washingtonpost.com
Oil Doesn't Want Focus on Big Profit
Companies Stepping Up Advertising
By Frank Ahrens
Washington Post Staff Writer
Wednesday, October 26, 2005; D01
Gigantic oil companies generally do not enjoy the best PR.
Pick your poison: Oil companies have caused tanker spills, proposed
drilling into the Arctic wildlife ranges, crafted ties to shady nations
and meddled in the affairs of others, and produced products that pollute.
Now, even as high gasoline prices continue to anger motorists and
aggravate financial problems at General Motors Corp. and Ford Motor Co.,
the oil companies have begun to report record quarterly profit.
Yesterday, British energy giant BP PLC reported a $6.53 billion
third-quarter profit, up from $4.87 billion in the same period last
year. And tomorrow, analysts expect Exxon Mobil Corp. to show that it
earned nearly $9 billion over the past three months -- the largest
corporate quarterly profit ever.
Grumbling already has begun on Capitol Hill: Last month, one senator
proposed a windfall-profit tax on oil conglomerates, and yesterday,
House Republicans warned energy companies against price gouging.
To deflect the damage, the energy industry is relying on an ad campaign
that was escalating even before hurricanes Katrina and Rita blitzed Gulf
Coast petroleum refineries. The print and television ads are designed to
educate consumers and lawmakers with a "we're all in this together" tone.
In the pages of The Washington Post, for example, according to the
paper's ad executives, BP has taken out seven large issue ads so far
this year, compared with zero through the same time last year. Exxon
Mobil has had 19 so far this year, compared with 12 last year. For
Chevron Corp., it's 17 ads so far this year, compared with six last
year. And the industry's trade group, the American Petroleum Institute,
has purchased seven ads in The Post so far this year, compared with none
last year.
Chevron and Exxon Mobil increased their ad spending in the third quarter
of this year at the New York Times, the newspaper company reported in
its earnings call last week.
"You still have 100 hours of press time on any oil spill versus a tiny
blurb or nothing at all if a company spends hundreds of millions on
pollution control," said Lyle Brinker, an analyst for the John S. Herold
Inc. energy research firm. "Sometimes, they just throw up their hands.
The best thing they can do is keep the debate focused on educating the
public."
Red Cavaney, president of the American Petroleum Institute, said the ads
partially are designed to correct no-longer-true misperceptions about
his industry. For instance, he said, even though 90 percent of the Gulf
Coast drilling platforms and refineries were hit by either Katrina or
Rita, there were no oil spills.
The industry's ads range from simple conservation messages to those that
attempt to re-brand the oil companies as something else.
An American Petroleum Institute ad implores consumers to turn down
thermostats, clean furnace filters, and weatherstrip windows and doors.
Full-page ads from Chevron ominously warn: "It took us 125 years to use
the first trillion barrels of oil. We'll use the next trillion in 30."
The most conspicuously non-oil oil ads come from the former British
Petroleum, which removed the oil from its name and became BP. Now, the
company advertises itself as "Beyond Petroleum." The company's logo
resembles a sun with leaves.
Stumble onto a BP television ad and it is easy to assume it is a
commercial for a company that makes solar panels. Or that BP is an
environmental organization of some sort.
"Solar is but a tiny, tiny, tiny part of their business," Brinker said.
"They make 99.9 percent of their money in the oil business."
But oil companies may have nowhere to hide as their third-quarter
earnings roll in this week.
"They should be record earnings," said Jacques Rousseau, an oil analyst
at Friedman Billings Ramsey Group Inc. in Arlington.
In the third quarter of 2004, for instance, Exxon Mobil earned $6.2
billion. When the company reports its third-quarter results tomorrow,
David Dropsey, an analyst with Thomson First Call research, expects
profit of about $8.8 billion.
Chevron made $3.2 billion in last year's third quarter; Dropsey predicts
the company will hit about $4.3 billion for this year's third quarter.
ConocoPhillips Co. is expecting a $3.5 billion quarterly profit when it
reports today, Dropsey said, up from $2 billion last year.
"Yes, our numbers are large, but when you figure the size of the
companies, we are at an all-industry average," Cavaney said. "We are
half the size of the returns of the financials and pharmaceuticals."
Yesterday, House Speaker J. Dennis Hastert (R-Ill.) called it "fine"
that energy companies are reaping record profit. "However, there have
been allegations of price gouging in the wake of the hurricanes. This is
unacceptable, and any company who does it will be prosecuted," he said.
Cavaney said industry research showed that most consumers and lawmakers
do not fully grasp how the energy industry works and why prices go up
and down at the pumps. (He pointed out that average gas prices are back
within 10 cents of their pre-Katrina level.)
This led his organization and many of the big oil companies to step up
their hearts-and-minds media campaign. This is partially to help educate
the consumers, but also to try to dissuade lawmakers from reinstituting
a windfall-profit tax -- the last one stretched from 1980 to 1987 --
which oil companies fear. They say the tax drives up gasoline prices by
reducing crude supply.
Last month, Sen. Byron L. Dorgan (D-N.D.) introduced a bill that would
establish a windfall-profit tax on energy companies that would return
some of the companies' earnings to consumers in the form of a rebate,
exempting the percentage of profit the companies use for exploration.
Oil price hikes and corporate profit spikes are caused by supply and
demand, Cavaney said. And the annual 5 to 10 percent decrease in the
world's oil supply, combined with government resistance to allow
drilling in places such as Alaska's wildlife refuge and the emergence of
China as a major oil user has tipped the needle to the demand side of
the equation, he said. The oil company ads seek to explain the
complicated energy industry math to consumers, Cavaney said.
"We started back in the year 2000, trying to warn people that we were in
a position that increases in demand were exceeding capacity," but no one
listened, Cavaney said. "What we took too much for granted was that
people understood our business."
© 2005 The Washington Post Company
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