The Truth About Gasoline Prices

As I write, ExxonMobil, Texaco, and Chevron all have reported record profits. ExxonMobil’s profits for the third quarter of 2000, for instance, are up close to 100 percent from a year ago. In fact, the $4.29 billion profit it registered is the highest in the history of American corporations…

Editor’s Note: The following article appeared in Automobile Magazine under “Noise, Vibration & Harshness”. After attempting to find the article online with no success, I sadly committed myself to retyping it from a photocopy. This article is too good not to share, thanks to JWT. The financial factsheets from ExxonMobil and Texaco/Chevron following the article will support the article.

The high price of oil.

Palisades, New York– Every TV viewer and newspaper reader knows why gasoline prices are so high. On Monday, it’s those mean-spirited, pesky Arabs. Tuesday, it’s the weather, good or bad (curiously, both seem to drive up the bill). On Wednesday, pundits will attribute soaring prices at the pump to costly clean air and fuel regulations brought on by alarmist nutjobs of the global warming pursuasion. Then, on Thursday, it’s time to blame state and federal taxes. Being a pious people, on Friday, we Americans acknowledge the unfathomable will of the gods. Saturday, we skip the pontificating; then, on Sunday, we review the week’s conclusions, ready to start wondering afresh why the hell gas prices keep going up with no apparent rhyme or reason.

The problem never admits of any conclusion; by and by, petroleum supply and demand is revealed to be among life’s cosmic, unknowable mysteries. The cure for cancer, sustaining life on Mars, and the revivification of Elvis Presley’s eartly remains appear attainable goals. But gasoline prices? Impenetrable.

Watching ever since the oil crisis of the 1970s, I think I’ve identified the problem here. It’s the media’s time-honored practice of attempting to explain oil prices without reference to oil companies. You wouldn’t necessarily know it to read the papers, but, as I write, ExxonMobil, Texaco, and Chevron all have reported record profits. ExxonMobil’s profits for the third quarter of 2000, for instance, are up close to 100 percent from a year ago. In fact, the $4.29 billion profit it registered is the highest in the history of American corporations. How did they do it? Figures compiled recently by the attorney general of California explain an allegedly inexplicable issue quite quickly.

In California, the average price for a gallon of regular-grade gasoline jumped 43 cents between January 13 and March 20 of this year, from $1.36 to $1.79. During the same period, the amount going to oil refiners increased 42 cents from 24 cents to 66 cents, an eye-popping 175 percent increase, while other cost factors (including those associated with reformulated gasoline) either dropped or increased by a few pennies. The cost of crude oil, for example, went up just 4 cents per gallon,and the amount taken by filling station owners – an ill-treated lot who’ve long been excluded from the profit-taking frenzies – actually fell by 6 cents.

Though by world standards gasoline taxes are hilariously, stupidly low in America (explaining in half a breath our taste for 12 mpg SUVs), they are relatively constant. Gasoline costs more now (in the US) not because of new taxes but because the companies that are paying slightly more for crude oil are charging consumers a lot more for it.

Big Oil raises prices because it can. Because it can and because no one can stop it. Can you name a government willing to stand up? True, in 1942, the British government sort of did, when it publicly concluded that Standard Oil of New Jersey (ExxonMobil, to you) and Nazi Germany’s I. G. Farben concern had conspired to block the export of synthetic rubber technology to the Allies, rendering Standard “a hostile and dangerous element of the enemy.” Harry Truman called it “treason.” But that didn’t inhibit Standard’s ability to lead a full and satisfying life after the war, in Britain and America, as elsewhere.

Governments don’t stand up to oil companies because, more often than not, governments work for oil companies (cf. the Gulf War). By and large, this has been a bad thing, as the oil men are a nasty lot. Indeed, you will forgive me as a dedicated automobilist for saying so, but having just spent some considerable time studying the history of gasoline, I now regard the oil companies as hands-down winners of the biggest-ever Corporate Scumbags of the Twentieth Century honors. It’s a tough and crowded field, but the oil men take the prize on account of the depth of their environmental assault. It’s not just the oil spills and air pollution and global warming and leaking underground storage tanks and precipitous global rise in asthma and other respiratory ailments but the whole wide world of petroleum-derived chemicals and the illnesses they cause, along with the related legacies of synthetic fibers made from oil. And then they have the temerity to gouge us. Take a bow, fellas.

