The people in charge of oil companies have not boasted a stellar media reputation for centuries, but it's about time we examined how fair these caricatures really are.
In this clip from Industry Focus: Energy, Sean O'Reilly and Taylor Muckerman talk about the less-known generous sides of oil a few barons, from John D. Rockefeller's hugely impressive charitable efforts to the more modern Belfer family and National Oilwell Varco (NYSE:NOV). Also, the hosts explain why a high price of gas -- something like $4.50 a gallon, for example -- isn't all that comparable to something like Valeant Pharmaceuticals' (NYSE:BHC) price-jacking scandal.
A full transcript follows the video.
This podcast was recorded on Aug. 4, 2016.
Sean O'Reilly: I did a little research going into this, because I wanted to come up with something good these guys have done. You actually came up with some really good real-world examples. I wanted to do, slightly older, but what Rockefeller had done. By the time he died in 1937, he had donated $580 million.
Taylor Muckerman: Which was a lot of money during his time.
O'Reilly: What do you think that is today? You see these estimates of what these dudes would be worth today...
Muckerman: What year should we set the benchmark at?
O'Reilly: 1937, I guess, I don't know. But he started donating in, like, 1900.
Muckerman: Let's just do 1937. It's probably not going to calculate it fast enough.
O'Reilly: I did the inflation thing, and it's equivalent to $10 billion today.
Muckerman: How much was it? $580,000?
O'Reilly: $580 million.
O'Reilly: Yeah. It was like half his net worth.
Muckerman: That would be $9.8 billion.
O'Reilly: Yeah, that's what I came up with. But, I've seen these other estimates which are supposedly more accurate, and they compare Rockefeller's wealth to percentage of U.S. GDP, and at its peak, it was at 2% of GDP. That would put him at, like, $300-400 billion today. You look at the size of ExxonMobil and BP and all of them, and he owned 25% of Standard Oil. So, I don't know, but it seems like he'd be in the tens of billions. Anyway.
Good things he'd done... he may have been an unsavory guy to compete with in business, but --
Muckerman: But he didn't compete long. He at least put you out of your misery.
O'Reilly: Yeah, it would be quick. He took a deep interest in higher education for African Americans. In 1882, he began a series of gifts to the Atlanta Baptist Female Seminary, which became Spelman College, named after his wife. He also donated to other African American colleges at the time -- Tuskegee Institute and the Morehouse College. He helped found the University of Chicago in 1890 with a gift of $600,000. Another organization that's doing some big things to this day is Rockefeller University, which is primarily a medical university. I just went to their Wikipedia page, and there are dozens of Nobel prizes and medical discoveries and vaccines. It was really impressive. And, I think I'm butchering this, but I think he did something with polio, all kinds of stuff.
Muckerman: Well, and his foundation is completely out of oil stocks.
O'Reilly: Oh, that's right! Did that happen last year?
Muckerman: I think it was last year, yeah.
O'Reilly: They sold completely out of -- yeah, that's right. I forgot about that. Now, more modern examples, you've met National Oilwell Varco CEO Pete Miller, what, three or four times?
Muckerman: He was the CEO when we met him.
O'Reilly: Oh, that's right. And he's a nice guy.
Muckerman: It was a couple years ago, three years straight we went to Houston and met with him. Yeah, the second time we went down, invited myself and Joel and Robert to their annual customer appreciation cookout. Several tons of shrimp were consumed, and hundreds of kegs were drank. He was jolly, inviting everyone there. Good guy.
O'Reilly: How many people? You're talking about National Oilwell Varco, so there's lots of...
Muckerman: Yeah, it was all day long, so people were coming and going. But it was a big outdoor expo of all their equipment, also "come eat with us."
O'Reilly: Taylor Muckerman and I actually...
Muckerman: That's me.
O'Reilly: I'm sorry. Tyler Crowe. Brain flash.
Muckerman: That's OK.
O'Reilly: Yeah, Crowe and I went to Houston last October, and we met with a couple of oil execs, and I got the distinct impression, when I sat down with Robert Workman at DistributionNOW (NYSE:DNOW), which used to be part of National Oilwell Varco, he was really just focused on developing his team and talent. They have weekly workshops to develop his executive teams, 30-40 people. He really just seemed to be focused on doing right by his customers. Laser focused on that. He wasn't, like, sitting there with a cat plotting out...
Muckerman: No, there's no malcontent, at least that you can tell.
O'Reilly: Yeah. I mean, maybe he has a secret lair. But what was this about Enron or something? The Belfer family?
Muckerman: Yeah, the Belfer family had founded a couple oil companies, one of which was purchased by Enron. They didn't get cash for it. They got stock and convertible preferred shares, so...
O'Reilly: I googled this after you mentioned it to me, they lost like $2 billion.
Muckerman: Yeah, they eventually floundered. But, I think, in the meantime before that, they'd put some cash in some investable markets outside of Enron. And they'd hedged a lot of their Enron stock at some point.
O'Reilly: Oh, they did?
Muckerman: Yeah, so somehow, they still had a ton of money, and they donated tens of millions to various scientific endeavors in the medical field. Out of Enron, I think it was close to $100 million they've donated.
O'Reilly: Yeah. It's not the $2 billion they once had, buy, hey, it's not their fault. (laughs)
Muckerman: Hey, if I lost $2 billion, I don't know if I'd be giving hundreds of millions of dollars away. You have to applaud that. Out of the burning ashes of Enron, maybe the cure for some hard-to-cure disease emerges.
O'Reilly: So, we've run through all this stuff. Do you think there should be any qualms about investing in oil companies? Are they evil? Is this deserved?
Muckerman: You find evil CEOs in any sector of the economy.
O'Reilly: We're using "evil" loosely here. (laughs)
Muckerman: (laughs) Yeah, this isn't world domination evil. But, I guess, misdirection, misallocation of assets maybe for their own personal benefit, or just to seize the grandeur, like Valeant becoming the biggest company on the TSX at one point, because the CEO was doing questionable things in the acquisition market.
O'Reilly: Jacking up drug prices.
Muckerman: Yeah, jacking up drug prices for very important...
O'Reilly: That's another situation, that goes to my other theory -- we need the drugs, so we hate the guy who jacks up the price.
Muckerman: Yeah, exactly. Especially when he is jacking up the price quite significantly.
Muckerman: There's a reason for that, whereas, I think, at least with oil prices and gasoline prices, a little bit more of a supply and demand dynamic there, whereas with these drugs, until they come off their patent and generics come out, you're looking at total lack of competition. So they can basically charge whatever they think they can get away with. Apparently Valeant bumped up against that ceiling. I think they can hand a little bit to Martin Shkreli, or however you pronounce his last name --
O'Reilly: I don't know how to say it, but I know who you're talking about.
Muckerman: He blew the roof off the whole situation, and Valeant got caught up in the back draft.
O'Reilly: Yeah. Before we wrap up here, when oil prices were crazy high, and everybody was like, "ExxonMobil is evil and they're screwing us," it kind of bothered me, because even at its peak, ExxonMobil's return on capital and profit margins and everything never came close to something like Apple.
Muckerman: Yeah. And you see these high gas prices, and I don't know if everyone realizes, but a lot of that is going to the government. Just because Exxon's brand's name is on the pump doesn't mean they're making all the profits. There's a big chunk of that that's a tax that the government is taking. But they have to compete with the gas station right across the street. Unless the whole industry is in cahoots, it's not just the CEO of Exxon or the next biggest competitor that's driving these gasoline prices up. It's a globally traded commodity.