Banner Graphic, Volume 10, Number 71, Greencastle, Putnam County, 26 November 1979 — Page 7
Oil profits
Rip-off or reinvestment? Much depends on how you analyze the figures
By ANTHONY J.PARISI c. 1979 N.Y. Times News Service NEW YORK So far this year, the five largest American oil companies have earned a record $7.9 billion in profits, or 75 percent more than they made in the first three quarters of 1978. At the same time, according to their financial reports, they have poured slO.l billion back into their businesses, roughly two-thirds of which went toward finding and developing new energy supplies. Thus it is probably true, as some oil companies contend, that the industry is spending more money to assure the nation’s future energy supplies than it is currently reaping in profits. But this assertion is at best incomplete. The full picture of how the oil industry is using its money includes not only profits but also other components of cash flow, such as depreciation and depletion. Using the cash flow yardstick, the slO.l billion that was reinvested by the five largest companies amounts to a bit more than half of the sl9 billion in funds available for such purposes during the first nine months of the year, the companies’ financial disclosures show. This is the main finding from a detailed analysis of the companies’ financial statements undertaken by The New York Times after the oil companies reported huge gains in their third-quarter profits. Those profit increases, which exceeded even the sharply higher earnings of the two previous quarters, prompted widespread anger, suspicion and concern among the industry’ critics. The analysis shows that, in addition to t heir capital reinvestments, these complies also paid out $2.7 billion in dividends ' committed $1.9 billion to buy other
opinion
LARRY GIBBS Publisher
Tom Wicker ~ * Kissinger must share responsibility for 'biggest debacle' in years
By TOM WICKER c. 1979 N.Y. Times News Service NEW YORK Aside from the ten Republicans and three Democrats who are running for president, another high-level political campaign appears to be well under way that of Dr. Henry Kissinger for another trip as Secretary of State. This week in Austin, Tex., for instance. Dr. Kissinger did what even the most political of those running against President Carter have been reluctant to do. At a meeting of the Republican Governors Conference, hardly a nonpolitical forum, he attacked Carter on the issue of Iran. At a time when the president was trying to extricate 49 Americans being held hostage in Tehran a time, too, when responsible leaders were urging Americans to restrain their resentment at this outrage Kissinger declared that Americans are “sick and tired of being pushed around” and asked of Carter’s foreign policy: “Could it be that there is no penalty for
Russell Baker Thanks to press and TV, a trip to the polls seems almost pointless
By RUSSELL BAKER c. 1979 N.Y. Times News Service NEW YORK Undeterred by the fact that not a single vote has yet been cast, American journalism is fast putting the 1980 presidential campaign behind it. Reading the papers and watching the tube, you get the impression it’s all over but the voting. Deep immersion in this ocean of words leaves the potential voter humbled to the point of feeling useless. What needs the country with a mere voter when it has so many swamis of the pointed phrase and the authoritive microphone to settle the national hash without the nuisance of ballots?
Their opinions are their own All columns appearing on the Opinion Page reflect the views of their authors and are not necessarily the opinions of the Banner-Graphic or its individual employees.
