Thursday, January 25, 2001

Oil companies' profits huge


Some consumers believe numbers are unconscionable

By John J. Byczkowski and Susan Vela
The Cincinnati Enquirer

        Oil giant Exxon Mobil Corp. reported the largest quarterly profit in U.S. history Wednesday, as higher prices for crude oil and natural gas fattened its bottom line.

        Exxon Mobil, the nation's largest oil company, wasn't alone. It led a parade of oil companies posting fourth-quarter profit increases in double and triple digits.

        Exxon's profit was $5.12 billion, up 90 percent from a year earlier, on sales of $64 billion. No. 2 Chevron's profit rose 88 percent. Profits at both No. 3 Texaco and No. 5 USX Marathon more than doubled. No. 4 Conoco reported Monday its profit rose 77 percent.

        The big reason in each case was higher energy prices. U.S. oil prices averaged $31.90 per barrel in the last three months of 2000, up 30 percent from a year earlier. Pump gas prices were 20 percent higher than a year earlier.

        “Are you kidding?” said Beth Schultze of East Walnut Hills when she heard the news on Exxon's profits. “I drive 200 or 300 miles a day. Yes, I'm angry. ... It hurts. It absolutely hurts.”

        Oil analyst Peter Beutel, president of Cameron-Hanover, an energy risk-management company in New Canaan, Conn., said he wished he could explain the big profits. “There's a limit as to how far I can apologize for the industry,” he said.

        “It's hard to argue with a consumer who sees a company with the highest profits in American history and wants to know why.”

        Thelma Gratsch, 78, of Mount Lookout, has an equally grim forecast. But she hopes that prices ultimately will stabilize and go down.

        “Somebody is making millions along the way at the expense of the consumer,” she said. “I think the oil companies control the politicians.”

        One Tristate politician, U.S. Sen. Jim Bunning, a Kentucky Republican, serves on a panel dealing with energy matters — the Senate's Energy and Natural Resources Committee. He declined comment on the oil companies' earnings.

        The ballooning of profits came from a fortuitous alignment of the planets for oil companies, which saw a string of cutbacks and mergers two years ago when oil prices were at historic lows. Exxon bought Mobil in November 1999 for $81 billion because the merger would save $4 billion or more in costs.

        Profit margins on oil sales rose because the companies cut costs while energy prices surged. Many also boosted production. Earnings likely will keep rising as oil-producing nations curtail output and gas supplies lag demand, analysts said.

        “Energy prices will remain relatively high throughout the year and earnings for the industry will most likely continue to surprise Wall Street,” A.G. Edwards analyst Bruce Lanni told Bloomberg News.

        Oil companies also benefited from wider refining margins, or the difference between the cost of a barrel of oil and prices for the products made from it, as last year's glut dried up. Chevron's quarter was the best for its refining and fuel-sales division in seven years, Dain Rauscher Wessels analyst Stephen Smith told Bloomberg.

        The bright side for motorists, odd as it may seem, is that there's still gas at the pumps. “I will say in defense of the oil companies,” the analyst Mr. Beutel said, “at least we haven't run out of heating oil and gasoline, and prices this winter have actually been much lower than many of us expected they would be.”

        And, he said, consumers should expect the oil companies to use those profits to find new sources of oil to keep prices lower in the future. Exxon Mobil said it spent $11.1 billion on exploration in 2000, and that will grow 15 to 20 percent in 2001.

        Kenny Strange, who still pumps gas at his shop, Ken's Kar Kare in Southgate, was nonetheless stunned at Exxon's record.

        “It's shocking,” he said. “I can't quite understand what really goes on (and) I've been in the gas business for 40 years.”

        Bloomberg News contributed to this report.
       

       



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