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Exxon, Chevron, Conoco Lose $239 Billion In Value, Reason Includes Some Municipalities' Revenue Strategy

Source: U.S. Energy Informationa Administration

AUGUST 20, 2015

Recently Exxon (XOM), Chevron (CVX) and ConocoPhillips (COP) lost approximately $239 billion dollars in value. While competition, oversupply and alternative energy and transport have weighed; one factor is conservative oil usage resulting from some municipalities seemingly heavy-handed revenue strategies. Where small traffic infractions appear to be a basis for some municipalities to use constituents as sources of revenue, because they drive and for example, allegedly: Fail to use a turn signal.

There is a complex balance between legitimate use of force and what is perceived by public opinion as unnecessary use of municipal powers. Some politicians have written bills, that appear to get ignored, that effectively call out municipalities engaging in seemingly harsh, overreactions to traffic infractions. Ultimately, the overall effect has hurt Big Oil, retail and local / state economies. Municipalities frequently defend their practices, because they depend on both legitimate and illegitimate financial penalties.

This article will draw the comparison, between the effect of prominent instances of perceived municipal heavy-handedness, to less consumer spending and more conservative oil usage. The important factor to keep in mind is: In general every business has stronger and weaker sides, from company to company. There are strong municipalities and then there are weak municipalities. The reasons may not seem obvious, strength is not simply measured by wealth, however: Quality of life.

Some municipalities appear to treat their constiuents like the only thing that matters is the quality of life of local / state politicians and municipal employees. Rather than quality of life for everyone. Municipalities focused on quality of life, for everyone, attract more people and businesses. While municipalities focused on themselves, and friends of politicians, sometimes lose the larger spectrum of business.

Given the fact Exxon, Chevron and Conoco lost nearly a quarter trillion dollars in value recently, the point is simple. Though municipalities who implement alleged overzealous and hurtful municipal revenue strategies, whereby drivers: Have died, allegedly over the smallest of infractions, and been beaten and so on, and discouraged from living in that municipality, driving and shopping; over the years adds up to not only hundreds of millions of dollars in lost revenue, for Big Oil and retail, it has translated to billions of dollars of value lost.

When Municipal Revenue Strategy Leads To Less Consumer Spending Economies Are Drained

The main business principle to consider is common sense. The related news reports tend to share a common denominator:

    • A municipal employee, like a traffic officer, has a job to keep the roads safe.
    • Their job is nothing short of dangerous and risky.
    • Generally these municipal employees have to see the worst of the worst
    • At times they are given the job of stopping motorists.
    • They do not know what to expect, so some erroring on the side of safety, makes sense
    • However, apparently; at times infractions are exaggerated, as part of municipal revenue strategy
    • Also, allegedly some municipal employees use some infractions as an opportunity to use force unnecessarily.

It is logical to conclude: Many municipal jobs are not simple. In general traffic officers pull people over speeding and write them a ticket. The pace and quota imposed by municipalities to gain more revenue, appear to cause numerous incidents where particular municipal revenue collection strategies devolve into instances where either the driver, passenger, bystander and / or traffic officer is involved in a fight. Either initiated by one of, or both parties.

Though sometimes it appears a caveat is, municipalites can potentially benefit if an infraction turns into a major legal struggle. Some municipalities appear to make a business out of it. One municipality was so notorious and allegedly harrassed so many people, over infractions; to the point the state threatened to dismantle their entire town.

According to some municipalities' own reported statistics, they choose to focus on people who are ethnic, racial and / or religious minorities. Where it appears common for middle class groups, part of the majority, to either get a ticket or simply not be stopped at all for smaller infractions. It appears other municipalities effectively act like the focus of the revenue strategy for traffic infractions, excludes basic Constitutional principles. This point is commonly raised by people, including some legal analysts and politicians.