companies and earmarked $1.5 billion for a variety of other disbursements. After all this, $2.8 billion still remained in their businesses as retained earnings. The slO.l billion that they plowed back into their operations consisted of $7.8 billion in capital outlays plus $2.3 billion in current expenditures on exploration and similar activities. In contrast to the 75 percent increase in profits, these “capital and exploration expenditures” increased only 13 percent over the amount laid out in the comparable 1978 period, though capital expenditures commonly lag profits in good times and lead them in lean times. The companies covered by the analysis were the Exxon Corp., the Mobil Corp., Texaco Inc., the Standard Oil Co. of California and the Gulf Oil Corp. They were chosen not only because they are the biggest but also because they are the most integrated and most international of the domestically based oil companies. Together, they accounted for ajmost half of the $16.3 billion in overall profits reported bv the top 25 domestic oil companies during the first nine months of the year. The data came mainly from the 10-Q reports that the companies are required to file with the Securities and Exchange Commission each quarter. In addition, on request, the companies provided further details on the figures in these reports, which are themselves more detailed than the financial reports routinely sent to shareholders. Not all five broke out the figures in the same way, however, so some of these breakdowns had to be estimated. The analysis showed the following: About 40 percent of the companies’ $7.9 billion in profits came from their domestic operations, yet more than half of their slO.l billion in capital and ex-
ERIC BERNSEE Managing Editor
:ff :: -jjH f ft
HENRY KISSINGER opposing the United States and no reward for friendship to the United States?” (For these and other quotations I am in-
Although the voting is still a year away, press and TV have already eliminated a number of would-be presidents, are straining to get rid of more of these wretches before the first primary and have reduced the competition to a field small enough to provide the melodrama necessary to make politics amusing journalism. It is no wonder that fewer and fewer Americans bother to vote any more when election day finally arrives. By that time press and television have conducted the election for us and a trip to the polls seems superfluous. The journalists ridicule this idea, but at the same time promote it by the assiduity of their labors. For the past six weeks and longer they have been faithfully pointing out that most of what passes for political news at this stage of the business is bound to be insubstantial and inconsequential. After this bit of ritual lip service, however, they turn into alchemists and, 10, nonsubstance and inconsequence or become the heavy tonnage of reality. Even casual followers of the swamis have seen ponderous events during the past few weeks. Is there anyone, for example, who does not know that Ronald Reagan has become the “front runner”
ploration outlays was invested in the United States. Including acquisitions, the companies reinvested a total of nearly sl2 billion domestically. Worldwide, roughly two-thirds of their capital and exploration expenditures went toward exploration and production of oil and gas, about 15 percent went into refining and marketing, 10 percent into other forms of energy and into non-energy operations and 5 percent into their chemical businesses. Of the $2.3 billion reported as current (as opposed to capital) expenditures, exploration itself accounted for $l.B billion. Profits provided less than half (about 47 percent) of the companies’ total capital funds. The rest came from funds generated by depreciation charges and similar deductions (41 percent) and from a variety of other sources, including new borrowings and assets that were sold off
debted to Hedrick Smith of The New York Times, who covered Kissinger’s Austin speech.) No doubt this accurately describes the feelings of many Americans and no doubt some of them are asking that question which are not good reasons for a supposedly responsible diplomat to be encouraging them. No one should know better than he that the effect of such remarks from someone so prominent will be to increase public pressures on the president to take precipitate action; and no one used to be more prompt to denounce such talk as irresponsible when it was directed at the Administrations he served. Kissinger also suggested that the United States would not be able in the 80’s to deter the Soviet Union from foreign adventures if American policy was “forever apologetic” or if “the United States abdicates before every challenge.” The obvious implication of these phrases was that we so conduct ourselves now again, a criticism not helpful, even if it were accurate, during the Iranian crisis.
among Republicans? Or that Reagan’s enviable lead is, nevertheless, not so enviable as it appears from examining the first non ballots? And that the reason for this is that Reagan’s frontrunnerhood is “soft”? And why is it “soft”? Because Reagan may have been “around the track once too often” and may, therefore, be too “familiar.” What’s more, his age counts against him. Reagan is over 65. All this becomes clear in the wake of. In the wake of what? In the wake of heavy non voting in all 50 states and the District of Columbia. Since one of the largest and most active voting blocs in the country is the over-65 group, why is Reagan’s age not a political asset? The journalists are silent on this. Doubtless they will study next week’s meaningless non-elections in crucial Arkansas and give us the answer. The interesting Republican candidacy of Rep. John Anderson has gone down the pipe. Anderson has been untested at the ballot box and found wanting. Anderson won’t do. Surprisingly, George Bush will. Bush has shown “surprising strength” at the non polls, which is more than he showed at the polls when he ran for the Senate in Texas and got beat.
