Unexpectedly Intriguing!
February 3, 2006

We all know how it works. Everyone knows that the oil companies are sticking to the little guy at the pump. Everyone knows that every time the price of a gallon of gas goes up by a penny, it goes straight to the bottom line of "Big Oil." We've all seen the headline where Exxon-Mobil just achieved the highest profit ever recorded for any U.S. company, and that profits are up *HUGE* at all the oil and refining companies. Heck, even U.S. Senator Arlen Specter has made statements to the effect that "'we intend to do something about' rising prices to the consumer," so it must all be true.

But is "Big Oil" really gouging consumers? How can we find out?

Probably the best way to find out is to look at a sample of big oil company earnings (profits) and compare it to their revenues (sales). The companies with the biggest proportion of profits to sales are the ones most likely to be gouging its consumers. The data for the fourth quarter of 2005 for a sampling of ten big oil companies is presented below, and is compared to the financial results of the same quarter in 2004. The data is presented in a dynamic table format, so you can click any of the column headings to sort the data in the table according to that particular statistic.

Selected 2005 4th Quarter Oil Company Profits and Revenues
Company 2005 Earnings (billion $USD) 2005 Revenue (billion $USD) 2005 Profit/ Revenue (%) 2004 Profit (billion $USD) 2004 Revenue (billion $USD) 2004 Profit/ Revenue (%)
Amerada Hess 0.45 7.15 6.3 0.23 4.70 4.9
Burlington Resources 0.93 2.37 39.1 0.40 1.56 25.6
Chevron 4.14 53.80 7.7 3.44 42.70 8.1
ConocoPhillips 3.68 52.20 7.0 2.43 40.10 6.1
Exxon Mobil 10.71 99.70 10.7 8.42 83.40 10.1
Kerr-McGee 0.13 1.76 7.1 0.13 1.39 9.6
Marathon Oil 1.27 17.31 7.3 0.43 14.31 3.0
Sunoco 0.30 9.27 3.2 0.18 7.42 2.4
Tesoro 0.07 4.36 1.6 0.00 3.39 0.0
Valero Energy 1.35 25.89 5.2 0.49 15.39 3.2
Totals 23.02 273.81 8.4 16.14 214.36 7.5

Note: The data in the table above is taken from a variety of recent news reports, and does not reflect one-time financial events (such as the sale of a business division), since these special events would significantly skew the data. Also, we should note that Burlington Resources is in the process of being acquired by ConocoPhillips.

So, the sharp increase in the price of oil from a year ago, has only resulted in profits rising with respect to company revenues by less than 1%, as the profits to sales ratio has increased from 7.5% to 8.4% (at least for this sampling of companies.)

Looking at conveniently available 2005 second quarter data, this increase would put the sampled companies in between the Materials sector (at the low end) and Real Estate (at the high end) among U.S. industries, ranking just ahead of the average of all U.S. industries.

By comparison, consider the profits to sales ratio of the banking sector where, in the second quarter of 2005, the ratio of profits to sales was nearly 20%. Other industries taking more in profits in proportion to their revenues that the sampled oil companies include: Food, Beverage and Tobacco, Telecommunications, Insurance, Consumer Services, Household and Personal Products, Diversified Financials, Semiconductors, Software Producers, and Pharmaceuticals.

It's plain that consumers are paying a lot more for gas at the pump. As for gouging though - it's just not there. Consumers would do well to talk to their bankers first....

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