Oil Company Profits

Oil GusherSome are claiming the oil companies profits are 29¢, 58¢, or $1.16 per gallon. Using more correct numbers, the answer is closer to 3.78¢ or 7.57¢ or 15.14¢ per gallon.

Being Robbed At The Gas Pump

Every time that I go to the gas pump, I know someone is financially raping me. The question is “Who?” The Democrats and others want me to believe it’s the oil companies, but they take one or two basic facts (Exxon’s world wide profits and number of gallons of gasoline pumped in the US), make up a bunch of other numbers, do a lot of hand waving, and come up with a wild eyed guess at profit per gallon that is completely wrong.

The Wrong Way to Calculate Profits Per Gallon

The standard wrong way to calculate Exxon’s profit per gallon is to take their world wide profits from all operations and attribute it all to gasoline pumped in the United States and then multiply it by a fudge factor to represent Exxon’s US market share.

This approach gives you the wrong profit per gallon ranging anywhere from 29¢ to 58¢ to $1.16 depending on what your market share fudge factor is.

Their Method With More Correct Numbers

The first step is to find actual numbers. Exxon’s 2007 Financial and Operating Review filed with the SEC contains relevant information on Exxon’s financials and operations (hmmm, maybe that’s why it’s called Financial and Operating Review).

This document is cleverly hidden on the Exxon website under “About our Company” and then “investor”.

Only Petroleum Profits from the US

Others are using the total, world-wide Exxon profits, but what are the profits off of just petroleum profits in the US? Looking at net income (profit) from page 12 (in millions of dollars) we have:

Upstream (exploration, development, production, and marketing of gas and power)
United States 4,870
Non-U.S. 21,627
Total 26.497

Downstream (refining and marketing of petroleum products such as motor fuels and lubricants)
United States 4,120
Non-U.S. 5,453
Total 9,573

Chemical
United States 1,181
Non-U.S. 3,382
Total 4,563

Corporate & Finance (23)

Net income 40,610

What does this tell us? First, instead of using $40.610 billion for annual profits (or $11.660 billion for Q4 profits), we should be using $8.990 b for annual (or $1.897 b for Q4). This factors out non-US profits and only looks at upstream and downstream profits.

What it doesn’t tell us is what profit per product line. Upstream and downstream products include motor gasoline (which is what we care about), naphthas, heating oils, kerosene, diesel oil, aviation fuels, heavy fuels, lubricants, and other petroleum products.

Petroleum Product Line Breakout

Page 82 of the report (84 of the PDF) tell us that motor gasoline and naphthas account for roughly 59% of Exxon’s petroleum product sales in the United States.

United States
Motor gasoline, naphthas 1,601
heating oils, kerosene, diesel oils 470
Aviation fuels 235
Heavy fuels 121
Lubricants, speciality, and other petroleum products 290

Total United States 2,717

1601 / 2717 = .5893 or roughly 59%

I can’t find this without some hand waving (and I hate to do this), but assuming a constant profit margin across product lines [yes, I know, this is a bad assumption — do you have a better one?], we need to reduce the profit by over 41% in order to look at just the profit for gasoline (and naphthas, I don’t know how to factor out that number either). This gives us $5.30 b annual profit on gasoline (or $1.12 b for Q4).

Putting It All Together

This shows that that the people doing it wrong started with a stated profit that is 766% (40.610/5.3) higher than it should be using annual numbers or 1041% (11.66 / 1.12) if they are using Q4 2007 numbers. Suddenly their 29¢ or 58¢ or $1.16 profit per gallon changes to 3.78¢ or 7.57¢ or 15.14¢ per gallon (or 2.79¢, 5.57¢, or 11.14¢ if using quarterly numbers).

Taxes: Where We’re Really Being Raped

Taxes At The Pump

I swung by the gas station this morning to double check my memory on taxes at the pump. Unfortunately, the station that I picked didn’t have them posted (hmmm, is that legal?). Anyway, from memory, the federal taxes per gallon are 18.1¢ and the California taxes per gallon are right around 18¢ as well. (According to EIA federal taxes are 18.4¢ per gallon.)

This means that the direct federal tax on gasoline is higher than the oil companies profits. California’s direct tax on gasoline is higher than the oil companies profits.

Exxon’s Taxes

Searching for the taxes that Exxon pays we find on page 16 (PDF page 18):

    • $31.729 billion in sales-based taxes
    • $40.953 billion in “other taxes and duties”
    • $29.864 billion income taxes

Adding this up we have Exxon paying $102.546 billion in taxes in 2007. They make $40.610 billion in profit. Governments are making over 2.5 times the money off of Exxon’s efforts than Exxon is!!

Exxon 2007 Taxes versus Profits

So, yes. We are being raped at the pump. But not by the oil companies, but by the government.

Late Addition: More Direct Calculation

I started this by looking at the calculations that others were doing and realizing that they were wrong (by essentially attributing all the profits from all products world wide to just gasoline in the US). I set out to use their framework (which I don’t trust, but it’s what I had) but plugging in more correct numbers (looking at only profit from gasoline in the US).

Since writing up the above, I found page 68 (PDF 70) that contains the Downstream statistical recap.

Downstream Statistical Recap

The Downstream Statistical Recap has the following chart (page 68):

Earnings (millions of dollars) 9,573
Refinery throughput (thousands of barrels per day) 5,571
Petroleum product sales (thousands of barrels per day) 7,099

From here, we can calculate:

    • Earnings as thousands per day as $26,227.397 ( 9573 / 365 * 1000 )
    • Thousands of gallons per day: 298,158 ( 7099 * 42 )
    • Earnings per gallon: $0.088 ( $26,227 / 298,158 )

So, from the refinement of crude, Exxon’s world-wide average profit is 8.8¢ per gallon.

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5 Responses to Oil Company Profits

  1. Mike Harmon says:

    I found your blog on google and read a few of your other posts. I just added you to my Google News Reader. Keep up the good work. Look forward to reading more from you in the future.

  2. […] than the 10% overall profit I cited earlier? Part of the answer is that their U.S. operation is less profitable than their international sales, and they have other branches of production, such as chemicals, that […]

  3. I was questioned abt the sign I had posted with taxes per gallon; profit per gallon per oil company but I am glad you are asking. Facts are facts and there are amny web sites independent from oil companies! Per gallon there is a fed tax which is 18.4 cents a gallon, then state tax that can be from 15 cents in KY to 31.9 in NY and even higher other states. Profits generally agreed on by Independent web sites from oil co is 7cents a gallon. Now don’t forget city and local taxes. Facts are facts! Next time you fill up decide if you think you want to be taxed more at the pump or any where!

  4. Baron says:

    You are not taking into account the thousands of capped oil and gas wells that are not producing, which would eliminate our dependency on foreign oil, and lower prices astronomically. Who is raping whom? The oil companies manipulate the market and thus, the world’s politics to suit themselves, so I say, they are the ones raping the world.

    • poorworkingstiff says:

      Given the recent fracking that has taken place by the oil companies on private land (without the will or consent of the Obama administration), I think your comments against the oil companies are misguided.

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