Exxon’s Vigorous Comeback

Commentary

In 2020, I wrote about “The Fall of Mighty Exxon.” The “fall” referred to Exxon’s stock having been dropped from the Dow Jones Industrial Average (DJIA) after a 92-year stretch of being a mainstay of that index. In retrospect, just two-and-a-half years later, hindsight indicates that dropping Exxon from the Dow may have been premature—an overreaction to the economic weirdness and distortions of the COVID lockdown.

As I wrote in the conclusion of that article, “I wouldn’t be too hasty to write off Exxon. Various pundits have chided Exxon for not having shifted production to renewables like some other oil-producing companies have … Exxon could stage a comeback. Exxon may someday be regarded as heroic for its stubborn insistence on refusing to accept taxpayer handouts to produce wind and solar energy while continuing to produce oil. Exxon’s glory days may not be over yet.”

Indeed, Exxon’s glory days as a profit-making business have made a spectacular comeback. They reported record profits of $55.7 billion in 2022—just a couple years after suffering record losses. Chevron, Shell Oil, the French oil company Total, the Norwegian oil company Equinor, and other oil companies also earned record profits last year. What gives?

To answer that question, let’s examine a fundamental economic question: How does a corporation earn profits? It always boils down to supplying something that people value. And when profits are large, it’s because the business has supplied something that many customers value greatly. The record-breaking profits of Exxon et al. reflect the fact that millions—no, make that billions—of people still value and benefit from petroleum and other fossil fuels. The transition that greens are hoping for from fossil fuels to intermittent, less dense sources of energy hasn’t yet been attained. In fact, there are formidable reasons why that transition will never be completed, but let’s save that discussion for another time.

The people of the world need and want oil. Thank goodness, Exxon et al. provided that oil. Can you imagine how devastating it would have been had over 90 million barrels of oil per day not been available? The global economy would have collapsed.

Exxon deserves our gratitude and admiration. They achieved those record profits while courageously facing severe headwinds. The Biden administration and its congressional allies were waging an aggressive campaign to make it official U.S. policy to shut down domestic fossil fuel industries ASAP—preferably within 10 years. That overt hostility caused Exxon et al. to cut back on long-term capital investments. After all, why commit to an investment that may take 15 or 20 years to pay off if the government is going to put you out of business in 10 years?

President Joe Biden—seemingly on the side of the green fanatics who want to kill off oil companies—has been indignant, insulting, and condemnatory. How dare those greedy oil companies practice self-preservation! How dare they not crank up oil production in 2022 to help the electoral prospects of the political party that wants to deep-six them!

The intense antipathy of Team Biden for Big Oil goes even further. In his State of the Union address, Biden called for quadrupling the tax on corporate stock buybacks. There never was such a tax before the start of this year. How quickly, now that the camel’s nose has gotten under the tent, Biden wants the new tax rate to be raised from 1 percent to 4 percent. Clearly, Exxon, Chevron, et al. are primary targets of the proposed tax hike, since they are employing the buyback strategy to protect, if not augment, the return on investment to their shareholders.

All Exxon is doing is obeying the law. As a publicly traded corporation owned by its shareholders, Exxon’s board of directors has a legal fiduciary responsibility to make money for its shareholders. If Team Biden understood Economics 101, it would realize that its policies bear much of the responsibility for why Exxon has earned the gigantic profits it resents so much. When supply is artificially restricted, prices and profit margins tend to rise. Since it was Team Biden’s multiple restrictions against the domestic production of oil that did so much to restrict new oil supplies coming into the marketplace, Team Biden has only itself to blame for those immense profits. If the Bidenites truly want to shrink the profits of oil companies, they should remove their multiple restrictions against production and let profit-seeking oil companies large and small produce petroleum to their heart’s content. Supply will rise, prices and profit margins will fall, and consumers (voters) will be happy. Unfortunately, such a simple solution —especially one that involves more freedom from government control—is beyond the capacity of the Bidenites to accept.

Thank you, Exxon, for withstanding all the pressures and persecutions of the political left, and for forging ahead with producing much-needed oil. We are in your debt. Oh, and to the keepers of the DJIA: How about letting Exxon back in? There’s only one energy producer in the index now—Chevron—but Exxon is Chevron’s big brother, more than 40 percent larger by market cap, and with annual profits more than 50 percent higher than Chevron’s. Clearly, much of our economy is still based on fossil fuels, so having two oil giants in the DJIA would be a more accurate representation of the economy.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.