EnergyFactor By ExxonMobil | Pespectives has a new home

Integration, earnings, and taxes

It’s earnings season again, with analysts and investors looking to see how companies like ours will fare in the new low-oil-price environment.

This morning ExxonMobil announced earnings of $4.9 billion for the first quarter of 2015.

You can decide for yourself how we measure up. Most of the press commentary will focus on how we did compared with analysts’ expectations or how we stack up against the other major oil companies or against our own results from previous quarters.

But there are two other points I want to emphasize that might get overlooked in the instant analysis that often accompanies our earnings announcement.

The value of integrationExxonMobil_Earnings_Q12015(2)_04-2014

The first is that our results in this challenging economic environment reveal the value of our integrated business model.

ExxonMobil is much more than just a company that searches for and produces oil and natural gas. We have petrochemical and refining operations integrated with our oil and gas production, and this integration is fundamental to generating superior returns.

Part of the value of integration results from being on both the selling and the buying side of the equation when it comes to crude oil.

So, for example, when oil prices drop, it can impact the earnings of our Upstream business, which explores for, produces, and sells crude oil. In the first 90 days of the year, we produced 2.2 million barrels of crude oil and other liquids every day.

But what many people don’t realize is that both our Downstream business – which refines crude oil into usable products such as gasoline and diesel – and our petrochemical business can benefit from cheaper oil and gas that are feedstocks in the manufacturing process. Our global refining business, for example processes about 4.5 million barrels of crude oil every day. That’s twice the amount of oil we produce, meaning we are buying quite a bit of crude oil on the open market every day. So we can benefit there when crude prices drop.

Also important in integration is site-wide optimization of feedstocks, products, costs, capital, and people. It requires harnessing the collective ingenuity of our employees and contractors. This approach offers flexibility and opportunity to take advantage of changing market dynamics.

The efficiencies, cost-savings, and opportunities that successful integration can yield are enormous. These help carry the corporation through challenging economic environments like the one our industry is experiencing right now.

$14 billion in taxes

The second thing to emphasize is the size of our tax bill. While we earned just under $5 billion in profit this quarter, consider that number compared with some of our other expenses during the quarter.

Capital and exploration expenditures – We spent $7.7 billion during the quarter on investments to find and produce new supplies of oil and gas.

Taxes – Our tax expenses were more than $14 billion for income taxes, sales-based taxes, and other levies around the world during the first three months of 2015.

That’s $155 million every single day paid to various governments.

In the United States, where ExxonMobil is among the largest taxpayers, our first quarter tax expenses were more than $2 billion. That is roughly twice what we earned in U.S. profit. In fact, over the previous five years our $54 billion in U.S. tax expenses is $8.8 billion more than the company earned in the U.S. during the same period.

Distributions to shareholders – During the quarter we distributed $3.9 billion to our shareholders in the form of dividends and share purchases to reduce the number of shares outstanding.

I offer these numbers to provide some context about the nature of our business and how we operate. They are helpful numbers to keep in mind whenever public policy discussions about energy and our industry begin to heat up.

 

 


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