What to do with your gas rebate check

Not about turning over the check to the political party of your choice, but an interesting read about why this would be done in the first place. From IBD Editorial Page:

Men In Black

ENERGY: The same people who vilify profitable oil companies ignore the top line of financial statements and don't know the first thing about what it takes to make the fuel that drives our economy.

Imagine this: You make a product that we literally can't do without. Yet the government tells you where you can and can't go to get the material to make it. So you're forced to explore deep beneath the ocean and overseas for new supply, investing billions.

What you can't find, you import. But because your core material is a commodity, its price is subject to wild swings on the world futures market, making it virtually impossible to budget and plan. (Incidently, for every dollar that is made on the world futures market by one oil company, there is another oil company losing a dollar; its a zero sum market.)

In short, your business is a series of towering peaks and death valleys.

Yet when times are bad, you wisely plow billions back into capital improvements and R & D to find cheaper and more efficient ways to make your product. (Does anyone care that Exxon actually invested more money than its made over the last 10 years?)

When times are good, you use your profits to also buy back stock to benefit your shareholders - while still managing to sell your product cheaper than a gallon of milk.

For all of your efforts, the goverment proposes punishing you with a windfall-profits tax after already taking 35 cetns of every dollar you earn.

Meantime, the media demonize you as a modern robber baron. To them, you are not a CEO; you're a cigar chomping fat cat smoking your profits while windows freeze in their basements and average Joes are pawning goods to top off their tanks just to get to work.

Your profits this year will surpass even last year's combined record of $64 Billion and will be many times greater than the profits of the combined profits of the nation's top high-tech companies.

Those numbers, according to the well spoken idiots of the punditry are "obscene" - the result of "price gouging" consumers at the pump and overall "profiteering."

But what's obscene is the pundits and politicians own financial illiteracy, not to mention their fundamental lack of understanding about how the energy industry operates.

Yes, profits are soaring for big oil, but they represent a small profit margin for every dollar of sales - which are enormous and also growing thanks to the robust world oil demand, particularly in China and India. Fully 75% of Exxon's sales come from outside the US.

Truth be told, big oil makes far less money on each dollar than many other industries - half in the case of the internet industry. But the others aren't being pillorid for operating legally within our profit based economic system, though they have far fewer obstacles and hardships to overcome to turn a buck.

Together, the big three - Exxon, ConocoPhillips and Chevron - last quarter earned 8 cents on every dollar of sales. In contrast, Google, Yahoo and eBay made 19 cents on every dollar.

In other words, big oils profit margin of just 8 cents per dollar - for themselves and for their shareholders who put their money at risk - hardly amounts to profiteering and is perfectly in line with other industries. That margin, by the way, has stayed within the 7-8 percent range for years. (Incidently, in Missouri, with $2.50 gas, state and federal taxes make up 16 cents per dollar, twice as much as the oil companies receive in profit.)

Going forward, it is likely to stay that way - even as profits in absolute terms continue to grow, along with revenue, fueled by strong demand from China and India. Their fast growing economies are just beginning to build cars for their huge populations.

But don't expect Democrats, medoerate republicans and their green loggyists to stop squawking, even as they continue to contribute to the very profits they protest by limiting the supply of oil through bans on exploration and drilling in Alaska and the outer continental shelf.