In classical economic theory, monopolistic or oligopolistic control of a market is known to cause the cost of goods to rise. That and early American experience with the oil trusts were the reasons Congress, almost 100 years ago, passed antitrust laws and why we enforced them for the better part of a century. We don’t enforce these laws much anymore. So is it really any surprise following a wave of blockbuster mega-mergers in the oil industry (ExxonMobil, BP Amoco, Chevron and Texaco, et al.) that gasoline prices happened to rise precipitously?

As the twenty-first century sets sail, the composition of gasoline remains needlessly toxic. With the exception of ethanol, each additive the industry has tried since the elimination of lead has been cause for medical alarm. Meanwhile, the oil industry thwarts the use of alternative fuels. While Ford, DaimlerChrysler, and GM have taken billions in tax credits in the United States for selling millions of so-called flex-fuel cars capable of running on E85 (an 85 percent Ethanol/15 percent gasoline blend), only 100 of the country’s 70,000 gas stations actually carry the stuff, and then under threat of retribution from the oil companies. Most flex-fuel cars run on gasoline and gasoline only. More fuel, less flex.

The truth is, we’ll never have lower prices or cleaner energy if the oil companies have anything to say about it. And since the oil giants are setting the world’s energy agenda, isn’t it time we devoted at least a day of our news week to thinking about their role when we consider the price of gas?

(end text)



ExxonMobil reported third quarter earnings of $4.5 billion, up $2.3 billion from the third quarter of 1999. ExxonMobil’s Chairman Lee Raymond said, “These results continue to reflect historically high crude oil and natural gas prices and further improvements in operating efficiency. The combined assets of the new company continue to perform well and financial results for the upstream and downstream businesses significantly exceeded the same period last year.”

In Exploration and Production, earnings were $3.1 billion and represented a fourth consecutive record quarter. Crude oil prices were up almost $10 per barrel from the third quarter of 1999. Substantially higher natural gas prices, particularly in the United States, also contributed to earnings.

Refining and Marketing earnings improved from last year’s depressed conditions. Third quarter results reflected improved worldwide refining margins, improved refining performance and lower operating expenses, partly offset by continued weakness in worldwide marketing margins and adverse foreign exchange effects. Petroleum product sales were down by 9 percent, mainly due to the required divestiture of Mobil’s European fuels joint venture and selected U.S. refining and marketing assets. Earnings in U.S. Refining and Marketing were about 4 cents per gallon.

Chemicals earnings were down by 25 percent from the same quarter a year ago as higher feedstock and energy costs put significant pressure on margins. Prime product sales of 6.0 million metric tons were down 4 percent from last year, primarily reflecting maintenance turnarounds.

Earnings from other operations, including Coal, Minerals and Power, increased by almost 40 percent, mainly a result of improved copper prices and lower operating expenses.


More financial information on ExxonMobil is at:…


ChevronTexaco Corp. to achieve annual savings of at least $1.2 billion
and create stronger, more competitive company


SAN FRANCISCO and NEW YORK October 16, 2000 – Chevron Corporation [NYSE:
CHV] and Texaco Inc. [NYSE: TX] today announced a merger that will create
a company – ChevronTexaco Corporation – that ranks with the world’s
largest and most competitive international energy companies.

The merger joins two leading energy companies and long-time partners
to create a U.S.-based, global enterprise that is highly competitive
across all energy sectors. ChevronTexaco will have world-class upstream
positions in reserves, production and exploration opportunities; an
integrated, worldwide refining and marketing business; a global chemicals
business; significant growth platforms in natural gas and power; and
industry leading skills in technology innovation.

The combined company expects to achieve annual savings of at least
$1.2 billion within six to nine months of the merger’s completion. The
merger, to be accounted for as a pooling of interests, is expected to
become accretive to the new company’s earnings and cash flow per share
upon realization of the savings. The company also expects to improve
capital efficiency by funding the best growth opportunities of Chevron
and Texaco, resulting in improved return on capital employed over time.

