No answers, but two questions.
At what point does a profit become excessive?
And if you think a company's profit is excessive, what is stopping you taking home some of the profit by investing your hard earned cash in their shares?
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If you look at the % of the pump price that the oil companies, distributors and forecourts take and compare with the % that is taken by tax, I wouldn't say the oil companies are profiteering on car fuel.
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The cost of hiring a drilling rig has trebled in five years.
The material costs of a pipeline - steel - have doubled.
The chances of finding oil are 1 in 7 drills.
If you want to keep having fuel, someone has to explore and invest to produce it to replace the oil extracted from the ground.
The estimated cost of the latest find off coast Brazil is $50 billion ... and 10 years.
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It is also very good if your pension fund invests in these companies.
There was a prediction on the radio this morning saying they expecting the petrol prices to rise by about 20% over the next few weeks! I hope not as the weather is too wet for cycling
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It sounds alot of money BUT its a huge company and I am quite sure that they are investing in alternative fuel sources for when oil does run out, which is worth paying for if you want to preserve personal transport.
At the end of the day, business is about making profit - if they werent making a profit, it would be a bad business.
If I make a decent profit at the end of the year, I dont consider it excessive ( 83% of turnover last year ), I consider it a success.
Fuel prices are high on account of the tax level so id make Our Great Leader your first port of call when complaining about the pump price and he wastes far more of your cash than any oil company.
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BP and Shell say their profit comes from exploration, extraction and refining. Good on them.
But then they must sell a lot of the refined product to filling stations run by, er, BP and Shell.
So aren't they being a little misleading? Aren't they just saying they make money in one part of their operation as opposed to another?
Having said that the tax level remains a huge problem which Brown, the son of the manse, won't face.
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"would 10% profit on annual turnover be acceptable?"
Depends on the business.
'high volume, low margins' type operators - food manufacturers, Weatherspoons etc 5% in a good year. IIRC Tesco profit is less than 5% of t/o, other supermarkets are similar.
Property developer 15% profit is generally used when costing developments. For 10% they probably wouldn't build the property.
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BP, Shell etc make comparatively small profits on petrol - crude oil is where such profits are being generated due to rapidly rising prices.
Without such profits oil companies wouldn't be able to spend billions on bringing us new oil sources, many of which prove far more difficult to prospect and work than current and past fields.
Those who seem to believe that oil companies should subsidise petrol and diesel prices should remember they are not charities - instead, remember that it's the Government that takes more than the lion's share and without any work or investment involved to do so.
On top of that oil companies pay their due taxes, along with the fuel stations; the latter also act as unpaid collectors of vast sums of tax.
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without any work or investment involved to do so.
Pray tell, do you think BP and ESSO build and maintain the roads? Methinks the oil companies are quite grateful to the government for doing that, among other things.
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BP, Shell etc make comparatively small profits on petrol - crude oil is where such profits are being generated due to rapidly rising prices.>>
But crude oil is turned into, amongst other things, petrol which is sold by Shell and BP. If Tesco went into farming and sold themselves milk, they could price it so the profit appeared at the dairy rather than at the retail sale.
>>Without such profits oil companies wouldn't be able to spend billions on bringing us new oil sources, many of which prove far more difficult to prospect and work than current and past fields.>>
Profit is what you have left after you've covered all your expenditure including exploration and R&D, isn't it?
Isn't that why some people can argue that £7bn in the first quarter is a relatively small profit for a megabucks industry?
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Baskerville:
Hang on, taxes taken from drivers (fuel duty, VED and tax on everything car related, including fuel) more than pays for the roads. In fact, it's quite a nice little earner for government. Just take a look at the figures in the last budget. The changing of VED bands alone will bring in an EXTRA £735 million pounds a year (just the change, not total VED income) by 2010!!!
Edited by TheOilBurner on 30/04/2008 at 15:10
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But the roads are not the only thing, are they? Not that tax on fuel is earmarked for oil-related expenditure since it all goes in the same pot, but without proper ports, air sea rescue, shipping lane management, policing and a host of other things done by government, the oil companies couldn't operate here. The idea that the government does nothing in return for fuel taxes is ridiculous. Even the NHS helps the oil companies (and every other company) if only because it means they don't have to provide healthcare benefits for all their employees in Britain (if they do it's up to them).
Now we can argue whether this particular tax is a useful or fair way of raising money for those things, but it has to come from somewhere. 'Nice little earners' for government are of course earners for the state as a whole: we all benefit to some extent. Whether you think the money is spent wisely is another matter and we each have a vote.
Incidentally I think the market can take the current price. If the tax element didn't exist--assuming it wasn't shifted elsewhere--the price would be in the same ballpark as it is now simply because given our current levels of disposable income we seem willing to pay it.
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So let us ask ourselves:
Would you rather BP and Shell be private companies (as opposed to publicly quoted) so that thier profits are not in the public eye and go the private owners (such as Abramovich who owns a large slcie of Russian oil, or like Burton Group owned by Phillip Green, or Virgin owned by Richard Branson or EMI owned by private-equity group).