Revenue collected from traffic infractions is composed of both the driver's fine, in addition to in some instances state and federal bonuses. The state and federal bonuses are meant to keep roads safe, however some municipalities appear to, according to some reports, effectively exploit those tax payer funds collected by the state and government, in order to get a bigger slice of the pie. Thus, small infractions are alleged to be reported to appear as far more dramatic, major incidents.

Often times municipalities and states set a quota, for instance New York City municipal employees are currently suing their own municipalities, over their quotas. The municipal employees, including traffic officers allege the quota system causes random New Yorkers to be treated unfairly, and themselves to be treated unfairly if they don't make a quota.

The Overall Oil Picture, In The Age Of Modern Tech

In addition to the effect of municipal revenue strategy, competition from tech and environmental factors impact overall Big Oil business. While Tesla (TSLA) is not the reason for oil's recent drop, Tesla represents several years of attempts to gain more independence from oil.

Technology has allowed for more efficient usage of oil. Services like Uber reduce extra driving time and self-driving vehicles have the potential to make oil usage more efficient.

There are three distinct types of oil consumers:

      1. Those who don't pay attention to cost, or environmental aspects of gasoline
      2. Those who pay attention to cost & budget accordingly, and don't pay attention to environmental aspect
      3. Those concerned about environmental effects, over effect of cost on their wallet

For instance, individuals and large businesses have been encouraged to lower their "carbon footprint." While many individuals and businesses were forced to reduce oil usage when prices soared.

Whereas some countries have widely implemented compressed natural gas for public transportation, the United States has not widely implemented such alternatives. Several vehicle manufacturers introduced fuel efficient models, since the first Toyota Prius in 1997. Coupled with the rise in popularity of the Tesla Model S, first produced in 2012, Big Oil has encountered even more competition.

Still, the majority of vehicles are powered by gasoline engines. Additionally, U.S. oil production has increased and OPEC (Organization of the Petroleum Exporting Countries) decided not to limit oil production in November of 2014 and again in June 2015. Some analysts project oil to go down further, while investors are seeing oil companies like Exxon, Chevron and ConocoPhillips slide lower.

The World of Supply & Demand

The current state of oil goes to fundamental business and economic principles of: Supply and demand. As well the nature of the global economy. The world depends on oil, so several groups try to engage in the business, some succeed, others have not. Enter technology.

A long-term and sometimes popular reason for alternative energy is: The environment, in addition to the potential to create viable, profitable business. However, as the cost of oil goes down, some groups of consumers are able to use more. Businesses dependent on oil have also been able to both reduce costs and stretch their dollar.

Take a look at the 3 month price of oil, then the 10 year chart:

Source: NASDAQ, West Texas Intermediate Crude Oil (New York Mercantile Exchange) Price: 3 months

While summer is sometimes considered a less strong time for business in general, a drop from $60 a barrel to $40.77 represents 32%. Also several global currencies have weakened, contributing to the perfect storm for Big Oil:

Source: NASDAQ, West Texas Intermediate Crude Oil (New York Mercantile Exchange) Price: 10yrs

Long-term Big Oil investors, in Exxon, Chevron and ConocoPhillips, actually did well from 2006 to 2011. Though, imagine those investors who entered or added to their positions at the peak. This is a constant dynamic to the world of business, investing and the economy. Experienced investors realize this.

Dividend reinvestors who are diversified and underweight oil are perhaps not as adversely affected. The foremost consideration for some Exxon, Chevron and ConocoPhillips investors is strength and sustainability of dividend. There is still value in oil, however the guessing game revolves around:

      • Where the price of oil will settle And
      • What the rate of growth or decline will calculate to, over time

For instance in 1972 the average price of a barrel of oil was $3.39, or approximately $19.35 in 2015 dollars. So, some analysts have recently said oil could go to $15. Now: Is it really feasable for oil to drop below the average for 1972, adjusted for inflation?