The new company will have reserves of 11.2 billion barrels of oil equivalent
(BOE), daily production of 2.7 million BOE, assets of $77 billion, and
operations throughout the world. In the United States, ChevronTexaco
will be the nation’s third largest producer of oil and gas, with production
of 1.1 million BOE per day, and will hold the nation’s third largest
reserve position, with 4.2 billion BOE of proved reserves.

In the merger, Texaco shareholders will receive .77 shares of Chevron
common stock for each share of Texaco common stock they own, and Chevron
shareholders will retain their existing shares. The exchange ratio represents
approximately $64.87 per Texaco share based on Chevron’s closing stock
price of $84.25 on October 13, 2000. The exchange ratio represents an
18% premium based upon Texaco’s closing share price on October 13, and
a 25% premium based upon the two companies’ average relative share prices
during the 30-day period through October 13. As a result of the merger,
Chevron shareholders will own approximately 61 percent of the combined
equity, and Texaco shareholders will own about 39 percent. The combined
company would have an enterprise value of more than $100 billion.

Dave O’Reilly, Chevron chairman and chief executive officer, will serve
as chairman and CEO of ChevronTexaco, which will be headquartered in
San Francisco. Peter Bijur, Texaco chairman and CEO, will become a vice
chairman of the combined company with responsibility for downstream,
power and chemicals operations. Richard Matzke, Chevron vice chairman
for upstream operations, will retain those responsibilities in the combined
company. The composition of the ChevronTexaco Board of Directors will
be approximately proportional to the equity split and will be drawn
from current members of the Chevron and Texaco boards. Chevron Vice
President and Chief Financial Officer John Watson and Texaco Senior
Vice President and Chief Financial Officer Patrick Lynch will lead the
integration process.

“This merger positions ChevronTexaco as a much stronger U.S.-based
global energy producer better able to contribute to the nation’s energy
needs,” said O’Reilly. “That’s good news for the country because the
United States will have an additional top-tier energy company better
positioned to compete effectively with the international majors.

“ChevronTexaco,” O’Reilly continued, “will create greater value for
the shareholders of both companies. We’ll be positioned for stronger
financial returns than could be achieved by either company separately,
partly through significant cost reductions, but mainly because we’ll
have a much broader mix of quality assets, skills, and technology. We’re
committed to being first in our industry in total shareholder return,
and this transaction will help us accomplish that objective.”

Bijur said: “These two companies form a powerful combination that will
have the strength and resources to compete and succeed around the globe.
Texaco and Chevron are natural partners, whose historic relationship
and operational fit are highly complementary. We know each other well,
and we already have long, highly productive experience working together
in both the upstream and downstream, giving us an advantage in integrating
the companies.

“We also share common values including protection of the environment,
active support for the communities where we operate, and promoting diversity
and opportunity in our workforce and among our business partners,” Bijur

ChevronTexaco will be much stronger in several important respects:

  • Significant cost savings: The new company expects to reduce
    costs by at least $1.2 billion per year within six to nine months of
    the merger’s completion. The historic associations and strategic compatibility
    of Chevron and Texaco will enable rapid integration of the two companies.
    The most significant savings (approximately $700 million) will come
    from more efficient exploration and production activities, but other
    areas will contribute as well, including some $300 million from the
    consolidation of corporate functions and $200 million from other operations.
    The companies anticipate that the combined workforce of about 57,000
    will be reduced by approximately 7 percent worldwide. Anticipated cost
    savings build on both companies’ track records of successfully achieving
    cost reductions.

  • Leadership position in upstream: The combined company will
    be a premier global upstream competitor, with a significantly enhanced
    leadership position in most of the world’s major and emerging exploration
    and producing areas. ChevronTexaco will have world-class reserves and
    growth opportunities in both west Africa and the Caspian region, where,
    in the latter case, the new company will solidify its position as the
    largest producer. In addition, the combined company will have a superior
    exploration acreage position in the most promising deepwater areas in
    west Africa, Brazil and the U.S. Gulf of Mexico. The combination will
    significantly strengthen positions in core producing areas in North
    America and the North Sea. Further, the combination will create an outstanding
    portfolio of growth opportunities in Latin America and the Asia-Pacific

  • Worldwide downstream platform: ChevronTexaco will create a
    worldwide business built around the well-recognized, international brands:
    Chevron, Texaco and Caltex. By integrating the operations of Caltex,
    a 65-year international refining and marketing joint venture between
    Chevron and Texaco, the combined company will be able to realize efficiencies
    from streamlined decision-making and management. The merger also allows
    an enterprise approach to lubricants (including the well-known quality
    lubricants brands Havoline and Delo), trading, international markets
    and customers, and will expand on the existing fuels and marine marketing
    joint venture. In addition, the merger enables the new company to use
    its brand presence to help facilitate activities and new entries in
    the upstream, and in gas and power businesses in Asia, Latin America
    and Europe.

