Big Oil=Big Profits
Research for Online Investors

by John Dalt

4/28/11

Exxon Mobil (XOM) reported a 69% increase in earnings, making $10.65 billion last quarter.  This was the second largest quarterly profit in the company’s history.  The only larger profit was in the fourth quarter of 2008, the last time oil traded over $100 per barrel.  XOM increased production by 10% over the first quarter of 2010.

Royal Dutch Shell (RDS) reported a 22% increase in earnings at $6.9 billion in the first quarter.  Exxon and Shell both raised their dividends.  Exxon is the world’s largest publicly held company.  Reuter’s has details on the company’s earnings reports.

Sometimes facts don’t matter, as politicians talk about ‘subsidies’ to oil companies.  The ‘subsidies’ are not subsidies at all, but common tax deductions exploration and production companies are allowed to expense to encourage natural resource exploration.

Every business is allowed to deduct the cost of doing business against the sales.  Employee wages, office rent, research, interest expense, and capital expenditures that are depreciated over the life of the asset.  These are not subsidies, but recognition of the costs to produce the gross profits of the company.  Oil companies should not be treated any differently than any other company or individual.  The simple fact is when you are the largest company in the world, you are a big target.  If you didn’t turn in the largest profits in the world, you wouldn’t stay on top of the heap very long.

Berkshire Hathaway’s board has a little different take on David Sokol’s purchase of Lubrizol stock before, and during the time BRK was looking at the company.  The company released a press statement last night. Reuter’s writes the statement accuses the former executive of ‘deliberately misleading Warren Buffett when pitching’ the investment to him.

The board said the company may sue Sokol to recover the three million dollars he made on his trades.  "His misleadingly incomplete disclosures to Berkshire Hathaway senior management concerning those purchases violated the duty of candor he owed to the company."

David Sokol’s attorney, Barry Levine, said "Buffett was told twice, not once, about Sokol's ownership of Lubrizol stock before Buffett engaged in any discussions with Lubrizol."

We went to press yesterday and did not include the press release from the FOMC meeting.  These statements are parsed for any changes from previous statements.  You can read the FOMC Press Release.

I am off to Omaha to attend the annual Berkshire Shareholders meeting.  Should be interesting.  I will report tomorrow.

P.S.  SwingTrader subscribers closed a silver trade this morning.  We recorded a 139% gain in two days.  This, I think, is our best trade in the last two and a half years.  Boy, I wish they were all that good!  Honestly, I don’t know if my heart could take it.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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