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Exxon’s Problem of Riches
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Exxon defended its high profits by
saying that it was a reasonable rate of return when compared to other
industries like banking, pharmaceuticals, and real estate. A full-page
ad in the New York Times on January 26, 2006, posted by the American
Petroleum Institute1 (API) contained a chart that showed how many cents
of profit various industries made over the last five years for each
dollar of sales. While the oil and natural gas industry made 5.8 cents
per US$ of sales, banking industry made 17.3 cents per US$ of sales,
pharmaceuticals made 16.2 cents per US$ of sales, and real estate made
10.8 cents per US$ of sales. According to Lee Raymond (Raymond), former
Chairman and CEO of Exxon, these criticisms of Exxon stemmed from a lack
of understanding of the nature of the oil industry. |
He said that a single quarter or a single year was not that significant for the
oil industry as it operated in terms of 10-, 20-, 30-, 40-year cycles.
He felt that levying a windfall profits rebate on energy companies would serve as a disincentive for investment in this industry. Raymond added, “Back in 1998, when prices went down to $10 (per barrel), I don’t recall anyone in Washington calling me up and saying ‘what can we do to help.’ But I didn’t want them to be calling up.
That’s our job. We are in that business. It’s our job to manage the risk. I am not interested in hearing from (politicians) when prices are at $10 and I am not interested in hearing from them when prices are at $40 or $50.”2
Rex Tillerson (Tillerson), Exxon’s new CEO rejected the allegations of price gouging and said that market demand supply dynamics were responsible for high oil prices. He also advised consumers to be efficient in their use of gasoline. Tillerson mentioned that oil companies were investing their profits into new exploration projects and to increase existing refining capacity.
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1) The API is the main U.S. trade association for the oil and natural gas industry, representing more than 400 members involved in all aspects of the industry. It is involved in government relations on behalf of the American oil and natural gas industries.
2) Robert Campbell, “Former Exxon Boss: Critics ‘Don't Understand’ Oil,” www.today.reuters.com, April 19, 2006. |
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