Oil and ExxonMobil

I recently was emailed a chain-letter attempting to organize a boycott of ExxonMobil gas stations in an attempt to bring down the price of gas. About a week later I ran across a Story on the Drudge Report of a Judge in Bee County, Texas who was trying to rally support for a county wide boycott of ExxonMobil. I am embarassed for this people because they simply have not done their homework. These boycotts will not work nor have they worked in the past and I think the hope that they will work are rooted in some misnomers in the averge person's understanding of how the Oil industry works.

The past two summers I have interned with Houston-based companies in the oil industry which by no means makes me credible but I have learned a couple of things. I learned two interesting things about the oil industry while working for Australian Oil company BHP Billiton last summer. BHP Billiton is huge in Australia and is the largest mining company in the world but their presence in the North American petroleum industry is limited. Most people have never heard of BHP Billiton because most of Oil companie's exposure come from having their names on gas stations. BHP Billiton does not own any gas stations in the US. The reason is because the profit margin on selling barres of oil is much larger than the margin of selling gas at the pump. Gas stations are very competitive with one on nearly every corner and the margins are razor thin.

The second thing I learned is that gas stations are not the same as oil companies even though they often bear the same name. In BHP Billiton's case they didn't have any gas stations so they sold their barrels of oil to the Chevron's, ExxonMobil's, and Shell's of the world so they could process it and sell it at their gas stations. Well it turns out that all barrels of oil are sold on the world market, usually at the New York Mercantile Exchange. So while boycotting ExxonMobil hurts the service station the gas that is still being bought at Shell, Chevron, Valero, BP, etc is still putting money in ExxonMobil's boycott because it was refined from their oil. Because pump margins are so thin from such tight competition gas stations incorporate convenience stores, car washes, service stations, and restaraunts where margins aren't so razor thin.

Oil companies think in terms of price per barrel at the market not price per gallon at the pump. The beast of the money is made in wholesale not retail. With that being said gas stations are a necessary evil despite their thin margins so oil companies still choose to participate at the pump despite the fact that it yields very thin margins. Take ExxonMobil for instance, it's profit on each dollar of revenue is 9.7 cents which is low relative to Google's 23.9 cents, Microsoft's 30.8 cents, and Pfizer's 23.5 cents. Going back to the example of an oil company who doesn't participate at the pump, BHP Billiton's profit margin is 27.4%. Despite having to work harder to turn a profit ExxonMobil went out last year to turn the largest profit, $36.13 billion, in US history. They blew up so big they now rival WalMart in terms of revenue and General Electric in terms of market capitalization.

What I didn't like about working in the oil industry is these companies don't seem to be very slick from a business perspecetive. I'm reading a book right now, The World is Flat, and Thomas Friedman talks about the theory that the more resources you have the less you dig within yourself or your company to innovative and be creative. The oil industry is centered in an over abundance of resources therefore they haven't had to think. In my opinion there is too much free spending on events, dinners with politicians, lobbying, golf, and negotiating with corrupt governments. They could remove a lot of the fat in the form of inefficiencies and make even more of a killing.

Going back to ExxonMobil they have had record success because they have great engineers and great business people but evidently horrible PR people. When people were hurting at the pump after the hurricanes and oil companies were swearing they were not price gouging how did they release an alltime record third quarter profit of over $10 billion. What were they thinking? What did they think the headlines were going to read? Hell buy $100 million dollars worth of oil tankers, donate to charity, do whatever you have to do to keep that profit in the single digits. Then CEO Lee Raymond steps down and they give him a $400 million going away present. Again, what did you think the headlines were going to read? ExxonMobil is an oil company and the largest public corporation in this country. That in combination with the fact that their current name shares the same prefix as the Exxon Valdez spill in Alaska. They are a target for criticism and yet they come out an announce record profits all the while claiming there is no such thing as global warming. Regardless if you are right or wrong about the global warming you are not bringing too many people to your side. ExxonMobil you asked for this boycott.

Another irony involving the oil industry involves environmentalists. These same people who think oil companies and the current administration are corrupt are the people who are fighting for the environment. These high oil/gas prices have slightly decreased demand and will continue to do so and force Americans to rethink energy. It will push Americans to other sources of energy faster thus achieving their goal of getting away from fossil fuels. You can't have it both ways.

The world's first billionaire was oil tycoon John D. Rockerfeller. The world's first Trillionaire will be the man who figures out the next step in the demand for energy.

-hj

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2 Responses to “Oil and ExxonMobil”

  1. francisco M. Adelino Says:

    Dearest,Sir
    Its greatest pleasure to have this opportunity applying for job.
    Iam Francisco Mukono Adelino,iam 27 years old.actually iam student of Computer Engineering in Windhoek-Namibia.As part-time student, however i would like to get job just to support my studies thats why iam schooling as part-time student giving chance to work as well.
    Therefore, i hope your suggestion as soon as possible.
    Best regards
    Francisco M.Adelino

  2. Antibush Says:

    Bush is forever saying that democracies do not invade other countries and start wars. Well, he did just that. He invaded Iraq, started a war, and killed people. What do you think? How does that work in a democracy again? How does being more threatening make us more likeable?Isn’t the country with
    the most weapons the biggest threat to the rest of the world? When one country is the biggest threat to the rest of the world, isn’t that likely to be the most hated country?
    If ever there was ever a time in our nation’s history that called for a change, this is it!
    We have lost friends and influenced no one. No wonder most of the world thinks we suck. Thanks to what george bush has done to our country during the past three years, we do!

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