February 02, 2008 – Business Ethics Article

Exxon Mobil and 2007: Record Profits

Oil companies like Chevron and Royal Dutch Shell reported strong profits in 2007. Chevron, the second-largest American oil company, reported profits of $18.7 billion (increase by 9 percent compared to last year). Royal Dutch Shell reported the best figure ever for a British company when its net income rose by 23 percent to $31 billion. Most oil companies, benefited from a near doubling of oil prices. In early January, the cost of crude oil passed the $100-a-barrel mark for the first time and has stayed above $90 for most of the time since then.

Exxon Mobil’s net income increased by 3 percent to $40.6 billion and sales figure was more than $404 billion. The fourth quarter of 2007 was the most profitable quarter ever in its history with net income increasing by 4 percent, to $11.7 billion. Revenue for the fourth quarter increased 30% to $116.6 billion. Exxon Mobil beat its own record for the highest profits ever recorded by any company to become the world’s most profitable publicly traded corporation.

But the main question is, Will Exxon Mobil face controversy again like it did last time in 2005, when it reported highest quarterly profits in the corporate history of the US. Already, the Foundation for Taxpayer and Consumer Rights, has called the profits unjustifiable and at the cost of an economy tipping into recession.

History of Exxon Mobil Corporation

In 1870, John D. Rockefeller (Rockefeller) along with his associates formed Standard Oil. In about 40 years time period, Rockefell went on to become the richest man in the world after he built Standard Oil into one of the largest integrated oil producing, refining, and marketing organizations in the world. However, US politicians and journalists accused Standard Oil of monopolistic practices and stifling competition. In 1911, after a US Supreme Court ruling Standard Oil Trust was dissolved into 34 separate companies.

Two of the thirty four companies formed by the dissolution, Jersey Standard and Socony went on to become Exxon and Mobil respectively.

In 1999, Mobil Corporation became a wholly-owned subsidiary of Exxon Corporation, and Exxon changed its name to Exxon Mobil Corporation.

Fourth Quarter 2005 – Record profits and Controversies

In 2005 (fourth Quarter), Exxon Mobil recorded profits of US$ 10.71 billion. This was the highest ever quarterly profits in the corporate history of the US. However, with rising oil prices there were problems. A few US policy makers and consumer activist groups accused Exxon Mobil of price gouging (pricing above the market when no alternative retailer is available) and corporate greed. In May 2006, the US House of Representatives passed a price gouging bill that would penalize any oil company found guilty of price gouging with penalties of up to US$ 150 million.

Even environmental activist groups were unhappy with the Exxon’s Valdez oil spill and oil drilling in the Arctic National Wildlife Refuge. In March 1989, Exxon Valdez, the oil tanker owned by Exxon, had caused major ecological and financial damage when it spilled 11 million gallons of crude oil in the Alaskan region.

Exxon Mobil maintained that though the rise in prices helped record profits, its ability to complete projects on time as well as keeping its costs in check was also a main contributing factor. The oil industry and American Petroleum Institute (API) too defended Exxon’s record profits. An advertisement in the media by API stated that the profitability of America’s oil and natural gas industry was far less than many other major industries, like banks, pharmaceuticals and real estate on an average in the past five years. And the US$ 10.7 billion fourth quarter profits of Exxon was a reasonable rate of return.

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Business Ethics, Chevron, Exxon Mobil, Oil Companies, Scams and Controversies