ExxonMobil Report “Energy and Carbon – Managing the Risks”

ExxonMobil has published that report in March. It discusses their view of the question if they face a risk from climate related regulation.

In the mid-term until 2040, they think that it is “highly unlikely” that governments restrict hydrocarbon production in a way to reduce GHG emissions 80 percent during the Outlook period (page 12).

If true, that would be bad news for the climate. But it would also be bad news for the bottom line of ExxonMobil.

This report gives some interesting figures on the proven reserves of ExxonMobil, the world’s largest oil company. On page 24, they report proven reserves at the end of 2013 of 13.238 billion barrels of oil. That means that for every dollar the price of oil rises, the value ExxonMobil’s reserves rises by over 13 billion dollars.

Their profit in 2013 was only 32.58 billion dollars. Getting oil valuations up by only 5 dollars per barrel would result in a value increase of over 66 billion dollars, or double the 2013 profit, before the first barrel of oil is sold to anyone.

It was always clear to me that an oil company like ExxonMobil would see massive profits if oil prices increase because they scale back production. But these numbers give an idea of how vast those profits would be.

Page 28 reports revenue per barrel of oil as $95.25, and earnings as $17.45. Again, obviously increasing the average price of one barrel of oil by $5 would increase profits, by around $1 per barrel.

Double that average oil price to $190.50 (oil has gone up by a factor of fifty over the last forty years) and ExxonMobil is looking at more than doubling their earnings per unit. And in that case, the value of their reserves would go up by $1260.92 billion dollars.

In the long term, fossil fuel will run out. And before that happens, climate protection regulation will get serious in limiting oil use.

The trick for the oil companies would be to reduce production before they are actually forced to do so, and while price elasticity is low. Produce less, sell at higher prices, get more profit.

And solve climate change as well.


Published by kflenz

Professor at Aoyama Gakuin University, Tokyo. Author of Lenz Blog (since 2003, lenzblog.com).

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