In this report we are going to compare the market value of Exxon Mobil with its book value. Market value will help to know whether the company is making profit or not. We will also discuss whether the terms with Iran and higher demand for oil from China and India effects Exxon's profits or not. The purchasing of stock is effective or it is giving a loss? The effect of oil taxes and duties on Exxon?
Book value is the value of all assets less all the debts and liabilities. Book value differs from market price. Book value can be determined from the company's records. The book value of a company is its base liquidation value. While, the market value is the lowest price a seller would accept and the highest price that a buyer would pay on property.
When prices first started to escalate the public was informed that it was due to the weather conditions that were affecting the refineries that were located along the gulf coast. Due to an especially turbulent hurricane and tropical storm season this year. The refineries were supposed to be shut down to better prepare for the impact of the storms and to preserve the refineries. Shuttling down the refineries limited the gas supply to the public.
Limited oil supplies being processed through the refineries contributed to the rise in gasoline prices and the long lines at gasoline stations across the nation. Along with the inconvience of stations closing because they were out of gasoline. In the states with a mass transit system people had alternative options to driving their cars to get around. In the southern states where there are limited to no mass transit systems people had to accept the rise in costs and deal with the inconvenience. In urban cities it affected the cab and livery drivers who make their living driving. The price of gasoline rising cut into their income with no immediate way to compensate for the increase they had to adjust to it.
During the time when the gulf coast was preparing for hurricane Katrina that hit New Orleans and surrounding areas the shortage in the gasoline supply made it harder for people to move their belongings and leave the area. The shortage of gasoline affected the evacuation of Galveston but not to the same degree of New Orleans. People unable to fill their gas tanks were able to board transporter buses to safely transport them out of the storms path.
The gasoline prices and the conditions at the gasoline stations brought back memories for many Americans, memories of the gasoline shortages in the middle 1970's. The long lines and the prices being at an all time high were distinctive of inflationary times. The media brought all of these thoughts to the front position by showing what the situation looked like in the 70's. None one wants those inflationary times to return. This situation was sure to get and keep the attention of economists watching the market for any additional sudden changes.
The conditions were not liked but they were tolerated because the general thought was that it was for the greater good. These thoughts have since been reevaluated when the five biggest oil companies announced their quarterly profits earned during the time people thought were preserving the oil for gasoline. 3The five companies - Exxon Mobil, Chevron, Conoco Phillips, BP and Royal Dutch/Shell reported total earnings last quarter of nearly $33 billion. (Willis, 1998) This report sparked some concerns in the nation's capital Washington DC. Congress decided to form a congressional hearing to look into the profits the companies made. Democrats and republicans voiced their concerns over the profits reported.
The congressional panels wanted to know were the Exxon's price gouging or were they justified in their prices. The public however have expressed that they feel the high prices were part of a plan for price gouging. The public does not want to accept the fact that these profits made by the Exxon Mobil were purely accidental. Most of the working class has stated that Exxon saw an opportunity and took advantage of the weather situations, using the gulf storm season as a cover story. The working classes who struggle to make ends meet feel they have been used once again by big business.
The average middle to lower class working person complained about struggling with accommodated the higher gasoline prices. Now with the change in season the eastern sections of the nation are contending with higher home heating oil bills. Most Americans want to know how they are going to be compensated for there financial unconvinced. The gasoline prices have come down but not enough to make the average person to feel vindicated.
During the congressional hearing Senator Peter V. Domenic, Republican of New Mexico, stated 1"My constituents think someone rigged the price and someone -them- is getting ripped off." Carl Hulse (2005) No executives were sworn in at the congressional hearings. This hearing was supposed to be an informal forum for the five major oil companies to explain there profits. The nation wanted and needed to know that this was not part of a big conspiracy plan. The oil companies simply stated that oil is a commodity and commodities go up and down. This just happens to be the up side of the market.
Most democrats were not satisfied with the replies from the oil companies. The oil companies held steady to the fact of the profits were not intentional. The democrats wanted to know what strategy of compensation did the oil companies have planned for the public. Exxon Mobil offered to add more money to its advertising budget to inform the public of conserving oil and gasoline. 4 The oil executives suggested that to eliminate high prices of gasoline in the future the government should reduce regulations on off shore oil and natural gas exploration. The suggestion leads one to believe that maybe the price gouging was part of a bigger plan. (Welles, 1999)
The Federal Trade Commission will hold a hearing to investigate the price gouging and profits of the Exxon Mobil. 2Unlike the congressional hearing the oil executives will be subpoenaed to appear. They will also be testifying under oath in regards to the charges of price gouging. This hearing will be in an official capacity and could lead to some stern fines and new regulations. (Lofthouse, 2001)
Congress is currently debating on how to deter this situation from happening in future again. One thought being discussed is imposing a windfall tax on Exxon Mobil. The money collected from this tax would be funneled back to the middle and lower class to help compensate them with their heating bills.
There are discussions concerning a price gouging law. These laws would keep a close watch on the oil industry in the hopes of preventing this episode from reoccurring in the future. Someone needs to police big business from taking advantage of the average citizen. There should be some type of ramification for their actions. Exxon Mobil should not be able to say that these profits were purely unintentional. We wish that all of big business national and international business would appreciate to unintentionally make with 33 billion dollars in a quarter. The people feel like they were sacrificed and used by big business and with no accountability from Exxon Mobil.
1) Carl Hulse contributed reporting from Washington for this article. JAD MOUAWAD, New York Times November 10, 2005
2) Lofthouse S., 2001, "Investment Management", John Willey Sons.
3) Willis, Clint "Thumbs up for AT&T, GM, IBM - But shrugs for GE and Exxon" Money Magazine July, 1998 pp63-68.
4) Welles, Chris "Exxons future: What has Larry Rawl Wrought?" Business Week 2 April 1999.