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Exxon’s Problem of Riches
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In 2006, Exxon continued on its growth path when it reported revenues of US$88.98 billion and profit of US$8.40 billion for the first quarter. Though its first quarter profit was lower in comparison to the fourth quarter of 2005, it was up 7% over the first quarter of 2005. In April 2006, Exxon also announced payment of US$ 7 billion to its shareholders through dividends and share buybacks. This payout was a 67% increase when compared to the previous year.
However, despite the improved earnings results for Q1 2006 and a huge dividend payout to its shareholders, there was not much enthusiasm among analysts and the general public. While market analysts opined that the earnings were below their expectations, the huge profits earned by Exxon made it the target of US lawmakers and the general public.
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Exxon’s profits came at a time when consumers in the US were feeling the increased pressure of high gasoline prices, with prices touching US$3 per gallon of gasoline. Jim Doyle, the Governor of Wisconsin, said, “Once again, Exxon Mobil has reaped the largest windfall in U.S. history at the expense of hard-working families. I hope that this news will finally convince the U.S. Congress to take action and force the oil companies to give consumers a refund.”
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A few US policy makers called for an investigation of the high gasoline prices and accused the big oil companies, including Exxon, of price gouging2 . U.S. Senator Byron Dorgan (Drogan) said, “There can be no more compelling evidence that the price gouging and market manipulation which has produced record oil prices is out of control, and is working to serve the forces of individual greed and corporate gluttony at the painful expense of millions of American consumers.3” Dorgan also announced his intention to renew his effort to enact a windfall profits rebate4 for consumers. On May 03, 2006, the United States House of Representatives passed a price gouging bill that would penalize any oil company found guilty of price gouging with penalties of upto US$ 150 million.
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1) Deepa Bagington & Ben Berkowitz, “Record Profits Spark New Backlash against Big Oil,” www.mindfully.org, January 30, 2006.
2) Price gouging refers to the phenomenon of pricing above the market by taking advantage of a situation where no alternative retailer is available.
3) “Dorgan Calls ExxonMobil CEO’S $400 Million Retirement Package “Shameful,” www.dorgan.senate.gov, April 18, 2006.
4) In November, 2005, Dorgan forced a U.S. Senate vote on a windfall profits rebate plan. The plan applied only to the major integrated oil companies, and would have imposed a 50% windfall profits tax on oil company revenue derived from sales of oil at more than US$40 per barrel. Windfall profits invested to boost domestic energy supplies would have been exempt from the tax. Revenues collected by the tax would have been rebated to consumers. The motion was defeated.
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