Would you rather BP and Shell were partnerships (like John Lewis Waitrose) so that their profits were not available to pension funds to share?
Would you rather BP and Shell make less profit and pay less tax to the Treasury? And therefore the Treasury look to the taxpayer to make up the shortfall?
Would you rather BP and Shell HQ be based abroad so that their employees get paid abroad and their income tax and VAT on their spending go to countries abroad?
Would you rather BP and Shell were not UK based (Exxon-Esso-Mobil, Texaco, Agip, etc.)? Remember that when people complain about Tesco profits, they do so only because Tesco reports those profits here; unlike ASDA owned by Walmart, or BAA or Abbey Bank which are in Spanish ownership, or Powergen and Npower owned by Germans. These foreign owned companies' profits seems to become invisible to the UK press and public. Tesco and BP both have generous employee profit share schemes, most pension schemes have very large shareholding in them as their shares quoted on the stock market.
Note that China is buying up BP shares, so it may come to that one day.
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Comment following on from stunorthants above re investment in alternative fuels, I went to a paper presented by Shell a few weeks ago. They are investing millions [ unspecified ] in second-generation biofuels, where the straw left after the edible grain is threshed out is used for biofuel. In theory, this will allow the food part to be used for food instead of leaving the poor to starve.
We are having the same ill to semi-informed discussions here, now that petrol has risen to the equivalent of 75 p per litre. However, our petrol tax is only 36%, plus 12.5% VAT. What hasn't been shown here is the return on investment that the oil companies are getting.
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I heard on the radio the other day that there is a vague plan to plant for biofuel on and around the Chernobyl site. Crops grown there wouldn't be fit for human consumption, so biofuel is produced at nil cost to available food.
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Stu, can you really be making 83%, or have you forgotten expenses? On other postings, you mentioned other competitors were making life tough for you?
The media are often less than creative when seeing large absolute profit figures. BBC, for one, always just send someone off to the pumps to wind up a driver.
It's a free market. I don't care how much BP make. If it's "too much" I expect someone else to enter the market and compete. Unlike the banks, these companies are not a Government-backed quasi cartel; they work and invest like stink to make a profit. Good for them. We're lucky to have them in the UK given that nearly all their money is made overseas. Needless to say, the BBC didn't mention their massive tax bill propping up Gordon et al.
THEY MAKE PEANUTS FROM SELLING PETROL.
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Stu, can you really be making 83%, or have you forgotten expenses? On other postings, you mentioned other competitors were making life tough for you?
I too have wondered about this and asked the question about his overheads at least a couple of times in Stu's various threads. I think the term "profit" may mean something different to non-accountants. At 80% plus profit, it seems that valeting is a good business to be in. High street retailers can only generally manage a margin of 10 to 15%.
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THEY MAKE PEANUTS FROM SELLING PETROL. >>
Tesco operate on wafer thin margins in the grocery business but make huge profits because billions of tuppences and thruppences add up. Take away the petrol pumps and there's less to do with the oil the oil companies extract.
The poster was making the oil companies sound like some sort of charity. They're not. From what everyone has been saying on here, oil is a tough business to be in. So it must follow that you wouldn't be there unless you felt you were making a decent profit.
And without a decent profit you can't have a "massive tax bill".
Edited by Optimist on 01/05/2008 at 11:41
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So it must follow that you wouldn't be there unless you felt you were making a decent profit.
Is that why BP sold off Grangemouth refinery to Ineos 3 years ago?
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I don't know why they sold. They made a decent profit first quarter this year, anyway.
Alternatively: why did Ineos buy unless they knew they could make a decent profit?
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Alternatively: why did Ineos buy unless they knew they could make a decent profit?
Ineos thought (not knew) they could make a decent profit. But as the strike last week proved, Ineos misjudged what they were buying in to.
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As a non-accountant I don't see the problems with the 83% profit margin. As I understand things Stu works on his own and exploits his own skills and abilities.
I see it entirely feasible for him to say charge £12 a hour and spend £1 on materials and £1 on other costs. Giving you a profit margin of 83%.
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As a non-accountant .... Giving you a profit margin of 83%.
How much are you allowing for the cost of labour?
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Stu can you really be making 83% or have you forgotten expenses? On other postings you mentioned other competitors were making life tough for you?
A post P&L profit of 83% on almost any business is almost impossible I would have thought, apart from things like the oldest profession in the world !
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If Stu put his time through his accounts at, say, £10 an hour I imagine that would make a big difference to his figure.
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"I don't know why they sold. They made a decent profit first quarter this year, anyway."
The reason the oil companies are selling these areas of the business is due to events such as EXXON Valdiz. After that, the industry started to to sell off risky parts of the business such as shipping so that they don't get the bad P.R. when a disaster occurs and so that the smaller company would fold because it has no brand it is disposable. It is much better for Shell, BP etc... to be a customer than the polluter. Of course, a bit of digging will show that the same families own these smaller companies as the oil companies.
Edited by Hamsafar on 01/05/2008 at 12:09
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