News Flash: Real Estate Twice as Profitable as Oil & Gas

It's Not About the Money... "On average over the past five years, the profitability of America's oil and natural gas industry is far less than many other major industries, like banks, pharmaceuticals and real estate." (Who knew?)

This quote is from a full-page ad in the Wall Street Journal ( Jan 26, 2006) entitled "Straight Talk on Earnings, a Message from America's Oil & Natural Gas Industry."

According to the advertisement, the real estate industry has earned 10.8 cents for every dollar of sales -- twice the earnings of the oil and natural gas industry (5.8 cents).

Just four days later, Exxon Mobil's announced record-setting profits of $36.13 billion in 2005 (on revenues of $371 billion). Was the timing coincidental? Hmm. Maybe not.

"Anxious about criticism of the [Exxon Mobil] results, executives began laying the groundwork months ago to try to prevent a political reaction against the company and the energy industry. For example, Exxon Mobil paid for advertisements in leading newspapers arguing that profit margins in the industry lagged far behind those of other industries, like pharmaceuticals and banking." (New York Times, Jan 31, 2005)

So I e-mailed the American Petroleum Institute (API), as the ad copy suggested, "to learn more." How, I wondered, did they calculate real estate's average profits on sales of 10.8%?

Amazingly, I received a very prompt reply from a person identified as the "Manager, Energy Market Issues" at API. But all this person could tell me is that PricewaterhouseCoopers compiled recent information for "a sample of large real estate companies around the country," and they combined this with information on earnings of 25 major industries previously tracked by BusinessWeek.

Are API's numbers accurate? What do you think the average profits of the real estate industry are? ... Note: Currently I’m traveling and will check e-mail only sporadically for the next two weeks.

-- Peter Pike