In 1974 the price per barrel went up to an average $6.87, or approximately $33.25 in 2015 dollars. Oil was not affected by oversupply in the early to mid 1970s as much. However as you see in the U.S. Energy Information Administration chart, at the beginning of this article, the price of oil took to the sky between 1973 and 1981. Between 1982 and 1998 the price trended lower, before quadrupling from $22.51 to $94.04 between 2002 - 2008.

Though, especially given this rise in value: To a business like Big Oil, overall consumer spending is very important. To sustain what turned out to be an overall 30 year, enormous trend upwards. Instead of a very temporary rise followed by a correction. This is simply to say: Oil was not a fad.

Revenue, Costs & Net Income

Take a moment to compare ConocoPhillips, Chevron and Exxon's recent quarterly revenue, total costs and net income:

Sources: ConocoPhillips, Chevron & Exxon's Investor Relations

Conoco reported a ($179M) quarterly loss compared to $2B for Q2 2014, Chevron's net income dropped from $5.6B to $571M as their quarterly revenue fell from $55.5B to $36.8B. Exxon reported $4.19B net income down from $8.78B.

A Turn Signal, A Missing Duplicate License Plate & Mistaken Health Complications

Investors constantly must try to make sense of the world of business. Investors understand revenue, earnings, debt and income. Additionally, investors realize some businesses are strong and successful, while many are not. Because, businesses require strong leadership and the nature of competition. Where it is possible for a self-serving businessperson or politician to make it to a leadership position, however not possible for their business or municipality to become as strong as those led by leaders who place the interests of the whole ahead of themselves.

One important fundamental of business is: Long-term consumerism. Some municipalities attempt to use the same principle over literal infractions, like not using a turn signal. The simple fact is there are obvious differences between the American consumer who enjoys going shopping several times a week and the person who is literally removed from their vehicle, and their life, for an infraction such as a turn signal failure. That county, Waller County, Texas wanted $500 in exchange for the Chicago businesswoman's freedom, and she simply did not have access to $500, and subsequently she died. When she had just gotten a job working for Waller County, and wanted to live there. So investors can possibly see an important dynamic, when considering this factor collectively. For all Waller County, Texas knew that Chicago businesswoman was a credit ratings analyst for Moody's (MCO) working on a municipal bond issue, and determining the county's credit score, who: Inadvertantly failed to use their turn signal.

In another recent incident a man, the father of a large family made the error of not placing a duplicate license plate on the front of his family's new vehicle. The same arm of this Cincinnati based municipality does not allow their employees to use tasers, because a couple years ago one of their employees tasered and killed an 18 year old student in their town. Samuel DuBose, the driver who did not have a front duplicate license plate, according to the news did have the missing front plate and was trying to give it to the local university campus officer, when the confrontation devolved to the point Mr. DuBose was shot and killed.

More recently USAToday reported a Navy veteran passed out and was subsequently imprisoned, accused of driving drunk, even though her blood alcohol level was 0.00%. She was not given any healthcare and after a day her family was allowed to take her to the hospital, where she was diagnosed with a brain tumor. Her family gave an interview and simply expressed they did not understand why their municipality continued to accuse the soldier of being drunk when she had a 0.00% blood alcohol level, and was in need to immediate medical assistance. When clearly other municipalities, that are not so heavy-handed, are able to recoginze medical emergencies.

For instance another municipality arrested a man on his moped on the way to the hospital, for some infraction; the man tried to explain he's the doctor on his way to deliver a baby, however it appears that municipality was more interested in trying to squeeze revenue. Another instance, a person was pulled over and detained in a municipal court parking lot, over an infraction, they were threatened to be tasered and slammed on the hood of their car after trying to explain: They're the judge at the court. So, in those two instances perhaps all is well that ends well, the municipal workers in both cases were reprimanded, and perhaps the town's local judge won't move or reduce their spending, when the reality is many people who don't happen to be the judge, do.

