ExxonMobil Explains Windfall Profits

Yesterday, a Vice President of ExxonMobil conducted a web-based news conference to preview both the company’s windfall profits of over $30 billion in 2005 (from extraordinarily high energy prices) as well as ExxonMobil’s proposed ‘framing’ for why the profits are no big deal. “Many people say that the energy industry is reaping unfair profits and that consumers are paying the price,” Cohen said. “But one has to have a point of reference. The reason that energy industry earnings are so high is that our business is immense.”

Hey, we’re a big industry. So, we make big profits.

Only, according to Cohen, ExxonMobil is really not so big — or, well, yes it is big, but it is a small player in the world of energy because it supplies only two percent of the world’s energy.

So, if you’re keeping score on the proposed ‘point of reference’ needed for framing and understanding the $30 billion in profits, ExxonMobil is very profitable because it is part of a big industry — but it is not such a big part of that industry that it can really do much about the workings of the industry.

ExxonMobil might seem like a giant oil company to you. But, really, it is only a small player in a big industry — and pretty much toothless to do anything about prices that threaten households of millions of people who, this winter, must make tradeoffs between gasoline to get to work and fuel oil to heat the home against food, medical and other necessities. Nor can or should this bit player in the big industry pay any more taxes that it already does because it needs the money to be able to afford the oil refineries and other activities required to supply 2 percent of the world’s energy to — well to whom?

For that answer, let’s take a look at ExxonMobil’s 2004 Corporate Citizenship Report, in the section entitled Economic Progress and Corporate Governance where the people of ExxonMobil commit themselves as follows: “ExxonMobil’s primary benefit to society is providing affordable energy to people all over the world.”

So, let’s continue our search for the best ‘point of reference’ for understanding ExxonMobil’s $30 plus billion in profits in 2005. The company makes big profits because it is in a big industry. But, it is a small player in a big industry and cannot do anything to affect price swings in that industry. However, it is committed to being a good corporate citizen, primarily by providing affordable energy.

It’s just that, hey, we’re a bit player and there’s really not much we can do to make energy affordable because the industry is huge and, as explained yesterday by the Vice President of ExxonMobil, “Oil and gasoline are global commodities and are subject to price swings in the same way as agricultural products, minerals and steel, and it’s a very competitive market.”

So, how does ExxonMobil hold itself accountable for bringing affordable energy to the people of the world?

Well, according to the Corporate Citizenship Report section on Economic Progress and Corporate Governance, ExxonMobil does this by paying taxes and making community contributions. Yes, you’ve read this correctly. ExxonMobil doesn’t actually do much about making energy affordable in what might seem the more obvious ways such as keeping prices as low as possible. Rather, it pays taxes and makes community contributions (although evidently not the kind of community contributions Citgo is making this winter — the kind that bring energy to low income communities in danger of freezing.)

So, let’s wrap up our search for the best point of reference to frame our understanding of ExxonMobil’s $30 plus billion in profits from the high energy prices in 2005 that made energy unaffordable to tens of millions of people around the world:

– ExxonMobil has big profits because it’s in a big industry
– However, ExxonMobil is a bit player in this big industry
– So, ExxonMobil cannot do much about prices that made energy unaffordable to tens of millions this winter
– As a result of it’s bit player status, ExxonMobil chooses to fulfill it’s commitment to providing affordable energy by paying taxes and making community contributions instead of attempting to work directly on affordability
– However, ExxonMobil’s community contributions do not include Citgo-like programs that intervene in low income communities in some danger of freezing this winter because they cannot afford high fuel prices
– And, because ExxonMobil is a bit player that needs all the cash it can get to keep supplying affordable energy to the people of the world, ExxonMobil cannot pay any more taxes that it already does, which, by the way is a lot of taxes

Got that?

Posted by Doug Smith on January 21, 2006 01:35 PM | Permalink

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» The Decency Line from Douglas K Smith
By mid-2005, according to the Economic Policy Institue, 28% of families living in the US did not have the incomes to afford the items in EPI’s basic family budget for secure, safe and decent lives. There are 108 million households… [Read More]

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