Insight into Exxon
 

http://www.washingtonpost.com/wp-dyn/content/article/2008/05/24/AR2008052401961.html

Every time Sohaila Rezazadeh rings up a sale at her Exxon station on Chain Bridge Road in Oakton, her cash register sends the information to Exxon Mobil's central computers. If she raises the price of gasoline a couple of pennies, chances are that Exxon will raise the wholesale price she pays by the same amount.

Through a password-protected Web portal, Exxon notifies Rezazadeh of wholesale price changes daily. That way the oil giant, which is earning about $3.3 billion a month, fine-tunes the pump prices at the franchise Rezazadeh has owned for 12 years.

Now, however, Rezazadeh says she cannot stay in business. Credit-card fees are eating her profit margins. Exxon, which owns the station land, last week handed Rezazadeh a new lease raising her rent about 30 percent over the next three years. She stuck a copy on the window of her station to show customers who are angry about soaring pump prices. Rezazadeh has told Exxon that she cannot make money with the rent that high. Her territory manager's reply, she said, was simple: When you go, leave us the keys.

Rezazadeh, who fled to the United States from Iran in 1979, is part of the long chain that links motorists with the big oil companies. Major integrated U.S. oil companies -- which produce crude oil, own refineries and sell gasoline -- have been reaping billions of dollars in profit from high oil prices over the past two years, but they are still working to extract every penny they can from the marketing end of the business. Exxon Mobil doesn't break out its earnings from marketing alone, but its 2007 profits in worldwide refining and marketing -- known as the downstream part of the oil business -- reached $9.6 billion, 43 percent of that coming from the United States.

Although Exxon owns and operates few stations anymore -- less than 10 percent of the 12,000 Exxon outlets in the United States -- it uses franchise agreements to maintain tight control over stations that bear its brand. The company dictates everything from the number of pumps to hygiene practices to the placement of food on convenience store shelves. "They monitor everything," Rezazadeh said.

Exxon says it does all this to maintain uniform quality, while recognizing dealer needs. "We recognize . . . that we are in a difficult time with the run-up in crude oil prices," said Ben Soraci, director of U.S. retail sales for Exxon. "Retailers are under a lot of pressure, and they are on the front lines every day with the motorist, who is also feeling a lot of pressure."

Ultimately, Soraci said, "it's in our interest to see them succeed. It's not in our interest to see them hand us the keys."

But some Exxon dealers say the company is trying to squeeze too much out of them.

Like Rezazadeh, Scott Burnham was struggling to cope with low margins and rising rents. On May 9, he closed his station on scenic Knickerbocker Road in Closter, N.J., and abandoned it to Exxon. In March, Exxon had said it would raise his rent by a third over two years. Burnham tried to line up buyers for the franchise, which he purchased for $475,000 just two years ago. But one backed out, saying that the station would lose money no matter how much gasoline it sold.

"Why is the government giving Exxon subsidies and tax breaks when they're making billions of dollars and when they squeeze every dime they can out of every dealer who made that profit for them?" Burnham said.

Soraci said rent increases reflect rising real estate values. "We have excellent real estate out there that is superior to our competition," he said, which allows the dealers to "compete more effectively."

Even some of Exxon's successful and loyal dealers complain. Jerry Daggle owns five Exxon stations in Northern Virginia, and even though they have different competitive conditions and prices, "Exxon magically lets me make about 8 cents a gallon" at each one, he said.

He said micromanaging extends to the snacks sold at Exxon's On the Run convenience stores. The company uses a "planogram" to show dealers where to put candy bars and soda. "If I want to put Coke on a different shelf, I have to get special permission," Daggle said. Recently he was reprimanded for selling mulch on the perimeter of his award-winning Gainesville station; the mulch, though popular in the neighborhood, wasn't an approved product.

Technology has enabled Exxon to tweak its wholesale prices not just by region or state, but by zones as small as a street corner. Although such practices bring cries of outrage from some station owners, they elicit shrugs from some economists.

"Retailers put a lot of effort into understanding local markets, whether they're in the airline business where prices for every seat are often determined on daily basis, or book sellers," said Richard J. Gilbert, an economics professor at the University of California at Berkeley, who has studied the gasoline marketing business. "There's a lot of fine-tuning to adjust prices to local market conditions. The gasoline companies are not very different in that regard."

"We feel very strongly that zone pricing is a method of pricing that at end of the day allows our dealers to be as competitive as they can be at the retail level," Soraci of Exxon said. "It gives us the opportunity to give a particular retailer or trade area a lower price if competitive conditions require that."

