July 23, 2008

ConocoPhillips Kicks Off a ‘Profit Orgy’ By Major Oil Companies

SANTA MONICA, Calif., July 23 /PRNewswire-USNewswire/ -- ConocoPhillips is the smallest of the Big Five Oil companies, but it made an enormous leap in revenues and profits in the 2nd quarter as the U.S. economy and consumers suffered, said Consumer Watchdog. Its $71.4 billion in revenue and $5.4 billion in net profits were all-time records that will fuel consumer anger -- and should push Congress to pull back taxpayer subsidies as well as regulate speculative oil markets.

"Conoco's record is only the kick-off for a profit orgy by all of the major oil companies," said Judy Dugan, research director of the nonprofit, nonpartisan Consumer Watchdog. "The company spent $2.5 billion on buying back its own stock, in comparison to only $288 million spent on oil exploration. That shows where its corporate priorities are. Why would they spend money exploring drilling for more oil, when they can make record profits producing less oil?"

Conoco's spending pattern, which will be replicated by the other major oil companies, is good reason to ignore calls to open protected areas of the U.S. to more drilling, said Consumer Watchdog. Oil companies are declining to develop oil leases they already own, shunning U.S. energy priorities in favor of corporate profit. As a recent draft Government Accountability report showed, the oil companies are also reaping tens of billions of dollars from so-called "royalty relief" intended to spur exploration -- even as the companies decline to explore.

(See info on the draft GAO report at http://www.politico.com/news/stories/0508/10633.html )

"Congress will surely hear the public outrage as these profit reports put a spotlight on oil companies' profit-seeking at the expense of the U.S. economy and its energy needs," said Dugan. "That should focus lawmakers' energy on regulating speculative investments in completely unregulated oil markets, and on pulling back taxpayer subsidies. Those public billions should be developing renewable energy that will actually start freeing the economy from its oil-profit malaise."

It was also notable that ConocoPhillips increased its profit from refining oil into gasoline and diesel fuel over what it made in the 1st quarter, even as gasoline soared to over $4 a gallon and diesel fuel pushed $5 a gallon, said Consumer Watchdog. Much of that came from the price of diesel, which rose far above the price of gasoline and produced commensurately higher refining profits in 2008.

See Consumer Watchdog's report on diesel prices and profits at http://www.oilwatchdog.org/articles/?storyId=21220

Across the rest of the economy, producers were trying to swallow the raw material and transportation cost increases caused by oil prices, rather than pass them along fully to consumers, said Consumer Watchdog. Conoco's increased profit on refining may indicate that fuel prices will not match any drop in the price of oil, as companies seek to further increase their profits on refining.

"Conoco and others will defend their profits as only a modest percentage of overall revenues," said Dugan, "but it is 'return on capital employed,' that really describes profitability. That's the higher number that the oil companies will report later, in presentations to investors. Last year, for instance, Exxon's ROCE was 32%, about twice what's considered a robust average for industrial companies."

(See critique of profit reporting at http://www.oilwatchdog.org/articles/?storyId=20179 )

(For extensive, accurate comparison data on oil company profits back to 2000, see the Consumer Watchdog/OilWatchdog "Profits Monster" database at http://www.oilwatchdog.org/articles/?storyId=10827 )

To permanently quell the volatility in prices of oil and gasoline, Consumer Watchdog has called for:

   -- White House action to release oil from the Strategic Petroleum Reserve.   -- Regulation of all energy commodity trading.  

-- Increases in the amount of margin funds that traders must put up in energy markets to help suppress speculation.

-- Senate approval of an alternative fuels bill funded by withdrawing $1.8 billion a year in unjustified taxpayer subsidies to oil companies. This measure, passed by the House, has not been taken up in the Senate, where opponents are using a filibuster tactic to require 60 votes for passage. A similar House measure was removed from the federal energy bill by the Senate last year under pressure from the oil lobby. (Find text of HR 5351 at http://thomas.loc.gov/ )

-- Oversight of refinery operations, including regulation of gasoline supplies. In the last decade, the average on-hand supply of gasoline has dropped from 30 days' worth to about 22 days. This makes prices increasingly sensitive to any cuts in production. Only government regulation to control the supply of gasoline, nationally and regionally, will keep supplies adequate to control prices.

Consumer Watchdog

CONTACT: Judy Dugan of Consumer Watchdog, +1-310 392-0522, ext. 305,cell: +1-213-280-0175

Web Site: http://www.consumerwatchdog.org/