(12 percent). —Similarly, the $7.8 billion in reinvested capital accounted for less than half (about 47 percent) of the capital funds at the companies’ disposal. The rest went into retained earnings (17 percent), to shareholders in the form of dividends (16 percent), into acquisitions, notably Exxon’s purchase of the Reliance Electric Co. and Mobil’s purchase of the General Crude Co., (11 percent) and toward paying off loans and making miscellaneous investments (9 percent). Of the $2.8 billion in retained earnings that the companies reported, the biggest individual increase was Texaco’s $1.2 billion, although Exxon’s $691 million addition to capital reserves might have exceeded Texaco’s if Exxon had not bought Reliance Electric. Even with that sl.l billion purchase, however, Exxon reinvested $3.2 billion into its existing
Apparently in a mood for such overstatement, Kissinger described the collapse of the shah as “the biggest debacle” for American policy in recent years. So it may have been, but he did not mention his own considerable responsibility, and that of the presidents he advised, for that collapse. In fact, at least six administrations, from Eisenhower to Carter, share the blame, none more so than the Nixon administration and Henry Kissinger. Specifically, it was Nixon who in May, 1972, embraced the shah as our “protector” in the Persian Gulf area and guarantor of our oil supply. The sljah happily accepted these designations on condition that the United States help him put down the Kurdish revolt and give him unrestricted access to its most advanced weapons and the technicians to help operate them. Kissinger then instructed the secretaries of State and Defense that Nixon wished the shah to be sold the arms he wanted (save nuclear warheads), without even the customary staff review. The Senate Foreign Relations Com-
Speaking of Texas, John Connally is the big threat to Reagan. Connally has the bigmoney people behind him. That’s what helped Nelson Rockefeller get the Republican non-nomination. Moreover, Connally is a renegade Democrat camping among the elephants, and the elephants have only three or four lifelong Republicans to choose from now that journalism has reduced the field. And there is Sen. Howard Baker. Poor Baker. He has been a disappointment in every meaningless event to date. Journalism has already cut him down to a possible vice presidential nomination, which is more than Gov. Jerry Brown has been able to win. At this stage of journalism, the jig is up for Brown unless Sen. Edward Kennedy is beaten by Chappaquiddick. Journalism, of course, is already beating Kennedy with Chappaquiddick as vigorously as the professional creed permits. And since Watergate, it permits plenty. Punch drunk by accusations that they were tougher on Nixon than they were on John Kennedy and Lyndon Johnson, the swamis seem determined to take redemption out of the junior Kennedy’s hide. Followers of the press election will have noted that Kennedy’s lead over President
operations, or two and a half times as much as any of the other four. In assessing a company’s strength, financial analysts consider its cash flow more revealing than its profits alone, since cash flow covers other sources of funds, including borrowing. In particular, depreciation is a major source of additional investment funds. Depreciation is simply a charge against current revenues to help recover the cost of assets that last more than a year. Where natural resources are concerned, depreciation is known as depletion, a charge to recover the cost of finding and developing those resources. The idea is to match an asset’s cost with the revenues it helps to produce. Suppose, for example, a company pays cash for a SIO,OOO truck that is expected to
mittee pointed out in 1976 that this extraordinary decision had resulted in arms sales to Iran totaling $10.4 billion, including four destroyers more sophisticated than any then in the United States Navy and 80 advanced F-14 fighter planes. As a consequence of these arms sales, 24,000 American technicians were in the shah’s service in 1976. Former Under Secretary of State George Ball, in The Economist for Feb. 17, 1979, aptly described all this as having “led the shah to a megalomania that cut him off from all contact with reality and the Iranian people.” That megalomania, the shah’s corruption and his savage oppression of his own people never once protested by any American administration, particularly those graced by Kissinger was the real cause of the “biggest debacle.” And only self-serving historical revisionism ian make it appear, as Kissinger has tried to do on other occasions, that Carter could have used American power to keep the shah on his throne. At Austin, he hedged
Carter has already climbed. If events continue in journalism at the present pace, the election should be over before the New Hampshire primary. This could be a blessing for the electorate, though the journalists may have second thoughts and decide not to grant it, once it dawns on them that ending the election
All about credit...