Daggle, who has been an Exxon dealer for two decades after working his way up from pumping gas, said he has done well. But he still cannot fathom how the oil company can charge him different wholesale gasoline prices for each of the five Northern Virginia stations he owns. The stations all sell the same Exxon-branded gasoline, delivered from the same terminal in Newington, where it arrives via the same pipeline. Sometimes, Daggle said, it's even dropped off by the same truck and driver hours apart on the same day.

The only thing that's different is the price, which can vary by 35 cents per gallon, Daggle said. "If I could have driven a truck to Gainesville and drive the gas from there to Shirlington, I could have made 50 cents a gallon."

On occasion, he said, he has persuaded Exxon to lower his wholesale price to help match price cuts by a station next door in Gainesville.

Historically, gasoline marketing has been a low-margin business. For decades, when oil was plentiful, margins were kept low to move as much crude oil through the system as possible. Now, major companies don't have to fight to move product, but they are still battling for nickels and dimes at the pumps.

Like other parts of the retailing business, gasoline marketing has become more concentrated and high volume than it was in the days when mom-and-pop gas stations lured customers with free drinking glasses.

Cambridge Energy Research Associates, a consulting firm, noted in a report that in 1977, the United States had 223,118 gasoline outlets. By 2007, the number of outlets had declined to 164,292 -- even as the amount of gasoline sold increased. The average station now pumps 73 percent more than in 1977. And companies are trying to boost revenues by attaching convenience stores to the stations. In 1977, only 5 percent of gas stations had convenience stores; now, 65 percent do.

"The industry we're part of is an extremely competitive industry," said Exxon's Soraci. He said major oil companies' market share has dropped 20 percent in recent years as mass merchandisers such as Costco vie for customers.

Oddly enough, when prices are rising rapidly and consumers are most upset is usually when profit margins are slimmest for station owners. When prices are falling, as they were in September 2006, is usually when jobbers and station owners make the most money.

How much depends largely on Exxon. "If I had raised my gas, within a couple of days, almost inevitably, they would have raised my wholesale price. It's an unspoken rule," Daggle said. He said his Gainesville station makes most of its money from repairs, not gas sales.

Selling gas remains a cutthroat business in an industry awash in profits. Three years ago, when Daggle bought the Gainesville station, a share of Exxon stock was about $50. Buying and fixing up the station has cost him $800,000, and he hasn't yet drawn a profit from it. "If I had bought the stock," he said, he would have nearly doubled his money and would have "never lifted a finger."

Greedy gas companies, in bed with the government and conspiring against the little guy? No way!!!!!:rolleyes:

Tell it to people who work at Walmart or are processing claims at Geico or managing a McDonalds.

Please - it the way of modern corporate America. Armies of MBAs squeezing every bit of cost and productivty like blood out of a turnip. Why does anyone expect an Exxon to be any different?

Survival of the fittest. Get what you can. With more money and power, you get more control. With more control, you get more money and power.

Then there are the guys who think about this only long enough to declare this to be the perfect economic system. The checks and balances, they say, are the competitors. But....competitors' wars with each other eventually end with a loser......and a buyer.

Ever play the game called "Monopoly?" How does the game end?

Evil people running evil corporations just makes more evil in the world.

Evil doers, they are going to get it.

I heard that once, it really stuck too.

Refueling at Costco is looking even better and better!

Anasshat was stupid enough to spend nearly half a million for a franchise that they have to pay rent for? Idiots, stupid is as stupid does.

If they had any brains they would have bought the land and the station and then negotiated terms with a company for a franchise.

Sorry, I don't feel any sypathy for people who make bad business decisions and then try and blame their mistakes on the big, bad oil companies. Ridiculous.

Which is exactly why i'm self employed.

Several stations in and around Seattle have closed or puleld thier pumps because they cannot afford to sell gas.
the first one I remember was a Texaco station near our Autocross track. Pulled his pumps last year. We used to hit Autocross with almost nothing in the tank, do our runs, and then fill up for the trip home.
Not any more.

Saw a station with Deisel at $5/gal on Saturday. Several of them, actually. And this wasn't a particularly high priced station, either.

The only ones that make more $$$ off the high price of gas/oil than the oil companies is the government.

