Exxon Mobil is the world's most valuable corporation. With more than $40 billion a year in profits, it is also the most profitable business in history. It would probably surprise most casual observers that Exxon Mobil owes almost all of the attention paid to the company to its tremendous scale. With annual revenues surpassing $400 billion, the company's sub-10% profit margin is hardly awe-inspiring. Even within the context of the global oil business, Exxon Mobil is just a bit player. The company contributes just 3% of the world's oil and 2% of its total energy. Several state petroleum producers are significantly larger than Exxon Mobil. But Exxon Mobil stands alone as the largest American multi-national.
Consequently, Exxon Mobil takes extreme heat in the press for its shady foreign business practices and dodgy human rights record. The Exxon Valdez oil spill still makes headlines years after the US Supreme Court left the company on the hook for $5 billion in punitive damages. Even Exxon Mobil's funding of global warming skeptics needs to be seen in light of the companies American heritage. The state oil monopolies in Saudi Arabia or Venezuela don't need to spend money to alter public opinion, Russia's Gazprom just cuts right through government red tape to open huge new projects. In contrast, Exxon Mobil must fight aggressively just to stay in business.
Yet Exxon Mobil enjoys countervailing advantages that far outweigh these disadvantages. The legal framework in the United States may make doing business difficult, but it also makes it virtually impossible to expropriate profits. For all the concern about a windfall profits tax, Exxon Mobil faces no threat even close to the danger it faces doing business in numerous autocratic nations around the world. Russia and Venezuela simply seize foreign assets at will. At least in the United States, property rights are accorded much more protection.
Exxon Mobil is the world's largest publicly traded oil company. The entire energy sector has been experiencing tremendous growth in recent years and the same regulatory structure that once nearly strangled the industry has now given rise to enormous barriers to increased production. In an ironic twist of fate, current production is now immensely more profitable without any significant increase in the cost of doing business. And regulatory hurdles to new production have made the industry completely impregnable to new competition.
Exxon Mobil is a risky energy play. If any company is going to be held back due to political pressure, that company will surely be Exxon Mobil. Nonetheless, the company stands to profit more than any other company on the planet if current trends continue. Stock symbol XOM is a definite buy. Any investments of fresh capital should be balanced by other investments without significant energy exposure.
Showing posts with label Exxon Mobil. Show all posts
Showing posts with label Exxon Mobil. Show all posts
Monday, June 25, 2007
ConocoPhillips
ConocoPhillips, a Houston, Texas based energy titan, is the second largest oil refiner in the United States. The company's concentration in the United States combined with its worldwide reach makes ConocoPhillips uniquely suited to profit in the coming years.
Yet ConocoPhillips' strengths are by no means a complete assurance of increasing profits. Competition from industry leader Exxon Mobil is unlikely to take the form that most observers are used to. None of the major oil producers has demonstrated any particular ability to influence the price of fuel by anything less drastic than accidentally destroying their facilities. As a consequence, in an environment of constantly increasing demand for energy, all of the major oil companies see their profits curtailed only by their inability to increase production. Unfortunately for the industry as a whole, however, political pressure to reduce gas prices has put most politicians in the position of aggressively opposing large profits for oil companies.
The current situation in the oil industry is one of practically guaranteed profits on a scale previously unimaginable. Unfortunately for American multinationals, there is a substantial risk that the winner of the 2008 Presidential election is going to endorse imposing a windfall profits tax on the industry that effectively destroys the profit potential of the industry.
ConocoPhillips is not the largest oil company in the world, but it is one of the largest. The company is particularly well placed to make substantial refining profits. While ConocoPhillips is perhaps not as favored as industry leader Exxon Mobil, stock symbol COP is a definite hold and a possible buy.
Yet ConocoPhillips' strengths are by no means a complete assurance of increasing profits. Competition from industry leader Exxon Mobil is unlikely to take the form that most observers are used to. None of the major oil producers has demonstrated any particular ability to influence the price of fuel by anything less drastic than accidentally destroying their facilities. As a consequence, in an environment of constantly increasing demand for energy, all of the major oil companies see their profits curtailed only by their inability to increase production. Unfortunately for the industry as a whole, however, political pressure to reduce gas prices has put most politicians in the position of aggressively opposing large profits for oil companies.
The current situation in the oil industry is one of practically guaranteed profits on a scale previously unimaginable. Unfortunately for American multinationals, there is a substantial risk that the winner of the 2008 Presidential election is going to endorse imposing a windfall profits tax on the industry that effectively destroys the profit potential of the industry.
ConocoPhillips is not the largest oil company in the world, but it is one of the largest. The company is particularly well placed to make substantial refining profits. While ConocoPhillips is perhaps not as favored as industry leader Exxon Mobil, stock symbol COP is a definite hold and a possible buy.
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