Word: profitability
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Dates: during 1970-1979
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Last week the industry's critics got some powerful new ammunition. Fifteen of the nation's largest oil companies released first-quarter profit figures, and they showed an acceleration of the winter-long earnings surge. Included in the group were six of the so-called Seven Sisters,* the richest and most powerful oil companies in the world, which, more so than their smaller competitors, have huge investments in all four aspects of the business: drilling, transporting, refining and marketing...
...Exxon Corp. (1978 sales: $60.3 billion), reported a gain of 37.4%, to $955 million, by far the most impressive three-month earnings period in the company's history. Recalling the rough treatment that the press gave top management in the winter of 1974, when Exxon announced similarly enormous profit gains during the Arab oil embargo, the company avoided a press conference; instead, it announced the earnings by faceless press release. Chairman Clifton Garvin and President Howard Kauffmann even managed to be out of town on vacations, leaving any explaining to be handled by a monotoned vice president...
...embarrassment of riches comes when oilmen are battling to keep as much as possible of the increased profit that will begin flowing to the industry at the end of the month, when Jimmy Carter starts phasing out domestic crude oil price controls. As a result of controls, the average price of crude in the U.S. is $9.45 per bbl., vs. the world level of $14.55; removing the ceiling will increase oil company revenues by perhaps as much as $ 13 billion over the next 28 months...
...ceilings vary from station to station, some right across the street from each other, because their expenses vary. The price control formula permits dealers to offset the cost of gasoline, the rent on their gas stations, the wages of their employees and other overhead expenses, and still earn a profit. For competitive reasons, dealers normally sell at somewhat less than their maximum allowable prices; drivers shop around for the best prices when supplies are ample. But when a small surplus of oil turns into a modest shortage, companies are forced to cut back on gasoline shipments, and that lets retailers...
...taxes bring the price per barrel up to the cartel rate of $14.55, or 35? per gal. Shipping adds about $1.25 per bbl., or 3? per gal. But the actual cost of the journey is perhaps no more than a few cents a barrel. The difference is the profit for the tanker operators to help cover the expenses of maintaining huge, often idle fleets and sending empty tankers back to the Middle East...