Gusher of Profits Not All Good News for Oil Giants

Exxon Mobil Corp.'s report that its first-quarter earnings surged 69% may be well-received by its shareholders but consumer advocates and politicians with an eye on next year's election are not so enthused.

Exxon Mobil reported earnings of $10.65 billion, or $2.14 per share. That followed similar robust reports from Shell, ConocoPhillips and BP. Chevron reports its earnings tomorrow.

The news came at a somewhat sensitive time, just as Wal-Mart CEO Mike Duke said shoppers are

running out of money and buying less as their family budgets are depleted by higher gas and food prices – and just as the U.S. Commerce Department said economic growth slowed more than expected in the first quarter, to 1.8%, sharply below the previous quarter's 3.1%.

Higher oil prices, strong refining margins and higher production contributed to Exxon Mobil's earnings. And that, said Public Citizen president Robert Weissman, is the problem.

"Prices at the gas pump are jumping, even though the cost of drilling hasn't changed for the giant integrated firms. Big Oil is able to pocket the difference – at the direct expense of consumers," Weissman said.

While stellar, Exxon Mobil's first quarter results were $4 billion less than its record profit of $14.8 billion in the third quarter of 2008. But not to worry. If oil prices continue to climb, the company could see bigger earnings down the road, said Oppenheimer & Co. analyst Fadel Gheit in aWall Street Journalreport.

Windfall profits

That's a prospect not likely to bring a smile to Weissman's face.

"There is an obvious response to the windfall profits: a windfall profits tax," Weissman said. "The government should tax the windfall profits of the oil giants, and invest the money in renewable energy programs, so that we reduce our dependence on oil and dirty energy."

The problem with all of this, as former Shell Oil President John Hoffmeister sees it, is that the hyper-partisan debate over climate change and just about everything else is making it impossible to have a serious, rational discussion about energy.

Hoffmeister has been warning since last year that gas prices are likely to hit a nationwide average of $5 a gallon by the 2012 election, if not long before, increasing the likelihood that both political parties will propose draconian measures intended to win short-term arguments but doing little to improve the country's long-term energy problems.

Right on cue, Rep. Ed Markey (D-Mass.) called for the repeal of $4 billion in annual tax breaks for oil producers.

"When BP makes billions in profits, even after the year they just had, you know it's time to cap the gusher of tax breaks that have been subsidizing the biggest oil companies for decades," Markey said.

Speaking to financial managers in San Antonio, Gregory Valliere, chief political strategist at the Potomac Research group in Washington, said the oil industry "has to worry" about Congress eliminating tax breaks for the oil industry.

Besides helping to quell voters' anger at the oil giants, eliminating the tax breaks could save $46 billion over ten years – "which is real money," as Valliere put it.