Petroleum is even more profitable than finance. Do you need a proof ? This post is extracted from the longer (too long?) post revenues per employee sum up world’s troubles. First, I give you again the chart of revenues and profits per employee of a few top companies
But, maybe you do not believe me when I say that oil is more profitable than finance. Indeed if you look closely at the chart, the profits per employee of Goldman Sachs are 380k$/E while it is only “379.18k$/E” for Exxon. That it is about the same, but still, finance wins.
So, to support my point, let me add other data: (from Fortune 2008 and 2009 - though notice that the results do not change much between both years)
- List of the industries generating most revenues per employee
- List of the 10 highest paid CEOs Ok the first one is from a finance company (Blackstone), the second one is from a software company (Oracle) but, be seated, “The next seven highest paid CEOs all helm energy companies: Ray Irani of Occidental Petroleum (OXY, Fortune 500), John Hess of Hess Corp (HES, Fortune 500), Michael Watford of Ultra Petroleum (UPL), Aubrey McClendon of Chesapeake Energy (CHK, Fortune 500), Bob Simpson of XTO Energy (XTO, Fortune 500), Mark Papa of EOG Resources (EOG, Fortune 500) and Eugene Isenberg of Nabors Industries (NBR).” (CNNMoney) Shouldn’t we feel sorry for traders who are not working in the oil industry?
- 25 top-paying companies First one is a law firm (Bingham McCutchen), second one is a Medical Doctor firm (Lehigh Valley Hospital & Health Network), interestingly, the 3rd, 4th, and 5th company are also law firms (Orrick Herrington & Sutcliffe, Alston & Bird, and Perkins Coie). And the 6th one at last is an oil company: Devon Energy “The largest independent oil and natural gas producer in the U.S., Devon pumps half a million barrels of oil a day” (CNNMoney). One word about lawyers and MD: I am really not shocked to see them first because a lawyer or a MD has much more responsibility than an engineer. So even if their job may be in some cases less complex (does not mean easy obviously) than engineering, it is definitely worth more money per person. Back to our subject, Goldman Sachs is only 11th, behind, another oil firm (EOG Resources) and behind sofware companies (among other Adobe Systems).
- Best big companies to work for The first one is… an oil company: Valero Energy the Largest oil refiner in North America! And the second one is nothing else than Goldman Sachs! However, notice that the ranking puts a high weight on the size of the company because else in the ranking of the best companies to work for Goldman Sachs is before Valero and that the first company is Google (2007).
Petroleum industry is way too profitable, so what?
Petroleum industry is the most profitable because oil is the most useful thing around. Oil is energy and the world needs energy. There is a high demand for energy so energy should be expensive. OK but this does not explain why oil companies revenues per employee (and wages) and profits are so high.
In fact, wages and profits should be greatly lowered by the expected high cost for unextracted crude oil. Cost of crude oil should appear in the balance sheet of an oil drilling company, and then in all the supply chain. Well, crude oil costs do appear in terms of concessions. But they are way undervalued. As an approximation you can neglect these costs. You can think that current cost of unextracted crude oil is ZERO$. That exactly means that nobody owns it and that reserves are unlimited. In my opinion everybody owns it, just like every natural resource, and it is limited. The market of natural resources (oil among others) should take into account in its pricing process all the natural reserves and not only the extracted reserves.
And to pronounce a taboo word : taxes. Profits from petroleum companies should be more taxed because these profits are not merited. They are not justified by an extraordinary complexity or by an extraordinary innovation. The useful innovation would be to find substitutes to petroleum.
Maybe if, like many, you really hate taxes, one other solution would be to force petroleum companies to highly invest in fundamental research for new energies.