In the news… Exxon again

Exxon Mobile is in the news again, as they released more information on their 2005 financial results. This one is interesting: in 2005 Exxon spent more money buying back stock than exploring for oil. So is investing in Exxon a better bet than investing in oil? Hmmm. Meanwhile, Exxon is not taking the bad publicity sitting down. They’ve been running full page ads saying, in effect, hey, other industries are better at making money than oil! Look at pharmaceuticals. Banking. Software. All higher margin. But none of these industries are selling commodity items. They are service or high tech (where the value comes from knowledge, not from the value of the raw materials). Commodity businesses, in a free and open economy, are supposed to be low margin. So why isn’t oil?
But the comparison to the drug industry is interesting. Drug companies spend far more money winning, dinning, and effectively paying doctors to prescribe their drugs than they do researching new ones. Here is why such behavior is similar to the oil companies. Taxpayers are asked to subsidize two of the worlds most profitable industries – oil and drugs – through massive tax breaks, below market rate (or free) royalties on government property (government land for drilling, government patents for drugs, etc.), relief from environmental regulations, and numerous measures to protect these industries from competition. Why? We are told that these subsidies are needed to promote oil exploration and drug research. Really? At cursory examination of the financials of these two industries shows how ridiculous that assertion is.
Company profits are good. Big company profits are even better. But profit gained by the subversion of a free market just means the consumer is in for a soaking. Fill-er-up.

3 thoughts on “In the news… Exxon again”

  1. I have no problem with companies making a profit so long as they are also covering their REAL expenses. An example of NOT paying for "business expenses" would be getting the government to "persuade" foreign governments to "grant" pipeline and/or drilling rights, etc. via the use of US military forces. Should Exxon pay, say 2/3 their net profit, to subsidize the men and women of our fine military who gave their lives, limbs and sanity to fight in the Middle East? Even the Mafia pays for its own strongmen and the cost of doing business.

    In regard to drug companies … the most eggregious abuse of the US, EU and International Patent systems ever seen is when drug companies can file a reformulation patent to cover a drug that has been in the market for over its 18 year patent period. I know of no other industry grants such rights, excepting Disney and musicians.


  2. Which is higher margin, finding new oil (in a world where Saudi crude costs <$2 at the wellhead) or manipulating Wall Street and the public? This is the 21st century, after all!

    I am investing in credulity futures.

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