Some prominent politicians and former political appointees, who have critiqued the system of heavy-handed municipal revenue strategy, based on infractions, cite examples of elderly women picked up and slammed to the ground over infractions; cite video of a parapalegic person being body slammed by a municipal employee, picked up from her wheelchair. Because the town employee simply did not believe the person really needed their wheelchair.

In other incidents, multiple drivers have been choked, beaten, accused of driving while intoxicated, and it turned out some of these drivers were actually epileptic, or in diabetic shock, or in one incident, recently, on the way to the hospital due to chest pains. In another incident a radio DJ was threatened with 5 years in prison, when traffic officers reported he assaulted them. Only after dashcam video showed the person had their hands up the whole time, and one of the responding traffic officers drove the wrong way on the highway, after the man was already pulled over, and crashed their municipal vehicle into the DJ's vehicle; then the group of traffic officers proceeded to take the man from his vehicle and kick and beat him, did the municipality decide to instead pursue charges against their own employees.

The fact is, it is not uncommon to see some municipalities roll out the red carpet, of services and human resources for themselves and friends, in some areas using their municipalities' funds. While a few miles away, other members of the community are harangued and assaulted, making the same infractions; in order to issue tickets and generate revenue.

It appears some of the heavy-handed municipalities, pretty much "celebrate" making a few thousand dollars, which sometimes literally goes into a select few people's pockets, as local business market caps decline significantly. Directly relative to consumer spending. In the instance of the Chicago businesswoman, Sandra Bland, she advised Waller County, Texas that she had depression; however she seemingly did not receive any care, or regular observation, and was placed in an unsecure room, with items like plastic bags. While there was a vocal outcry, after she died, the fact is: The cost of her death, over a turn signal violation, and the $500 Waller County, Texas demanded for her freedom, is nothing compared to the overall economic loss; not just the liability. She chose Waller County, Texas as a place to live and work, and Waller County, Texas appeared to be more interested in a few hundred dollars up front.

The logic appears to be similar to: "Hey, sorry big businesses and investors, a $500 fine, right now, over a turn signal is more important than your business or a state's economy." So, literally $500 fines add up, and could be $50,000 in fines over a few days or weeks. Regardless, of major businesses, directly affected by lost revenue, and income; losing: A quarter trillion dollars in value. When, additionally the very last place some large investors would think of investing is that county, in general. Because, what if the company ever needed to send employees and their families to visit, or work there? And they made the life-altering, or potentially life-ending mistake of: Inadvertantly not using their turn signal?

The unfortunate fact is this scenario plays out, in real life far too often, over such infractions. The result is people avoid those areas, and spend less. It is worth emphasizing: The effect on overall value is exponential. Revenue and income lost collectively over all reduction in business, from the entire group of people, who either have died or simply avoid spending, has a far greater effect on the overall value of both smaller and larger businesses. The overall harm to the economy is: Incalculable, relative to all of the people who were subjected to similar treatment as part of heavy-handed and overzealous municipal revenue strategy, apparently derived from avarice.

Economic Impact

The fact is Chevron lost $94B dollars, Exxon has lost $104B dollars and Conoco has lost $41B dollars in market cap. That is $239 billion dollars in value. There is oversupply, there is competition, there is more efficient oil usage; however, a major component is: More and more Americans simply don't wish to drive, they decide to be very conservative with oil usage, because one wrong move, in the wrong municipality can lead to a beating, it can lead to years long tangle with a revenue obsessed group of politicians, or in the multitude of worst case scenarios: The traffic infraction can lead to dying.

Common sense dictates most people don't want to get beaten up, imprisoned and in worst case scenarios die, over a turn signal. Over a minor traffic infraction. However, some municipalities are setup to be very harsh on their communities, because: That is the source of their municipal revenue.

Some of the municipalities top 1% of drivers and shoppers encounter municipal penalties more, and when they feel harrassed they stop driving and shopping as much. So the issue is compounded and in the short-term the municipality gets a hundred dollars or a few hundred dollars; however in the long-term business declines.

