Big Oil? Big Deal.

When comparing the revenue to profit percentages of companies, a solid number for big industry, and an attractive number for investors, is around 10%.  That is to say, 10% of the gross revenue ends up in the investor’s pockets every year.  That’s a pretty typical number, and if you go searching for a productive investment in the fund market (like, say, you’re placing monies in your 401k), a typical aggressive strategy is to look for funds that are earning more than 10% (more like 15% to 25%) per year.  There are many of these types of funds, and even though some years they don’t perform that well, they do over a several year period.

Which brings us to the oil industry.

[I]n 2004 Exxon Mobil earned more money -- $25.33 billion -- than any other company on the Fortune 500 list of largest corporations. But by another measure of profitability, gross profit margin, it ranked No. 127.

That’s about 9.9% profit.  By contrast, Apple (makers of Mac and IPOD) reported a 14.3% profit in the first fiscal quarter of 2007 (which is actually Oct-Dec).  Marlboro parent Altria Group made a 22% profit in 2004.  Get it?  Oil companies don’t make excessive profit, but the oil industry has a dark shroud cast over it because of the environmental movement over the past few decades.  Oil is also seen in the light of billionaires around the world, like many Arab kings and princes, who grow rich while their people in the third world countries where the oil is drilled, remain poor and/or oppressed.

But the owners of “big oil” in the united states happen to be shareholders, and while there are some shareholders who own significant amounts and make lots of money from those amounts, there are thousands upon thousands who own small chunks as a part of an investment portfolio, like my 401k retirement plan.  The CEO at any company, including Exxon, has as his/her job description to make as much profit as they can for me, the stock holder.

And if drilling oil and refining it here in the U.S. becomes prohibitive, then they will use more imported oil, which is slightly cheaper to produce.  Which would increase our dependence on foreign oil.

Now we as a country have been talking and thinking of ways to circumvent that unhappy possibility for a while now, but it’s slow in coming, and oil is still the most efficient and inexpensive fuel we have. 

One of the reasons that we have oil exploration and production here in the U.S. is because of tax breaks that the oil companies can use to reduce their operating costs domestically (taxes are considered part of operating costs when determining profit).  However, in a bid to accelerate the development of alternative fuels, the House of Reps passed a bill rolling back billions of dollars worth of oil industry tax breaks and enacting new fees, like a conservation fee for off-shore drilling.

The bill is all about the assumption that the oil industry make too much money, and we can rake some of that in for the government to play with as they choose.  In this case an altruistic motive of research to reduce our need for oil.  Never mind that congress is imposing a tax for monies to be used in creating products that will destroy the oil industry.  The phantom here is that, once again, we’re supposed to buy into this because the government is just taking money from a bloated corporation that makes too much money anyway.

So the industry is expected to produce another $15 billion for the Feds.  Where does the congressional leadership expect this money to come from?

Just where do the think that $15 billion will come from? Reduced oil company profits? Not a chance: company managers are ethically bound to maximize profits for their shareholders. CEOs who deliberately decline to do so get fired, and should be. No CEO of any kind of company would fail to pass on to the consumer the cost of increased corporate taxes as much as possible. This supposed $15 billion windfall (why is it okay for the feds to get a windfall but not private businesses?) will come from the only place all taxes can possibly come from in a free-market economy: the pockets of consumers, you and me. "Corporate taxes" is a myth, a piece of bookkeeping legerdemain . All taxes in America, of whatever nature or name, all always really paid by consumers. Why? Because that's where the money is.

So in effect we’re just hitting the consumer again.  Corporate taxes are a chimera, designed to enrich government coffers and allow congressmen to pork away for the benefit of their benefactors while making them look like working-class heroes.

Lets lay it down on the table for sure.  I’m not exactly FOR industry subsidies in general, and it’s arguable that it was never a good thing to have them applied to the domestic oil industry.  But there are plenty of industries that get breaks from the government, and to single out the oil industry because it’s an easier political target is pretty crude.

(get it?  Crude?  Oh, never mind.)