Photo:standox11, Creative Commons, Flickr
As oil prices rise, so does Exxon's budget.
Exxon Mobil (XOM), the world's most profitable oil company, has plans to grow and increase the amount of oil it is capable of pumping. Bloomberg reports on increased spending planned by Exxon:
Spending this year on exploration, production platforms and other so-called upstream operations will rise by about 21 percent to $19 billion, Tillerson said. The company will start 19 projects by the end of 2010 that will add the equivalent of 725,000 barrels of oil, enough to supply 10 percent of the refineries along the U.S. Gulf Coast.
The idea is that, since oil prices are on the rise, profits will increase. Indeed, despite the rising costs of pumping oil (Bloomberg reports that it cost $7.14 in 2007 for Exxon to pump a barrel of oil from the ground — up from 2006's $6.04) Exxon continues to make plenty of money. The increased cost means that budget increases have to be made. Exxon, of course, chooses to spend the money on increased exploration and production, as well as increasing its liquefied natural gas operations.
While some environmentalists and environmentally friendly investors may decry Exxon's disregard for investment in alternative energy sources, there is no denying that Exxon's business model has worked very well in the past, and that its focus on fossil fuels continues to serve it well. Rising oil prices only help the cause. According to Bloomberg, every time oil prices go up by $1 per barrel, Exxon gets another $400 million in each year's after-tax revenue.
Disclosure: I do not invest in XOM.