The added fact is, that when discrimination, that is reflected in the news and municipalities' own reports, is a component, it appears clear those municipalities that choose to discriminate simply do not want business from certain Americans. This runs contrary to the sentiment of some original national charters "of freedom" and "independence." However, perhaps to an unfortunate extent, is part of human nature and is a component of the economy and a factor of business.

Some politicians literally choose the person least fit for an important job, that is central to local and state economies, because the person is either a friend; or the politician acts as if they believe that person will simply do as told. So, this gives the appearance that some politicians are far more interested in their own personal circle of friends, than the macrocosm of an entire constiuency.

$239 Billion Dollars In Value, Dried Up (But Some Municipalities Made A Few Thousand Dollars)

This quarter Chevron, Exxon and ConocoPhillips could have used all the extra revenue they could get. Retailers like Wal-Mart (WMT) could have also, particularly since Wal-Mart also sells gasoline. The losses contributed to an over $239 billion dollar decrease in value.

In a previous article: Johnson & Johnson Sudafed Destroying Rural America, a focus was a small pharmaceutical in Culver, Indiana. Where some comments indicate the county treats many or all of their residents and visitors like they could be meth-heads. Their news reports appear to indicate: People who make up less than 10% of the community, account for 90+% of traffic infractions, at some points.

Their news reports the county imprisons people, who are in ethnic, racial, and / or religious minorities for driving while playing their music "too loud." For throwing a gum wrapper from a window. Instead of a ticket, the news reports, they are imprisoned. Marshall County, Indiana news goes on to report one vehicle actually hit two court employees walking to court. Simply according to the news, the driver who hit two court employees did not get as severe, or any punishment, compared to the person who played their music too loud, or the woman who allegedly: Dropped a gum wrapper.

The Marshall County, Indiana news reports a local nurse, who was on Culver, Indiana's Town Plan Commission, was imprisoned by the municipality for a traffic infraction, and they died in one of the county's disease ridden buildings (for instance commenters indicate people who are taken by Marshall County, Indiana for infractions routinely contract oncoviruses after a few hours spent in their disease ridden facility) and according to the news, the town's nurse was not offered healthcare, when they suffered and then died. It appears, the last thing some municipalities are able to do, is ever say they were at least sorry. Instead Marshall County, Indiana & Culver, Indiana news reports local politicians with apparent conflicts of interest, declared they were not at fault at all.

In some municipalities town employees appear to set businesses up, to benefit from both sides of the municipal revenue strategy, they play a part in designing. Making money from both the municipalities, then also representing people who get infractions. Though this seems like a conflict of interest, it appears some town employees are able to profit from: Heavy-handed municipal revenue strategy, where infractions are seemingly justification for an effective death penalty. While local and state economies are drained and consumer spending drops.

Even though many people, including lawyers, judges, politicians, civil rights groups, average Americans, and municipal employees of all levels, recently have tried to express the contrary sentiment. It appears their concerns fail to make a difference, because, perhaps, to municipalities focused on seemingly heavy-handed revenue strategy, it is avarice that prevails over anything else? When literally the news reports from these counties appear to indicate: That could have been anyone who allegedly didn't use their turn signal in Waller County, Texas. Or could have been literally anyone who died in the disease ridden, and abusive Marshall County, Indiana municipal building, accused of a: Traffic infraction.

Exponential Effect Of Reduced Consumer Spending On Large Cap Value Within Major Economies

It appears the overall conversation regarding municipal revenue strategies, fails to make a connection to the economy; and global stock and bond investors, in search of value. Whereas many municipalities make money from ticketing and parking fines, and appear to reduce excessive speed and manage parking without the added drama of beatings and seeming exaggeration of infractions, in order to try to apparently increase municipal revenue. This appears to be a common theme amongst several recent incidents prominently covered by national news, whereby the smallest of infractions have led drivers, local heroes, businesspeople, random Americans, veterans, people of all walks of life, to be severely harmed or dying as part of municipal revenue strategies, whereby trivial infractions are turned into, apparently, major, dramatic ordeals, to try to increase their value for municipalities. Over infractions like: A traffic signal.

