In praise of Exxon

With Exxon reporting record profits, count me as one of the few that thinks this is a good thing.  If you have a 401k, chances are you own shares of Exxon’s stock and have benefited.  The company’s largest shareholders are companies like Barclays, Vanguard and Fidelity that manage mutual funds owned by you and me.  Last year alone, Exxon returned $35.6 billion to investors.  If you wrote that as a check to each of the 113 million household in the U.S. it would be $314–talk about a real economic stimulus package!  Meanwhile our government is causing rampant inflation, with its funny money backed stimulus package.  Blame our government, not Exxon, for higher gas prices.  For those paying with U.S. Dollars, oil has quadrupled in price over the past four years.  Four years ago an ounce of gold would buy you roughly 12 barrels of oil; an ounce today would get you roughly 10.

Some observations worth pointing out and concretizing:

  • Exxon reported net income of $40.6 billion over the past year.  In the past year alone, they have grown profits by $900 million.  To put just the $900 million of income growth in perspective, that’s the entire profit from a company like Safeway that operates more than 1,700 stores and works all year to make that much.
  • Over the past 5 years, the company has more than doubled its overall value (i.e. market capitalization), creating over $200 billion in value to investors.  Discounting PetroChina, which is a nationalized company, Exxon is the most valuable company in the world.
  • The company produces on average 6.5 million barrels of oil daily.  After refining, this is enough gas to fuel the average daily driving of some 63 million people.
  • 5 years ago, the company was already one of the world’s largest.  In the past 5 years, they have managed to take an incredibly large company and double its revenue.  During the same time, profits have quadrupled.  Words alone could not convey how difficult it is to take a mega cap business like this and grow it.  General Electric, another mega cap, has tried and grown revenues just 25% and income 56%–fantastic numbers, but pale in comparison.
  • Exxon is also fantastically efficient, employing 106,100 people.  This sounds like a lot, but let’s put that in perspective.  McDonalds employs more than 4 times as many people, yet has less than a 10th the profit to show for it.  Comparing inside the petroleum refining industry, it operates at a higher profit margin than most of its competitors–including BP, Chevron, Conoco, and Shell.  Average revenue per employee is a staggering $3.8 million.  Again to put this in perspective, Google–now famous for hiring geniuses–harnesses just 25% as much revenue from each employee.

There is an excellent speech by their CEO, Rex Tillerson, from a few years ago that crystallizes how their business works and the role they play in the industry.  Some of my favorite quotes:

  • “By the year 2030 – less than twenty-five years from now – the world’s energy needs will be almost 50 percent greater than they were last year, driven mostly by growth in developing countries.”
  • “Such growing demand for energy reflects a growing demand worldwide for escaping poverty, attaining higher standards of living and achieving greater prosperity. Energy use correlates directly with economic development, and in the hierarchy of human needs, energy ranks high.”
  • “So the real question is not whether we will soon reach peak oil, but whether we can reach peak performance in the responsible production and use of oil and other fossil fuels.”
  • “Every day, consumers around the globe use 230 million barrels of energy, measured in terms of ‘oil equivalent’, from all sources. Oil alone is consumed at a rate of 40,000 gallons a second. Put another way, in the time it takes me to deliver these remarks, people worldwide will have used over 50 million gallons of oil.”
  • “About 55 percent of U.S. oil supplies originate in North America. No other region – including the Middle East – meets more than 15 percent of U.S. oil needs. It may surprise some to learn that the United States imports more oil from Mexico than we do Saudi Arabia.”
  • “Federal and state governments in this country have ruled off-limits an estimated 31 billion barrels of recoverable oil and 105 trillion cubic feet of natural gas. And the majority of those amounts are not found in the Arctic National Wildlife Refuge. They are found in the Rockies and off many of the coasts of the continental United States.”
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