It would be nice if, in today’s world, ethical practices, including environmentally friendly practices, meant high profits. But in the case of Exxon Mobile (XOM), the biggest of big oil companies, the opposite is true. Last year saw record profits for the company and, with the way oil demand is moving, Exxon is likely to continue its move toward increased profits. What is behind this move could possibly be its insistence on breaking step with other big oil companies. CNN Money explains:
The basic model for managing an oil company in this eco-conscious age became clear a few years ago when Britain's BP (BP) loudly declared itself to be "beyond petroleum." The other supermajors are all proclaiming their greenness and investing in biofuels, wind power and solar power. Exxon isn't. It only recently acknowledged publicly that – brace yourself – the world is warming. Beyond petroleum? At Exxon it's all petroleum.
Exxon Mobile isn’t interested in behaving in what is considered an ethical way toward the environment, it is interested in wringing as much as it can from oil it pumps for less than $1 per barrel. And with the current geopolitical climate and demand likely to increase (even as supply decreases), big oil still has plenty of chips to cash in at the oil table.
Right now, the emergency stash of oil (called spare capacity) that OPEC has is less than 2 million barrels, as compared to 15 million barrels 20 years ago. And, with China and India developing middle classes that will want to drive cars, and industries that need energy, the spare capacity can only shrink. Which means big oil profits can only go up.
But there is a silver lining for those interested in making money while investing in companies that are more eco-friendly. You may not be getting in on a company that enjoys 17.6 percent returns on capital, but you can still get decent returns by investing in companies like BP and Chevron (CVX). These companies have been getting decent returns and adding market value this year. And they offer diversification in terms of the way they invest in alternative energy, such as biofuels and wind and solar power.
It may not be completely green, but striking a compromise with big oil can help your investment portfolio for now.
Disclaimer: All investment carries the risk of loss. I am not am investment professional, and it is important for you to do your own research before making investment decisions. I only offer amateur investment insight into opportunities I see. It is important for you to consult an investment professional before buying or selling any security.
Disclosure: I do not any shares of the above companies, although I am considering adding BP shares to my portfolio.