It is fair to say, in some of the incidents, performed by some municipalities: Those drivers did not deserve to die, be beaten, or be harmed.

In many similar situations, in other municipalities, drivers receive tickets for infractions; they don't die, they aren't beaten, they aren't harmed. Additionally, sometimes when municipalities themselves report that small groups of ethnic, racial, religious, and / or social class groups account for the majority of more harsh penalties, some municipalities work to educate about discrimination. While other municipalities appear to "work" to discriminate even more.

The municipalities that not only report they statistically discriminate and then continue to do so simply appear not worth investing in.

Oil is still important, it is valuable. It is also used more and more conservatively. So, that contributed to a perfect storm, that caused $239 billion dollars in value from American oil businesses to disappear. Some people might try to argue revenue and net income lost has nothing to do with loss of value. From an investment standpoint however, for better or worse, it has a lot to do with the Big Oil scenario currently. Obviously not one, or two incidents, the myriad. Given further international political dynamics over the past few years, where oil has been alleged to have caused damage to communities.

Basic steps could have been taken to fulfill the objective of: Municipalities, businesses, economy, and drivers / consumers. Effective steps could have proactively prevented the infractions, like not using the turn signal. However, when municipalities throw ethics out of the window, so a very few town employees can profit by making a living off infractions, rather than solve those actual problems, as has been the case; random Americans have experienced multiple levels of violations of Constitutional rights, including death.

While several people who genuinely wish to save lives and protect communities, work to make their municipalities stronger and safer, with real heroism; the aforementioned instances appear far too common. This adds to the irony: People who save lives are heroes, there are no two ways about it; so therefore it is important to realize that municipalities and politicians who design aggressive, heavy-handed municipal revenue strategies, perhaps attain what they wish in the near-term: More money from constituents upfront, however the rest of the local and state economy sees reduced consumer spending, that takes an exponential toll on market cap.

In one recent instance a group of municipal officers were alleged to have beaten a homeless man, as he called out for his father, recorded by surveillance video; he was struck again and again, as he lay motionless, not fighting, not resisting, and he subsequently died. The young man's father was a nearby county officer, and a decorated veteran. And for some reason, it appears some municipalities believe harming constiuents is part of municipal revenue strategy.

The son of the county officer who was beaten and killed, was accused, according to their local news, of: Loitering. The municipality was able to completely vindicate their employees.

While the real effect is: Investors are dissuaded from investing in that city. This causes a decrease in consumer spending in that area, and obviously the loss of life, not only subtracts from future revenue; the county reportedly paid the family $1 million dollars.

Some of the incidents, caused by some municipal revenue strategies, appear to defy any notion of a Bill of Rights. In fact reporters have chronicled being told by municipal employees they interviewed: They simply do not abide by the U.S. Constitution. Perhaps because of some municipalities': Avarice.

So, perhaps it doesn't even matter that newer vehicles automatically engage the turn signal. Some vehicles display the posted speed limit. In the future, perhaps major automotive industries can work with tech companies to visually display "stop sign notification," as self-driving cars are already designed to be aware of. Perhaps more municipalities would not lose their local heroes, or random average Americans, over infractions that are the source of the all-important municipal revenue strategy. That, in some municipalities is apparently more important than numerous billions of dollars of value, let alone either life or liberty.

Disclaimer: This article is not a recommendation to buy or sell. Mark Quarter Investment News authors hold Exxon, Chevron, ConocoPhillips stock and / or have exposure to Exxon, Chevron & ConocoPhillips stock & bonds through funds. Please consult a qualified financial adviser to determine proper allocations, if any to investments.


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