Just filled up at Costco in Laguna Hills, CA $4.03 for regular
When I got home I filled my other car at Shell $4.06 for regular .....Big Deal!
20 gallons X .03= 60 cents weeeeeeeeeeeeee

Not to mention the 1/2 hour wait - every time I drive past a CostCo station, there always seems to be a huge line...

We waited about 10 minutes.

Not correct.

US gasoline consumption/day = 388.6MM gal/day = 141.8BN gal/yr
Federal gasoline excise tax $0.184/gal
0.184 * $141.8BN = $26.1BN Fed gas tax/yr
vs
Profits of US integrated oil companies in 2007 = $127.99BN

http://www.eia.doe.gov/basics/quickoil.html
http://www.eia.doe.gov/bookshelf/brochures/gasolinepricesprimer/
http://fpc.state.gov/documents/organization/103679.pdf

Granted, if you include total state taxes on gasoline, you can roughly double that $26.1BN. And the $127.99BN integrated oil company profit includes $45BN from Royal Dutch Shell and BP, some of which (maybe 1/3?) was earned outside the US.

So make those adjustments if you like.
$26.1BN * 2 = $52.2BN total federal, state, local tax on gasoline
vs
$127.99 - ( $45BN * 0.33 ) = $112.9BN total integrated oil company profit less amounts earned ex-US

Still not even close.

Disdain for the govt is fine but let's get the numbers right.

And I assume everyone waits with the engine running.
Jim

John, I am relatively certain that the tax on gasoline at the pump is not the only source of revenue the government derives from petroleum

My wife buys gas at COST because we're there every couple of weeks anyway. And her car's engine shuts off when the car is immobile. I don't bother - too long a drive.

Since COST sells such a high volume of gas, when gas price is rising rapidly I suspect COST's price advantage is reduced. They are selling gas purchased at yesterday's price, while the sleepy station on the corner might be selling gas purchased at last week's price.

Someone at Exxon is a freakin idiot.

They only allow 8 cents per gallon no mater what the price is. You have to use the credit card option to not run up against the $50 limit on a debit card and the credit card companies charge a percentage so the more a gallon costs, the less a retailer makes (or the more they lose). So it's a lose lose situation for the retailer. Unfortunately a lot of retailers are going to go under before anything's fixed.

Then you come up with the data, please.

Sorry John, I don't care enough about it to look, I am just sayin'...

Okay, then I can declare with perfect confidence that you are wrong, nyah nyah.

Seriously, I do think the claim is not correct. I don't think the govt gets much of anything from gasoline sales, besides the gasoline taxes discussed.

Indirectly, I suppose the govt gets more income tax on the oil companies, which is likely offset by the lower profits of, and hence lower income tax on, all the businesses that consume gasoline.

Come to think of it, the excise tax is per gallon, not per dollar spent on gasoline. So high gasoline prices don't actually get the govt "more" revenue. The decline in US gasoline consumption actually costs the federal govt some tax revenue, partly offset by the states that charge sales tax on gasoline purchases.

So, the conclusion remains - the only ones who really benefit (financially) from "higher" gasoline prices are the oil companies.

What about income taxes? That will get the govt above 70% of oil co profits and the govt doesn't have to do all that messy drilling and stuff.

I addressed this above, briefly.

The answer, I think, is that additional income taxes the US govt gets from XOM are offset by lost income tax that the US govt does not get from the buyers of XOM's gasoline.

Here is how it works.
1. Every additional $1 that XOM gets for selling a gallon of gas, is an additional $1 that the buyer has to spend on that gallon.
2. If the buyer is a business, then that additional $1 reduces its profit (think truckers, airlines, construction companies, anyone who uses gasoline or transportation in their business - they are all hurting now). Lower profit for the buyer means lower income tax that the buyer pays the US govt.
3. If the buyer is a consumer, that additional $1 spent on gasoline is $1 he doesn't spend at retailers, restaurants, and other businesses that sell clothes, food, home remodeling, Porsche parts, etc (high gas prices are one reason why US retail sales are so bad right now). The lower revenue for those businesses means lower profits and thus lower income taxes that those businesses pay the US govt.

Make sense? The extra $1 that XOM gets for its gasoline doesn't come from nowhere - it gets drained from another part of the US economy. $1 in XOM's pocket is $1 out of someone else's pocket, and the additional profit made by and taxes paid by XOM is offset by profit not made and taxes not paid by someone else.

By the way, don't think that XOM's income taxes all go to the US govt. Actually very little of it does. In 2007 XOM reported $29.8BN of income tax on $70.5BN of pretax income - but only $5.1BN of that income tax was paid to the US federal and state govts, the other $24.7BN of income tax was paid to foreign governments.

