By CHERYL HALL
Published: February 5, 2006
Reprinted with permission of The Dallas Morning News
CORRECTIONS, CLARIFICATIONS: In Sunday’s Business section, Cheryl Hall’s column incorrectly said that Exxon Mobil Corp.’s $36.1 billion profit for 2005 was nearly half of Texas’ annual economy. It was less than 5 percent of the state’s gross product. (Ran: Tuesday, February 7, 2006)
Back in the 1970s, the words obscene and profits were as closely linked to major oil company earnings as tiny is to newborn.
So when Exxon Mobil Corp. announced $36.1 billion in profit for 2005, the epithet reared its ugly head again.
But is the fact that the Irving-based energy mammoth turned 10 percent of its revenue last year into profit obscene or enviable?
I posed that question to executives, investors, academics and small-business owners.
More power to Exxon, they almost all say.
“It’s not obscene,” says Dallas billionaire Harold Simmons, who does not own Exxon stock. “Microsoft makes about 30 percent on its sales, and nobody’s saying Microsoft should give any money back.
“Exxon isn’t hoarding the money. Salaries are not excessive. It’s a well-run company,” he says. “It’s best to let Exxon keep going, because it’s going to have some bad years ahead, too.”
“Enviable,” says Lyda Hill, president of Hill Development Co. “Oil goes up and down so rapidly that to make a large profit you really have to crunch during the low-profit times to come out even.”
“Our margins are substantially below those,” says Tom Leppert, chairman and chief executive of Dallas-based Turner Corp.
(I’m not sure if that means he’s envious, offended or both.)
True obscenity, says communications specialist Greg Bustin, would be an unprofitable company that can’t deliver more of what we want. “It seems remarkable to me that we can still purchase a gallon of gas for about the same cost as a gallon of milk.”
A few people criticized Exxon for not doing more to hold down consumer prices, but they declined to go on the record. Still others passed altogether on the “opportunity” to comment.
But almost everyone agreed that Exxon earned its earnings - even small business owners being squeezed by higher energy costs.
“I have salespeople who travel by car every day, and I’m paying so much more on gas and electricity for my office space,” says Valerie Freeman, chief executive of Imprimis Group, a Dallas-based placement firm.
“I hope they invest in new technologies that help mitigate the escalating prices.”
Therein lies the problem - for those who see one.
Exxon tried to head off public wrath with full-page advertisements in major newspapers, including The Dallas Morning News. The Irving-based energy company pointed out that it runs itself well, has justifiable profit margins and pays billions in state and federal taxes.
But the ad didn’t explain how Exxon intends to reinvest that $36.1 billion - which equates to nearly half of Texas’ entire annual economy.
“There’s a stunning absence of decent explanations as to what’s going to be done with the profits,” says Richard Hanlon, retired head of investor relations for America Online Inc. and board member of Irving-based Michaels Stores Inc. “So instead of being applauded for future planning, they invite scorn for profiteering. And they’ve only themselves to blame.”
Nanci Mackenzie, a former president of a natural gas trading company, concurs. “Large energy companies need to tackle public perception with a visible plan for reserve replacement and alternative energy development to show that something is being done.
“The public would then be much more tolerant of a situation that they now see simply as greed, she says, then adds, “I only wish I owned more stock.”
I figure since General Motors Corp. and Ford Motor Co. have helped the oil industry for so many years, maybe Exxon could throw a few billion toward some automotive innovations. Exxon shareholders, however, might take serious issue with that.
Here’s more of what the respondents had to say:
Wendy Lopez, chief executive, LopezGarcia Group, a Dallas engineering design and environmental planning firm:
“Maybe it’s time for people to quit driving so much and take mass transit and use energy alternatives. Exxon has had to invest a tremendous amount of money in its business. So if they can get the return on it now, good for them.”
Daniel Short, business school dean, Texas Christian University:
“Obscenity exists in the eyes of the beholder.
“It is difficult to compare a gallon of gas priced at $2.29 with a cup of Starbucks priced at $4.29, and then conclude that the oil companies are earning obscene profits.
“Most businesses are adopting just-in-time inventory methods to minimize the cost of carrying inventory. If oil companies cannot earn profits on their inventories, they too will minimize their inventories. The result would be an increase in spot shortages and gasoline lines.”
Hasan Pirkul, business school dean, University of Texas at Dallas:
“Exxon Mobil didn’t cause the price of oil to reach $70. Naturally, they benefited from this increase, as they should.
“Companies dealing with commodities are subject to cycles. For every year like this one, they have a year where the prices are depressed and they struggle to make money.”
James Gentry, professor at the school of journalism and mass communications, University of Kansas:
“From a PR standpoint, this is tough stuff. It’s an emotional issue for people paying $2.90 a gallon at the pump. The oil companies need to educate people, and that is very hard to do in a sound bite or in front of a publicity-seeking U.S. senator.
“There’s nothing a politician likes more than an easy target.”
Geoffrey Orsak, engineering school dean, Southern Methodist University:
“While the recent profits by companies such as Exxon Mobil might seem excessive, it is important that these companies have the resources to reinvest in developing new oil and gas fields, as well as investing in the development of alternative energy sources. Otherwise our country will be increasingly at the mercy of foreign interests.”
Bob Buford, chairman of the Buford Foundation and Leadership Network:
“George Bush got it right by making the replacement of oil a major national priority. Oil is America’s second deepest addiction - behind only viewing television seven hours a day.
“As Shakespeare said in Julius Caesar, “The problem, dear Brutus, is not in the stars. It is in us.”
Sydney Smith Hicks, senior vice president of corporate strategy, Metavante Corp., a banking software and services company:
“I’d like to see them reinvest those profits to provide new forms of energy.
“They could still make a lot of money. That would be very productive for them and us.”
Dianne Patterson, chief executive of Patterson Property Investments and board member of the Texas Ballet Theater:
“The arts are suffering tremendously. It’s amazing how empty the coffers are. With these kinds of profits, I hope Exxon is being an incredibly good corporate citizen. It better be stepping up to the community plate.”
Copyright 2008 by Greg Bustin & Co., unless otherwise specified. All Rights Reserved.
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