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Oil Companies Set Earnings Records

Posted on: Wednesday, 2 November 2005, 21:01 CST

By Jerry Shottenkirk

In an industry in which the Ms are being surpassed by the Bs, oil and gas companies are not apologetic for the huge profits announced recently.

But they seek a little understanding.

The Ms, as in millions, have turned into Bs, as in billions, in many cases, and some observers - including a segment of the public which has struggled with the tab when filling their gas tanks - aren't too keen on the largest companies logging record quarterly figures.

PR-wise, it's an uphill battle for the industry, said Mike Bernard, president of Oklahoma-based Mid-Continent Oil & Gas Association.

When the oil industry does well, there always seems to be a lot of publicity about it, Bernard said. The public has problems digesting some of the numbers because it is a market and financial issue.

Big Oil has never been bigger.

Prices at the pump have decreased over the past few weeks but remain high enough to keep a sour taste on the palates of some consumers.

The biggest of the Bigs have smashed records.

Exxon Mobil became the first American company ever to bypass $100 billion in sales - in a single quarter. Exxon also nabbed a U.S. profit record when it recorded $9.9 billion in earnings.

All of this for Exxon occurred despite a 4.7 percent decrease in production due to the hurricanes in the Gulf of Mexico.

Wire reports compared Exxon's third quarter revenue to the annual gross domestic product of countries such as the United Arab Emirates and Kuwait. And in that race, Exxon won.

Exxon wasn't alone. Royal Dutch Shell earned $9.4 billion, British Petroleum logged $6.5 billion, ConocoPhillips earned $3.8 billion and Chevron improved by $3.6 billion.

Now many of the larger companies have embarked on a campaign to educate the public.

When large profits are made, images can become tarnished.

ExxonMobil bought a large advertisement in the Houston Chronicle last weekend and explained how the profits line up, and in some cases are fairer, than numbers from other industries. The ad ended with, Ours is a 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.

ConocoPhillips officials played a similar card two years ago. The company said, When the profits of major oil companies reached a record $53 billion in 2003 and far surpassed the results from 2002, the big percentage increases in profits helped support the impression that oil profits are excessive. Much less public attention was drawn to the fact that the $21 billion the industry earned in 2002 represented nearly a 50 percent nosedive from 2001 profits of $38 billion.

The recent quarterly earnings reports turned heads in Washington, D.C..

U.S. Sen. Hillary Clinton (D-NY) wants a windfall profits tax, which would call for an alternative energy development fee on unanticipated profits. The fee would add up to about $20 billion per year.

Clinton's idea hit close to home. Oklahoma Lt. Gov. Mary Fallin pulled no punches.

In a release this week, Fallin called it the worst single idea floated in Washington this year. Senator Clinton seems to think the best way to make America energy independent is to punish energy producers and prevent them from finding new sources of supply.

Bernard said a windfall profits tax would be counterproductive. All it will do is serve to decrease energy output. It may sound good to people who love to grow the government.

Tom Price, vice president of Chesapeake Energy in Oklahoma City, said educating the public would be a plus.

It's just always easy to point a finger, he said. The public wants to think there's an easy answer to this. There isn't. Politicians don't do any favors when they say windfall profits are the issue. The business is not as sinister has some make it out to be.

Price called the oil and gas industry capital intensive. Most profits are generated over an extremely long period. Some wells were drilled many years ago.

Chesapeake Energy, which has a portfolio that includes 90 percent natural gas activity and 10 percent oil and natural gas liquids, on Monday revealed a profit 74 percent above the corresponding quarter of 2004.

Chesapeake is not the only local company to show sizable profits. Kerr-McGee earlier reported a $359.3 million profit, compared to $7.4 million during the same quarter last year. And Devon Energy is expected to show hefty increases when it releases its third-quarter results this week.

Washington, D.C.-based American Petroleum Institute said the oil and gas industry's earnings are very much in line with other industries and often they are lower. This fact is not well understood, in part, because reports typically focus on only half the story - the profits earned.

The API stressed that while profits are large, so are the expenses of finding and producing oil and natural gas. Also to be considered, the API said, was the U.S. Congressional Budget Office's estimation of $18 billion to $31 billion in losses sustained by the energy sector during hurricanes Katrina and Rita.

As the reports of across-the-board profits came in, other politicians took notice. The Democratic Governors Association has called for a gas-price-gouging investigation. Its contentions were not sugar-coated.

Following one of the biggest natural disasters to hit America, the world's largest oil companies are reaping record profits, DGA Chairman New Mexico Gov. Bill Richardson said. Now, we call again on President Bush and his friends on Capitol Hill to do their part to make sure people aren't taken advantage of during this time of crisis.

Bernard said politics usually enters the picture.

Politicians drive investigations, Bernard said. There have been so many investigations over the years and they've never found collusion or widespread price gouging.

Location is everything when it comes to the perception of the oil and gas, Bernard said.

It depends where you are, he said. Oklahoma has so much to gain from the energy industry. Consuming states that don't see the benefits, such as high-paying jobs, have less to be cheerful about.

Source: Journal Record - Oklahoma City

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