Big Oil executives try to explain their record profits — and compensation — as gas prices soar.
Quarter 1 was a rather good quarter for Big Oil. I mean, even though Exxon’s (XOM) earnings were "disappointing," the company still made a profit of around $10 billion. Combined, Exxon, Shell (RDS-B), Chevron (CVX), BP (BP) and ConocoPhilips (COP) raked in a $36 billion profit in the first quarter of 2008. All this while complaining about how much increasing oil prices cut into their overhead. Doesn’t seem to matter that much. If you’re still making that huge of a profit, you’re obviously passing costs on. Maybe even adding to them?
So, when called before members of Congress for the second time in as many months, the Big Oil execs, of course, made the usually complaints: Not enough offshore drilling for us, realities of supply and demand, lack of spare production capacity and worries that Congress will tax them more. And yet, with all of this, profits are soaring — right along with executive compensation. The Associated Press reports on pay for Big Oil executives:
Simon was asked what his total compensation was at Exxon, a company that made $40.6 billion last year. Simon replied it was $12.5 million.
John Lowe, executive vice president of ConocoPhillips Co., said he didn’t recall his total compensations. So did Peter Robertson, vice chairman of Chevron Corp. Hofmeister said his was ‘about $2.2 million’ but was not among the top five salaries at his company’s international parent. Robert Malone, chairman of BP America Inc., put his ‘in excess of $2 million.’
Apparently they aren’t going to have to worry about the cost of gas. XOM is safely above $90 a share again, and CVX has breached $100. BP is above $75 a share, when not too long ago the company would have been happy with $65 a share. And the executives are generously compensated.
The oil executives can talk about how they are trying to put "downward pressure" on gas prices. They can also continue their mantra about how they are really just among the helpless victims of global supply strains and greedy speculators driving up oil prices. But the truth is that none of this is hurting them. Honestly, if they really wanted to, Big Oil companies could absorb some of the costs. What if they were magnanimous and decided that between the five of them they only needed $15 billion in profits during the next quarter? After so many quarters of making sure that they have reserves for unprofitable time (whenever that might be), they should have quite a bit of capital available.
Drilling ANWR won’t help. Neither will more offshore drilling. It will take too long to get anything out of such places. The changes wouldn’t affect Big Oil’s bottom line until we’ve acclimated to the higher oil prices; all it will do is result in even more profits for Big Oil, as their costs decrease (and we pay the same amount). What we need to do is focus on the future, moving away from our dependence on oil. Sure, it won’t change things much for now. But it will pay big dividends down the road.
Big Oil doesn’t really have an incentive to do anything differently. (What are we going to use instead?) Without an alternative to oil, we are at its mercy.
Diclosure: I do not own any Big Oil stock.