By The Associated Press Want to know more about credit? The Federal Deposit Insurance Corp. can help. The corporation has a series of pamphlets on credit laws. They are available, at no charge, from FDIC. Services Section. 550 17th St. N.W.. Washington. D.C.. 20429. Here is a list: —Truth in Lending. What lenders have to tell borrowers in connection with credit finance charges and annual percentage rates. —Fair Credit Billing. How to deal with billing errors and defective merchandise and how to protect your credit rating.
November 26,1979, The Putnam County Banner Graphic
last five years. As it reckons its profits, it would deduct $2,000 each year as a cost until the SIO,OOO is recovered. But unlike payroll expenses, for instance, or money spent on supplies, the yearly depreciation charge is not an actual cash outlay. The $2,000 remains at the companies’ disposal, just as profits do. Ordinarily, analysts say, companies must invest at least an equivalent amount in new capital assets, or they will shrink. Thus, when oil executives point out that the companies are spending more money than they make, some people think that means the companies must be going deeper into debt. They are not, at least not for that reason. Most industries, particularly capital-intensive ones, spend more than they make, simply because their depreciation expenses are so large that they make relatively little on each dollar of sales. Mobil, for example, reported profits of $1.4 billion on revenues of $33.5 billion for the first nine months of 1979. During the same period, Mobil said, its capital and exploration expenditures totaled $2.4 billion, of which $2.0 billion went into energy. But the company’s cash flow statement shows that $2.1 billion of the $2.4 billion total was capitalized. Moreover, $782 million of the capitalized portion covered its purchase of the Genera! Crude Oil Co., j so only about $1.3 billion was money ac-; tually used to keep its existing operations going. Although Mobil made?these outlays this year, the capitalized portion will be charged off in the years ahead, generating capital for reinvestment and for other disbursements as it is. By the same token, in the first nine mon- 1 ths of this year. Mobil charged against its J earnings some sl.l billion that it» capitalized in past years. In addition, the, company’s cash-flow statement showed; that $123 million in other funds were also » available for disbursement during the first three quarters. These sums, coupled with its profits of $1.4 billion, provided Mobil with mtre than $2.6 billion in working capital during the nine-month period. In all, Mobil took in enough money during this period to cover all its capital outlays. The company did not have to dip into its cash reserves and it did not have to borrow even to acquire a sizable independent producing company.
this notion by saying that the United States had not been “able or willing to offer him support or even understanding.” Not surprisingly, Kissinger did support the Carter administration’s decision to admit the shah to this country for which I his own persistent efforts on the shah’s behalf were heavily responsible. He told* the Republican governors that it was “a. debt of honor we owed him as an in-* dividual” and “a friend of 37 years.” This confounds the hard-eyed geopolitical realism Kissinger usually extols. The Carter administration had been repeatedly warned by its diplomats and by the CIA that admitting the shah would endanger the embassy in Tehran; still the president decided to accede to the Kissinger view and pay that dubious “debt of honor” to a man who neither deserved honor nor could any longer serve American interests. The result may yet be a bigger “debacle” than the shah’s downfall, and one for which Henry Kissinger again will share responsibility.
quickly will require them to go back to Washington and resume their struggles to deal with the economic story. Economics is no fun. You can’t dispose of inflation with a non event, the way you can toss presidential candidates over the wall after consulting your navel.
—Fair Credit Reporting Act. What your rights are regarding files put together by credit bureaus. —Equal Credit Opportunity and Age. Explains to what extent a lender can take age into account in deciding whether to grant. —Equal Credit Opportunity and Women. How the law prohibits discrimination because of sex or marital status. —Consumer Information. Six consumer protection laws which are important to bank customers and what they require. —Your Insured Deposit. Examples of insurance coverage of bank accounts under FDIC regulations.
A7