. Shareholder value is king. In the end, it's the shareholders who really matter.
Now, cynical you might say that happy shareholders make for wealthy CEOs. You might point out that Lee Raymond, Exxon's last CEO, made $51 million his final full year on the job, and then left with a retirement bundle worth another $400 million. But remember, you said it, not me. His shareholders would counter that Lee was worth every penny, since the share price during his 12 years in the big chair rose 500 percent.
Virtuous circle, no?
The coincidental counterpoint to this festive occasion was the the official U.S. response to a global scientific conclusion announced in Paris this week that it is humans, after all, who are responsible for global warming. Aha! (OK, they said ' 90% likely'. Since they also noted that 11 of the 12 warmest years ever recorded all happened in the last 12 years, I'm sticking with my full 'aha!').
Coach Bush then sent his Energy Secretary, Samual Bodman, up to the plate. Bodman calmly explained that this really isn't so pertinent to those of us in America, since we are only 'a small contributor' to the problem of greenhouse gases. (OK, we represent 5% of the world's population but spew 25% of the greenhouse gases, but who's counting?) Furthermore, to do anything about it would risk damaging our economy! Yikes! And on this score, you have to give the devil his due. In a previous life, he was head of Fidelity Investments, and probably met Lee Raymond personally! So he knows from economics.
But to put a final ribbon on this package, let's revisit another Bodman gem from the early days in his current gig as Exxon shill...I'm sorry, I meant Energy Secretary. When asked by reporters why America shouldn't aggressively attack global warming in the form of the relatively logical step of setting a higher standard for average auto fuel economy, Bodman responded, "...do we put our citizens at risk by having lighter vehicles, less safe vehicles..." manufactured in Detroit?
I agree. The world would be a much safer place if everyone drove an Escalade with those really fly rims. And rather than being fatally T-boned by one of those bad boys, wouldn't you rather be toasted to death sunbathing in Duluth in the middle of February? Or suddenly find yourself submerged beneath a thirty foot wall of water in Orange County?
But let's not be so fatalistic. At least share prices keep rising...


diderot