ENORMOUS SURGE in Exxon's profits last summer is evidence that the oil crisis of 1979 took the company by surprise. Its net income for those three months was $1.1 billion, an interesting 120 percent profit over the same period last year. A wellrun oil company -- and Exxon is run superbly well --tries to avoid this kind of leap in profits. Spectacular profits mean high taxes and unwelcome public attention. It's better and smoother to stabilize profits and put rising revenues into building a bigger company.
In the 1974 oil crisis, also a surprise, Exxon's profits shot up to a level that -- if you adjust for five years' inflation -- was higher than the $4 billion or so it will report this year. Subsequently, its profits dropped back to the pre-crisis level as it spent more on exploration, research and expansion. That was the general pattern in the industry, and the same thing will doubtless happen again next year. Most of the companies are preparing for a day when oil will be mush less plentiful and perhaps less profitable than it is today. If you are interested in the future structure of the American economy, and competition within it, you ought to be less interested in quarterly profits than in the scale and direction of these companies' internal reinvestment.
The companies plaintively ask whether it is not in the nation's interest, as well as their own, for them to keep buying more leases, drilling deeper, opening more coal mines and stepping up solar research. The answer is, of course, yes -- up to a point. But there is that point at which this immense increase in revenues to one category of companies threatens serious distortion of the American business world. Exxon provides an example with the acquisition of Reliance Electric Co. and its highly efficient new motors.
Exxon attributes much of these high earnings to a one-time change and to luck in the currency exchanges. But a couple of additional factors also spring to mind. Because of last spring's shortage and fears of more to come, it was a seller's market in oil last summer. Operating margins widened greatly all the way from the well to the corner filling station. Exxon is also one of the four companies -- with Texaco, Mobil and Socal -- that have access to Saudi Arabian crude oil. The Saudis are now, for political reasons, selling their oil for $3 a barrell less than the world average. Exxon, mindful of its own political relationship with the Saudis, has been selling at prices a little below its competitors' to demonstrate that it is passing some of this benefit on to the American consumer. But some of this benefit also turns up on Exxon's balance sheet.
The White House argues that Exxon's profits demonstrate the case for President Carter's windfall profits tax. But there's a better argument. To protect the American economy aainst further oil crises and disruptions, the Carter administration has made two decisions -- necessarily and correctly -- that will mean still higher oil prices. It has committed itself to impose rigid quotas on oil imports and to decontrol domestic oil prices. When public policy raises prices, it is good and reasonable policy to recapture some of the increase for the public.