Somewhat sheepishly, Exxon makes $11 billion
Exxon earns $11 billion in first quarter and defends itself against calls to end subsidies
On Thursday April 28, 2011, 6:26 pm EDTNEW YORK (AP) -- Exxon made almost $11 billion and practically apologized for it. ,
Sensing public outrage over gasoline prices that have topped $4 in some states, the company struck a defensive posture Thursday after posting some of its best quarterly financial results ever.
Exxon said it had no control over high oil prices. It said it's one of the biggest taxpayers in the United States. It cast federal subsidies as "legitimate tax provisions" that keep jobs at home, and cast itself as a victim of Washington scapegoating.
"They feel they have to demonize our industry," said Ken Cohen, Exxon's vice president for public affairs.
What's more, the company argued, it doesn't even make that much money selling gasoline.
Exxon's profit of $10.65 billion for the first quarter was its highest since it made $14.83 billion in the third quarter of 2008, a record for a publicly traded company. That was also a time of $4-plus gas.
The first-quarter results were also the best among the big oil companies, which have reported improved results this week.
As oil company profits approach levels of three years ago, when gas prices last spiked in the United States, the industry is fighting a renewed push from President Barack Obama and Democrats to end its $4 billion a year in taxpayer subsidies.
This week, the industry's lobbying group touted the 9.2 million jobs that depend on Big Oil and rolled out a study showing that oil and gas stocks are excellent investments for public pension plans.
Before it even came out with the quarterly results, Exxon pleaded its case on a company blog, saying it was not to blame for high gas prices.
Then Cohen took an unusual step and spoke to reporters after Exxon reported the big profits. He said Exxon pays more taxes than any other company in the Standard & Poor's 500 index -- $59 billion in the United States over the past five years.
After taxes, the company earned $41 billion from U.S. operations during that period.
Drivers and politicians may still need some convincing. Gas costs more than $4 a gallon in eight states and the District of Columbia. The national average is $3.89 and has risen for 37 straight days.
At a time when most people aren't getting raises, gas has risen 81 cents a gallon this year. High gas prices ate into the nation's overall economic growth in the first three months of this year. The economy grew at a 1.8 percent annual rate, slower than the 3.1 percent at the end of last year.
Cohen has a point that Exxon doesn't control the price of oil or gasoline. Oil is traded around the world on public exchanges, and experts point out that the world is consuming more oil now than it did before the recession, raising demand. When oil prices go up at the exchange, Exxon sells oil for more money to refiners and other buyers.
Gasoline is made from oil. So while gas prices can rise and fall based on other factors, like refining problems or natural disasters, they generally go up as oil prices rise on the New York Mercantile Exchange.
Exxon noted that only 6 percent of its profit came from refining and selling gas in the United States. Other parts of its business, like selling oil and natural gas overseas, accounted for much more.
Argus Research analyst Phil Weiss finds that argument reasonable. But oil companies will struggle to win over people as long as they're making billions of dollars every quarter, he said.
"They get these high profits and people get upset. That's what politicians respond to," Weiss said.
House Democratic leader Nancy Pelosi called for a vote on ending taxpayer subsidies to oil companies next week. "There is no reason American taxpayers should subsidize Big Oil's profits," Pelosi said.
The tax provisions at issue include some rules put in place as long ago as 1913 and more recent ones designed to encourage companies to invest in the United States.
For instance, a 2004 rule that gives oil and other companies a special deduction for their U.S. operations could save the oil industry $18.2 billion over 10 years. A rule that allows faster depreciation of the value of oil and gas wells could save independent companies -- those that only explore and produce oil but don't refine it -- about $11 billon over a decade.
Exxon officials said it would be unfair for Obama to end oil subsidies while keeping similar incentives for renewable energy. The Obama administration and clean energy advocates argue that profitable companies do not need special tax treatment while newer industries deserve breaks until they can establish themselves.
It's not likely, though, that Exxon would give up its subsidies if the government also removed them for solar, wind and other renewables.
"Getting into trade-offs is not really helpful," Exxon Vice President Bill Colton said.
Environmental groups say the industry needs no taxpayer help.
"Why does an industry that makes this much money need $4 billion in tax subsidies?" asked Bob Keefe, spokesman for the Natural Resources Defense Council. "Why can't we use that tax money to improve and expand other alternatives, increase vehicle efficiency, better public transportation that would reduce our dependence on oil?"
Exxon counters that the government shouldn't decide which energy companies succeed and which fail. Whichever fuel source "produces the biggest bang for the buck for the consumer" will be the one the market settles on, Cohen said.
The main reason the industry is doing well is that oil prices were up 20 percent from the same period last year. Exxon's profit was 69 percent higher than the $6.3 billion it earned a year earlier. Revenue increased 26 percent, to $114 billion.
The rise in oil prices allowed Exxon to make more money despite producing 3 percent less oil overseas, about 2 million barrels per day, partly because of storms in the Middle East. Exxon sold crude in international markets for about $101 a barrel, up 36 percent from a year ago. In the U.S., Exxon sold oil for about $93 per barrel, up 27 percent from a year ago.
Exxon's per-share earnings of $2.14 beat Wall Street estimates by 10 cents, but oil industry stocks fell anyway because investors fear that demand for gas, which has fallen over the past month compared with last year, will keep dropping in the United States.
Exxon Mobil Corp. shares lost 94 cents to $86.84 in afternoon trading.
The company has increasingly focused on producing natural gas, which it expects to replace coal as the second most important fuel source after petroleum within the next decade. Last year it acquired XTO Energy to become the largest U.S. natural gas producer.