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Friday, February 24, 2012

Financial Performance of the Major Oil Companies, 2007-2011

Robert Pirog
Specialist in Energy Economics

Periods of rising oil prices can result in reduced economic growth, rising prices and reduced disposable incomes for consumers, as well as a deteriorating trade balance. For the oil industry, periods of high oil prices generally imply increasing cash flows and higher profits. While some view the improvement in the industries’ finances under these conditions as a business return no different than those earned in other industries, others view it as a windfall, a direct transfer from consumers, without any significant additional activity attributable to the industry. Although the U.S. oil industry is composed of many firms, to many the face of the oil industry is represented by the five major firms operating extensively in the U.S. market. These firms are: ExxonMobil, Chevron, BP plc, Royal Dutch Shell plc, and ConocoPhillips.

Over the period 2007 to 2011, oil prices were volatile. They increased to a record peak in 2008, declined rapidly at the end of 2008 and early 2009, and increased through 2010, and remained high during 2011. The total revenues and net incomes of the five major oil companies followed a similar pattern. However, the companies’ production of both crude oil and natural gas, their two key products, remained largely unchanged in the face of volatile prices, suggesting that for these firms, market price and the production of key products are not closely related.

During the period 2007 to 2011, the five major companies’ upstream activities of exploration and production contributed more to the total profitability of the firms than the downstream activities of refining and marketing.

During the period, capital budgets were more stable than the price of oil, and the companies’ exploration and production activities did little to increase their ability to produce oil or natural gas. The companies used their profits to carry out a number of activities, to include the distribution of dividends to shareholders, the repurchase of shares on the market to enhance investor holdings, and to carry out business strategies.

Date of Report: February 1
7, 2012
Number of Pages:
Order Number: R4236
Price: $29.95

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