I heard the absolute best just a little while ago. We are the only nation on earth not exploiting every source of energy at our disposal. While the socialists in congress are dragging oil execs to DC to be grilled and that whacked out b!tch, Maxine Waters is telling guys 1000x smarter than her that she should be in charge of the companies they run, Russia is giving oil companies tax breaks so they will do more exploration & increase production. Now wtf is wrong with this picture?

But we'll have freakin' polar bears! They'll have electricity & gas, but we'll have polar bears & snail darters, & bicycles!

I need my dividend checks from Exxon and Cheveron.

Actually Russia's been pulling a huge bait and switch with outside companies on oil and energy production. They get the companies in with tax breaks and then after production starts, they fine them to the tune of 100's of millions of dollars and threaten prison time to company officials for supposed environmental issues.

If we wait for the rest of the world to use up their oil reserves and then tap ours when the cost is even higher we'll make out like bandits. Of course some new energy source could develop making oil less valuable, but I think that's unlikely in next 50 years or so.

Russia is in the process of re-nationalizing its energy industry. The Kremlin basically controls the industry. "Tax breaks" are illusory when the govt seizes your assets. Further, the govt takes most of the profit from oil prices >$30/bbl. These policies actually discourage companies from exploring new fields. Russian oil production has stopped growing and is starting to decline.

E.g., http://www.rigzone.com/news/article.asp?a_id=52792

One cent per gallon is taken everytime you purchase gasoline to fund the Underground Storage Tank fund in each state. Several states over the years have abused their funds like their lottery's. The fund is actually self supporting and takes care of UST gasoline releases and critical aquifer cleanup. Their are thousands of stations across the country that have been shut down by independant owners because they could not afford the up-front 10K deductible most states require before the fund kick's in. Up to one-million bucks of state money can be allocated for each facility clean-up, which rarely happens, but the owner is relieved of very high cleanup expenditures in the long term. Old steel tanks not cathodically protected, no leak detection, single fuel line's, bad fuel dump practices, etc, etc, have over time contributed to the massive impacts to groundwater supplies to sole-source aquifers. It is a major environemtal issue.

These small station owners, make their living on beer, tobacco and snack sales....not on gas!
Sad, going quickly are the fuel-station repair facilities, where I recall my parents would take the caddy in for oil changes and brake work. That is where the dollars were made.

Ever since the Exxon Valdez incident years ago, I have refused to gas up at Exxon and that will remain so until my foot can no longer touch a gas pedal....................

Bob
73.5T

From your site:
"The state funnels most of the profits from oil prices above $30 a barrel through export and extraction taxes into its Stabilization Fund. Russian oil companies pay 24% income tax and then production taxes based on the market price of oil. As a result the companies are left with about 10% of their upstream profits. Still, both Lukoil and Rosneft are better off than some since they refine 40% of their output."

That 10% number sounds familiar. Plus, Comrade Maxine is telling them she would nationalize, given the chance.

Mexican production has fallen off for many of the same reasons.

Maxine is posturing for the cameras, she has no chance of nationalizing the US industry.

Putin, on the other hand, is not posturing, he is doing it.

So I wouldn't hold Russia up as an example of what to do.

Latest forecasts I read are for solar panel pricing, in $/watt, to decline -40% over the next two years. Conventional energy continues rising in price. Solar is becoming more economically viable each year. But the bulk of the solar industry (profits, jobs) is developing in Europe and Asia, not in the US.

Right now, I wouldn't hold us up as an example either. And the solution is soooo simple:
http://www.americansolutions.com/

Sign the petition!

Did anyone mention the state and local sales taxes that are imbedded in the price of gas? In El Aye, its 8.25% hidden in the price. I think, but I don't know for sure, that it's a tax on top of the other state and Federal taxes, not on the sales price of the gas it self. So if gas is $4.00/gallon, about $0.28 is sales tax that you don't even see.

Yes, state/local taxes included in one of my prior posts.

horsepuckey.
On a $4 gallon of gas in California, we pay around 69 cents a gallon in taxes. When you add up the federal, state, and sales tax it's qute a bit on money.
Then you add the income taxes for the oil company, the taxes on every single barrel of oil that is pulled from the ground or imported, and all the countless other taxes and fees etc, the government is making one hell of a lot more off every gallon that the oil companies are. Saying otherwise is complete rubbish.