Oil Company Profits

Jun 15, 2022 | Ask "Z" Economist

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Summary: Exxon Mobil must be minting money with gas prices at close to $5 and oil at $122 per barrel, right? The company’s historic return on common equity (ROCE) provides a good way to evaluate this question. The numbers show that Exxon’s profitability has been declining since the Great Recession when its ROCE peaked at almost 39% during 2008. This reflects that the cost of extracting oil from the ground continues to grow more expensive given new oilfields are generally smaller and require expensive new tech to pump. Increasing environmental risks associated with these fields also add to extraction costs. At the same time, energy consumers have not been able to absorb these rising costs as the economy has not really recovered since the Great Recession. All the discussions about oil & the climate may hide the realities of traditional energy’s failing economics.

 

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