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Tracking all that oil money
San Francisco Chronicle


February 07, 2006

Say you're an international oil company making more money than the gross domestic product of Latvia.

What do you do with all that cash?

More likely than not, you're going to shower billions of it on your stockholders. You'll build up your own cash stockpile, just in case you want to buy one of your smaller peers. And you'll pump billions more into finding enough oil to replace all the barrels you've sold.




Buoyed by crude prices that refuse to drop, America's largest oil firms have reported record earnings in recent weeks. The jaw-dropping numbers - almost $371 billion in annual revenue for Exxon Mobil, with $36.1 billion in profit - prompted howls of protest from politicians and consumer advocates incensed by the high price of gasoline.

Most of the attention has focused on how the firms make their profits. But with so much money flowing in the door, how are the companies spending it?

- Keeping the stockholders happy. A look through the annual reports of America's three largest oil firms - Exxon Mobil, Chevron and ConocoPhillips - shows one obvious beneficiary. Any investor with a lot of oil company stock had a very good 2005.

Exxon spent $23.2 billion on its shareholders last year. It wasn't all dividends - some of that figure includes money the company spent to buy back its own shares as a way to increase the outstanding stock's value - but it represented a 56 percent increase from the year before.

Chevron shareholders received about $6.8 billion by the same measure, while Conoco investors got $3.56 billion. And shares in all three firms increased in value during 2005.

- Finding more oil. With their profits now soaring, oil firms are pouring money into the hunt for more oil, as well as maintaining their billions of dollars' worth of pumps, pipelines and refineries across the globe. For years, exploration spending remained relatively flat, even though many companies were having a hard time finding enough new oil to replace what they sold.

"The industry wasn't 100 percent convinced that prices would stay high," said Amy Myers Jaffe, an energy fellow at Rice University's Baker Institute. "We're just now at the point where they're starting to spend more."

All three of America's largest petroleum companies last year substantially raised the amount they spent on equipment and the hunt for more oil. For Exxon, it totaled $17.7 billion, up 19 percent from the year before. Chevron of San Ramon spent $11.1 billion, a 33.7 percent jump (that doesn't include Chevron's high-profile acquisition of Unocal, which was driven by the need for more oil and natural gas reserves). And Conoco spent $11.6 billion, rising 22.4 percent from 2004.

- Saving some for later. You don't have to spend cash, after all. Some of it could prove quite handy in case you want to buy a rival or just don't trust that the flush times will last.

Conoco's cash stockpile grew 59.6 percent in 2005 to $2.2 billion. Chevron's rose by $752 million to top $10 billion. Exxon's cash was not included on its earnings release.

Often when companies accumulate large amounts of cash, stockholders start clamoring for more. But analyst Jeb Armstrong with Argus Research doubts that will happen with the oil firms.

"As long as the stocks themselves continue to appreciate, I don't think shareholders are going to complain," he said.

- Paying the Man. Last year, Exxon Mobil's total taxes passed $98.6 billion, according to the company's financial statements. Chevron's hit $31.9 billion, and Conoco's were $28.3 billion.

Although the idea faces stiff resistance from the industry and the White House, some politicians and consumer advocates want a windfall tax imposed on oil company profits or at least the industry's tax breaks from last year repealed. Tyson Slocum, director of the energy program at the Public Citizen lobbying group, said the money would help pay for research into new fuels to replace oil, the kind of research President Bush touted in his State of the Union speech.

"You're talking about billions of dollars," he said. "I think it's only reasonable in an era of federal budget deficits that an industry making billions of dollars pay some of that."

- Paying the boss. Oil firm chief executive officers were well compensated in 2005, according to the Forbes magazine annual list of top-paid CEOs. Exxon CEO Lee Raymond, who retired at the end of last year, made about $25.8 million, according to Forbes. James Mulva of Conoco made about $16.8 million, while Chevron's David O'Reilly made roughly $8.2 million.

Those incomes, however, weren't high enough to make the top of the Forbes list. Raymond, for example, ranked No. 44.

- Politics. The oil industry has long been famed for its lobbying clout. As an industry, it spent about $25.7 million on political donations in the 2004 election cycle, according to the Center for Responsive Politics. Exxon gave $935,016, Chevron gave $499,242 and Conoco $372,828. All three gave more than 80 percent of their donations to Republicans.

Note, however, that the oil industry isn't Washington's top contributor. By the center's tally, it ranks No. 16, behind lawyers, doctors and real estate agents.


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