10/31/2005

Daily Kos: The real story behind ExxonMobil's 10 billion dollar profit

The real story behind ExxonMobil's 10 billion dollar profit
by Jerome a Paris [Subscribe]
Fri Oct 28, 2005 at 05:53:49 AM CDT

Many of you have heard that ExxonMobil managed a 100 billion dollar turnover and a 10 billion dollar profit (a 75% increase) in the last quarter, and several of you have vented about these astronomical numbers, price gouging and the like. Today, Shell announced equally stupendous results, with a 9 billion dollar profit, up 68%.

I'd like to make the point that these numbers hide the fact that the industry is now in decline, and that the big oil majors are small, weakening players.

Follow me below.

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As usual, I'll quote the Financial Times, but you can find the exact same information in all other publications. I'll simply focus on the numbers which did not make the headlines:


Exxon net profit hits $10bn as prices soar

ExxonMobil yesterday said net profit soared by 75 per cent to about $10bn as the world's largest publicly traded oil and gas company cashed in on high energy prices.

(...)

In exploration and production, Exxon's earnings, excluding the special gain, were $5.7bn, up $1.8bn from the third quarter of 2004, reflecting higher crude oil and natural gas realisations. Yet, on an oil-equivalent basis, production fell 4.7 per cent. Excluding the impact of the hurricanes, divestments and entitlement effects, production fell 1 per cent.

Exxon said higher liquids production from new fields in west Africa and higher gas volumes from projects in Qatar and the UK were offset by the impact of mature field declines.


Shell's performance beats expectations

Royal Dutch Shell made the largest quarterly profit in its 98-year history this summer, despite a severe beating from the storms in the Gulf of Mexico.

(...)

Profit at Shell's exploration and production unit soared by 112 per cent as the company was able to cash in on high oil and gas prices. However, Shell's production volumes fell by 11 per cent for a number of reasons, including the loss of around 160,000 barrels a day due to hurricanes Katrina and Rita.

Shell's average production for this year is now expected to total 3.5m barrels of oil equivalent a day, at the lower end of its previous guidance, and to remain at that level for 2006.

This is the important information: the production of the oil majors is ALREADY IN DECLINE.

The Oil Drum had a very telling graph in a recent thread, which they calculated from public data (from The Petroleum Review (pdf)) and which I copy here:



That's the liquid production only, i.e. oil and oil equivalents (the numbers in the articles above include also natural gas production), and the trend is pretty clear: most of the oil majors are seeing their oil production stagnate or decline - in fact, the only increases come from acquisitions of other firms (or, in the case of BP, from the increase in production of its Russian BP-TNK affiliate, which benefitted until last year of fast increasing production, but this is no longer the case).

The oil majors are having increasing trouble replacing their reserves, and an increasing portion of these reserves are natural gas and not oil. For instance, ExxonMobil boasted earlier this year about their track record in renewing their reserves, but did not emphasise the fact that more than 90% of their additional reserves last year came from one field in Qatar - a natural gas field. So ExxonMobil effectively found no oil last year. NONE.

And it's not just ExxonMobil:
ConocoPhillips
ChevronTexaco
Royal Dutch/Shell

As an additional perspective, let me remind you of this table, showing which companies really control the world's oil & gas reserves (which has only one glaring mistake, in that Gazprom, the Russian gas giant, has at least 120 billion boe of proven (and audited) oil & gas reserves - although it should be noted that the reserves of a number of these companies have not been confirmed by any outsider in a number of years, and some of them are highly suspect and probably inflated for political purposes):



Big Oil is dwarfed by the national oil companies of the big oil producing countries which, in a number of cases (Mexico, Saudi Arabia, Emirates, Kuwait) have a monopoly on production within their country, and thus so not share these reserves.

So Big Oil's huge profits are really the swan song of the industry: they are taking advantage of their own inability to produce more, and of the NOCs's inability or unwillingness to produce more, which creates stagnant production at a time of strong demand growth. These are windfall profits coming from the depletion of the good they provide, not a sign of health and not a sign of price gouging.

Instead of complaining about gouging, we need to think hard about what we will do next to live with less oil, and a logical thing to do would be to tax these windfall profits and use the proceeds to fund alternative energies. But this should be done on the basis of peak oil worries, not on the basis of "gouging".

The problem is not the oil companies - the problem is us, and aour excessive thirst for oil. The only way to change is for prices to increase to force us to; and the only smart policy to have is not to fight this trend, but to make it as painless as possible for the economically weaker citizens, by (i) funding new energies to eventually replace oil, and (ii) alleviate the financial pain of higher gasoline and heating costs for them, via targetted fianncial help - which should NOT target energy prices.

Daily Kos: The real story behind ExxonMobil's 10 billion dollar profit

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