Big Oil Companies Post Huge Profits On High Gas Prices
WASHINGTON -- The sputtering economy, high unemployment rate and punishing gas prices are taking a huge toll on average Americans, but at least somebody is doing well: The Big Five oil companies this week announced they had made a whopping $36 billion in profits in the second quarter of 2011.
According to second-quarter earnings reports, ExxonMobil alone made $10.7 billion in the most recent three months. That's a 41 percent increase over the same period last year and a 161 percent increase over 2009.
Shell nearly doubled its profits year over year, taking in $8.7 billion in the second quarter. Chevron's profits were $7.7 billion, up 43 percent. BP earned $5.6 billion, a far cry from its $17.2 billion loss a year ago. Only Conoco Philips, with $3.4 billion in earnings, posted smaller profits than a year ago, dropping 18 percent due to the jettisoning of some Russian assets.
A good chunk of these profits is coming right out the pockets of the American public, thanks in part to astronomical gas prices and to $4 billion to $8 billion a year in deficit-increasing tax subsidies that oil companies continue to get, long after the incentives those subsidies were designed to create ceased to make economic sense.
Rather than invest their profits in such things as product development, new facilities, hot talent or research -- things that could create jobs, improve consumer offerings and accelerate alternative energy production -- three of the five big oil companies are spending large amounts of that money buying back shares of their own stock.
Exxon spent $5.5 billion -- or more than half of its total profits -- to buy back its own stock in the second quarter; Chevron spent $1 billion, or 13 percent of its profits; and Conoco spent $3.1 billion -- or 91 percent of its profits. The numbers were similar last quarter.
"What this means is these companies see their profits as a way of managing their stock price, rather than investing money in the future of their own companies and the future of the economy," said William Lazonick, a professor of economics at the University of Massachusetts, Lowell.
Executives say stock buybacks reflect confidence in the future of their companies, sending a signal they think their stock is undervalued. Indeed, buybacks are almost guaranteed to send stock prices up by boosting earnings per outstanding share and increasing the demand.
But buybacks are also a self-serving way for management to spend the company's earnings, Lazonick said. Top executives reap benefits from the exercise of stock options -- and if stock prices don't go up, those options are worthless.
"Buybacks and stock options are the yin and yang of corporate executives," Lazonick said. "They spend the company's money to buy back stock and send up stock prices -- and they're one of the biggest beneficiaries of it. But everyone else loses."
The companies are only halfway through what could be a record year for oil profits. At this rate ExxonMobil, for example, will clear almost $43 billion in profits in 2011, just shy of its 2008 record of $45 billion -- the last time there was a huge spike in oil prices.
Democrats have tried, with only limited success, to make political hay of the fact that oil companies are doing so well, while consumers are doing poorly and policymakers are feverishly looking for ways to cut the deficit.
"America is swimming in debt, and oil companies are swimming in profits, yet Republicans continue to defend giving these companies special tax breaks that could help reduce the deficit if they were repealed," said Rep. Ed Markey (D-Mass.) in a statement Thursday. "Instead of asking seniors for a cut in Medicare or Social Security, it's time for the oil companies to do their part and contribute to solving our debt crisis."
But one reason Markey and others have made so little headway is that the oil and gas industry is enormously powerful on Capitol Hill, spending over $1 billion in lobbying since 1998, according to opensecrets.org.
And the Big Five oil companies have already spent $75 million in lobbying just through first half of this year. That seems like a lot, until one considers that it amounts to about one-tenth of 1 percent of their profits.
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First Posted: 07/29/11 04:10 PM ET Updated: 09/28/11 06:12 AM ET