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API: Industry Earnings in Line With Those of Other Industries

WASHINGTON May 3, 2006 - The American Petroleum Institute today issued the following statement regarding oil and natural gas company earnings:

“Regardless of how company earnings or returns are viewed, those of the oil and natural gas industry are well in line with those of other industries. While there are different ways to measure industry profitability, every single one of them shows that the oil and natural gas industry provides a fair and reasonable return to its investors – one that is not out of line with those of other industries.

“The numbers do not lie and they do not have to be spun. They clearly indicate that companies that provide the fuel to keep America moving are on a par with other industries when it comes to what they earn for their shareholders.

“The industry has traditionally chosen to use earnings margin – net income divided by revenue – because that is a figure that is the most widely understood and relevant to consumers interested in knowing how much companies earn for every dollar of gasoline sold. Publications such as Business Week and Oil Daily regularly report on company income and revenue. It provides a good way to measure how industries perform compared to other industries.

“The latest data show that in 2005, oil and gas earned 8.5 cents on every dollar of sales compared to an average of 7.7 cents on the dollar for all U.S. industry. Over the last five years, the oil and gas industry’s earnings averaged 5.9 cents on the dollar compared to an average for all U.S. industry of 5.6 cents on the dollar.

“Another measure of industry performance is earnings from investment. This is the earnings divided by the amount of investment in place and measures the return on invested capital. It also is a measure of the quality of company management, in that it shows the success of its investment decisions. This measure is used in company shareholder reports because it provides an indication of the success of their investment decisions. API typically uses earnings margin because consumers are interested in how much of each dollar they spend on gasoline goes to company earnings.

“However, even the earnings from investment figures show clearly that the oil and natural gas industry is in line with other industries. The U.S. Energy Information Administration reports that in 2004 (the latest available data), the return on investment – specifically the net income divided by net investment in place – was 18.9 percent for the oil and gas industry and 17.4 percent for the S&P Industrials. From 2000 to 2004, the average was 13 percent for the oil and gas industry and 12.5 percent for the S&P Industrials. And from 1995 to 2004, oil and gas realized 10 percent compared to 13.9 percent for the S&P Industrials.”

News media contact: Juan R. Palomo, 202-682-8283

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