It’s quarterly earnings season for many energy companies, which means it’s also the season to be alert to those who will seek to misinform or mischaracterize our earnings for their own political purposes.
So I thought I’d share with you what I think are some of the little known – or often ignored – facts about gas prices, the oil and gas industry, and ExxonMobil in particular.
Often ignored fact: Global markets ultimately drive gasoline prices.
- Gasoline prices are largely determined by crude oil prices. Both gasoline and crude oil prices have fallen since reaching recent highs in late April and early May. The average U.S. regular gasoline retail price for the week of Oct. 17 was about 50 cents less than the high of $3.97 reached May 9. Not surprisingly, the price of crude oil also fell during this period, down about $25 from a high of $113.39 on April 29 to $88.34 the week of Oct. 18.
- Crude oil prices are largely determined by global markets. As I’ve said before, crude oil is one of a number of globally traded commodities like gold, corn, coffee and many others. The prices of such commodities are set in worldwide markets comprised of millions of buyers and sellers reacting to economic fundamentals for each commodity.
- Global markets are determined by economic fundamentals including supply, demand, valuation of the dollar and more. A recent New York Times article covers many of the market fundamentals accounting for the dip in crude oil (and therefore gasoline) prices: declining demand worldwide due in part to slow economic growth; a stronger dollar due in part to a weaker Euro as a result of the European financial crisis; and reduced uncertainty after the spring uprisings in the Middle East.
Little known fact: ExxonMobil actually buys more crude oil than it produces. While we produce more than 2 million barrels of crude oil a day worldwide, our global refining network processes more than 5 million barrels each day. To make up the difference, we need to purchase crude oil on an ongoing basis for our refining system. When we buy the crude, we pay the prevailing market rate – in 2010, we spent about $198 billion for crude oil and product purchases, which we used to make refined products such as gasoline. So when the price of crude oil rises, ExxonMobil is paying more to get the crude we need to keep producing the fuel products that our customers need.
Often ignored fact: ExxonMobil makes pennies per gallon on gasoline, diesel and petroleum products it refines and sells in the United States. In the first and second quarters of this year, ExxonMobil made 7 cents and 8 cents, respectively, on the gasoline, diesel and other petroleum products it refined and sold in the United States. Comparatively, local, state and federal gasoline taxes average nearly 49 cents per gallon nationally, with a high of 67 cents in states such as California and New York.
Often ignored fact: The vast majority of ExxonMobil’s earnings are made outside the United States. From 2009 through the first half of 2011, more than 75 percent of ExxonMobil’s operating earnings came from projects outside the United States. Yet the majority of our workforce – about 40 percent – is based in the United States, and the vast majority of our shareholders are in the United States.
Little known fact: ExxonMobil controls less than 1 percent of the world’s oil reserves. ExxonMobil may be the world’s largest publicly traded oil company, but we control a relatively small amount of the world’s oil reserves. When it comes to production of energy, our global numbers are still very small – ExxonMobil accounts for about 2 percent of total global energy production; about 3 percent of global liquids production; and about 9 percent of global gasoline production.
Often ignored fact: Collectively, the companies commonly referred to as “Big Oil” plus other investor-owned companies control only about 6 percent of world oil reserves. More than three-quarters of the world’s oil reserves are controlled by national oil companies in countries where many of the supplies exist. This is a complete reversal of the situation from 40 years ago, when investor-owned companies did control the majority of the world’s oil reserves.
Little known fact: The oil and gas industry’s overall earnings per dollar of sales are significantly less than many other industries. In the second quarter of 2011, the oil and gas industry made 9.5 cents per dollar, which is below the average for all manufacturing and significantly less than industries such as computers and pharmaceuticals, which both make more than 22 cents on every dollar.
Often ignored fact: ExxonMobil’s U.S. tax bill is often greater than its U.S. operating earnings. In the first half of this year, ExxonMobil incurred $6.7 billion in tax expenses in the U.S. on $5.5 billion in operating earnings in the U.S. Over the past five years (2006-2010), our total U.S tax expense was almost $59 billion, which is $18 billion more than the company’s operating earnings in the U.S. during the same period.
Little known fact: ExxonMobil regularly invests more on energy projects in the U.S. than it earns in the U.S. From 2009 to the second quarter of 2011, ExxonMobil’s capital and exploration expenditures in the United States totaled about $19.8 billion dollars – $3.4 billion more than our U.S. operating earnings during that period. Such projects support jobs and economic growth around the country because they create demand for raw materials, supplies, contract work and countless other services that help put other businesses to work.
Often ignored fact: The people who benefit from “Big Oil’s” earnings are hardworking Americans, from teachers to police officers to public sector workers. From 2005 to 2010, ExxonMobil distributed $177 billion to its shareholders, including public sector and teacher retirement funds in states such as New York, California, Texas, Ohio, Michigan and more. Why do individual investors, pension funds, mutual funds, IRAs and others continue investing in the oil and gas industry? A recent study of public pension plans in four states found that from 2005 to 2009 (despite a deep recession), “oil and natural gas investments significantly out-performed the rest of the portfolios of the statewide public employee pension systems,” as the chart below shows. In fact, the public pension funds’ returns on oil and natural gas investments were 41 percent to 49 percent over a five-year period, compared to returns of 10 percent to 17 percent for the same funds’ non-oil and natural gas investments.