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Exxon: Oiling the Engine of Our Economy


It makes what we need, and it pads our retirement accounts.

Editor's Note: Welcome to Love It or Hate It, a regular dual-column feature that will capture the love-hate relationship America has with some of its biggest, most controversial companies. For past columns, click here. For the opposing view on Exxon, see Exxon: Slick, Slimy, and Dangerous.

Aside from the captain who was below deck when the Exxon Valdez struck Bligh Reef in Alaska's Prince William Sound in 1989, ExxonMobil (XOM) is a smart, well-run company that has rewarded investors with steady returns. What's not to love?

ExxonMobil earns its money by turning gloppy, stinky crude oil into the fuel needed to keep the US economy moving. Sure, it would be nice if we used less of the company's products, but realistically, the US economy will run on oil for the foreseeable future.

Here's why: Corn-based ethanol is wildly over-hyped and affordable commercial application of intriguing "green" technologies remains unproven. That means ExxonMobil will continue to produce oil in some rough areas of the world so we can load the kids into the minivan and drive to the mall. Don't sneer -- consumer spending represents about two-thirds of the nation's gross domestic product.

For some, reality doesn't count for much. Congressman Ed Markey, a Massachusetts Democrat, called ExxonMobil's record $39.5 billion profit in 2007 "outlandish" and said it stemmed from then-President George Bush's effort to "tilt the scales toward satisfying the special interest demands of a single industry at the expense of the public interest." Ho-hum.

Others noted that if ExxonMobil were a country, its 2007 profit would exceed the gross domestic product of about two-thirds of the 1,983 nations ranked by the World Bank's economic ratings. But so what?

ExxonMobil's profits in the year Markey made his criticism exceeded that of General Electric (GE) and Microsoft (MSFT). The oil giant almost makes Walmart (WMT), the world's largest retailer, look like a boutique. ExxonMobil is highly profitable because it's able to produce oil and sell refined products quickly. For some, this is apparently the unpardonable sin.

Fortune ranked petroleum refining as the 36th most profitable industry in 2008 based on profits as a percentage of revenue. Crude oil production ranked seventh.

Exxon's numbers are huge because it sells a lot of fuel, but its profits as a percentage of revenue rank behind networking, Internet services, pharmaceuticals, medical equipment, financial data services, and even railroads.

Oddly, it's been a while since anyone in Washington lambasted the railroads. Instead of piling on poor, old ExxonMobil, perhaps it's time for some members of Congress to re-read The Octopus: A Story of California, a novel published by Frank Norris in 1901 detailing the evils of the (now vanished through mergers) Southern Pacific Railroad. The usual suspects could then take a righteous whack at Burlington Northern Santa Fe (BNI) or CSX (CSX) for the same reasons they bash ExxonMobil -- ignorance.
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No positions in stocks mentioned.
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