  • Strength and scale in chemicals: The chemicals business of
    the combined company consists of Chevron’s recently formed 50/50 joint
    venture, Chevron Phillips Chemical Co. With more than $6 billion in
    assets and $6 billion in revenues, Chevron Phillips Chemical Co. has
    a strong, global position in olefins, polyolefins and aromatics.

  • Leadership position in power generation: Texaco’s power and
    gasification business, with equity interests in 3,500 megawatts of power
    operating or under construction, and Chevron’s 26 percent stake in Dynegy,
    Inc., give the combined company more options in the fast-growing power
    and energy convergence businesses.

  • Broad technology portfolio: The merger will strengthen the
    new company’s leading technologies in its core businesses by bringing
    together specialized expertise from the two companies. The combined
    company will also have a broader portfolio in advanced technologies,
    e-business ventures and alternate energy, such as fuel cells and gas-to-liquids

  • Superior organizational capability:
    The capabilities of the new
    company will be strengthened by the combination of people from both
    Chevron and Texaco who have the diverse skills, talent and vast experience
    to compete successfully in an increasingly competitive industry. The
    merged company also gains an advantage with proven leadership in many
    facets of the global, integrated energy business and a track record
    of success in executing key strategies.

    merger is conditioned, among other things, on shareholder approval
    for both companies, pooling accounting treatment for the merger and
    regulatory approvals of government agencies such as the U.S. Federal
    Trade Commission. Chevron and Texaco anticipate that the FTC will
    require certain divestitures in the U.S. downstream in order to address
    market concentration issues, and the companies intend to cooperate
    with the FTC in this process. In that regard, Texaco is in discussions
    with its partners in the U.S. downstream.

    Brothers Inc. is acting as financial advisor to Chevron. Al Pepin;
    Fried, Frank, Harris, Shriver & Jacobson; and Pillsbury Madison &
    Sutro are acting as legal advisors to Chevron. Credit Suisse First
    Boston and Morgan Stanley Dean Witter are acting as financial advisors;
    and Davis Polk & Wardwell; Howrey, Simon, Arnold & White; and Weil
    Gotshal & Manges are acting as legal advisors to Texaco.

    Corp. is involved in every aspect of the oil and gas industry, from
    exploration and production to transportation, refining and retail
    marketing, as well as chemicals manufacturing and sales. It is active
    in nearly 100 countries and employs about 31,000 people worldwide.

    Inc. is a fully integrated energy company engaged in exploring for
    and producing oil and natural gas; manufacturing and marketing high-quality
    fuels and lubricant products; operating trading, transportation and
    distribution facilities; and producing power. Directly and through
    affiliates, Texaco operates in more than 150 countries.

    Financial Information about Texaco:

    Fast facts about Texaco:

    In my personal experience, gasoline prices this past year have been between $1.80 and $2.05/gallon for the regular unleaded 87 octane cheap stuff in Northern California. Oddly enough, a mere 35 miles from my town, Costco sells the very same gasoline for $1.41/gallon right now. Another mere 25 miles in the opposite direction, there is gas available for $1.70/gallon. This regional difference in price has to be at least partially to blame on the gas stations. And in the San Francisco area, gas prices usually start at $2.05/gallon and have been that way for at least a year now. In more high income areas, like the Silicon Valley in Palo Alto, gas prices for the “cheap stuff” can start at $2.20. This cannot be blamed entirely on Big Oil, let’s be honest, it’s more than just Big Oil screwing consumers. But consumers must enjoy being screwed to some degree since they insist on buying bigger and bigger vehicles like the Ford Expedition, the Cadillac, BMW, Lexus, Mercedes, and other “sport utiltiy vehicles” that everyone seems to be making with increasing frequency.

    Author: Anonymous Masters at Cipherwar

    News Service:


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