Sorry, but Exxon Mobil (XOM) - Get Report critics are just plain wrong. They've picked the wrong target for their rage. Exxon Mobil is actually doing a good job at what an oil company is supposed to do: Find oil and gas and sell it to make money for its shareholders.

Want to get mad at somebody? How about oil-company executives like Lee Raymond, who resigned as chairman and CEO of Exxon Mobil last December after pocketing $4 million in salary, $4.9 million in a bonus and $32 million in stock -- just for 2005?

Or the boneheads in Washington who, flush with oil and auto company campaign dollars, have kept automobile mileage standards stuck at the same level since 1985? When any politician pretends outrage at the pain the "average consumer" feels at the pump, blow 'em the raspberry they deserve.

Want a short-term fix? Drive less. Drive slower. Car pool. Take a bus. Buy a more energy-efficient car. Put a solar water heater on your roof. Lobby Congress to stand up to Detroit and require higher miles per gallon in the cars it builds.

Really, really want to hit the oil companies where it hurts? Use less oil.

But please, stop whining when an oil company does what it's supposed to do.

Cash Conflagration

Sure, Exxon Mobil's $10.4 billion in profit for the second quarter -- that's just three months, remember -- is a staggering amount of money. And I certainly understand if you want to lash out at somebody when gasoline is selling for, on average, $3 a gallon.

But slapping a windfall-profits tax on Exxon Mobil and other oil companies isn't going to produce another single barrel of oil. And asking Exxon Mobil to invest more in exploration and production than the $20 billion budgeted for 2006 is like asking the company to simply put a match to billions -- and it won't reduce what you pay at the pump by a penny.

Face it, the world has a shortage of cheap, easily refined oil. It's become harder and harder to find significant new reserves of oil -- especially reserves outside the control of the national oil companies of Russia, Saudi Arabia, Venezuela and the rest of OPEC. And much of tomorrow's supply of hydrocarbons is going to come from unconventional sources that are expensive to tap and that take a long, long time to get into production. I don't think we're ever going back to the days of cheap gas.

Take a minute and read Exxon Mobil's

second-quarter press release beyond the headline number of $10.4 billion, the second-largest quarterly profit ever for a publicly traded U.S. company (after Exxon Mobil's fourth-quarter 2005 numbers).

Exxon Mobil spent $4.9 billion in the quarter on capital and exploration projects. That was up 8% from the second quarter of 2005. For the full year, the company now expects to spend $20 billion on capital and exploration projects. That would be roughly a 13% increase from the $17.7 billion spent in 2005.

All that spending helped push production of oil and natural gas up about 6% from the same quarter in 2005. We won't know until the end of the year whether it also enabled Exxon Mobil to find more new oil than it pumped. Exxon Mobil won't report official reserve numbers until December, but in 2005, Exxon Mobil saw its total proved reserves, developed and undeveloped, fall by 2.4%.

What that spending didn't do was increase the company's production and sales of refined products. In the second quarter, the company's refineries actually produced fewer barrels of refined products, about 6% less than in the second quarter of 2005. Profits from the company's refining and marketing operations, however, climbed about 12% as the profit margin climbed on each barrel of oil that Exxon Mobil refined.

Critics have charged that those numbers show that Exxon Mobil and other oil companies aren't spending enough on exploring for new sources of oil and gas, that they aren't spending enough to build new refineries -- since more refinery capacity would cut profit margins -- and that they aren't spending enough on research into alternative energy sources. (Yeah, it's the oil companies that I want to see making investment decisions on the future of alternative energy technologies.)

I'm sure those charges resonate with anyone who now spends $50 to fill up the tank. But there's another way -- a more accurate way -- to read Exxon Mobil's latest quarterly numbers. If you can, put aside your desire to lash out at the highest-profile candidate and look at what the numbers from Exxon Mobil tell us about the true nature of the jam we're in.

Exploration Spending

The projected $20 billion for 2006 sure is a lot of money to spend on capital and exploration projects, but it's only a 13% jump from the $17.7 billion the company spent in 2005. So why isn't Exxon Mobil spending more to find new oil?

Because it's not clear that Exxon Mobil or any oil company will make a decent return on capital investments above current levels. Indeed, there are those on Wall Street who think that much recent oil-industry capital spending will not earn back the cost of capital for the oil companies -- and their shareholders.

That's because it's getting harder and harder to find significant new oil reserves -- and more expensive to develop them. It simply costs more to produce oil from deep ocean sites or to extract natural gas from tight sands and oil shales.

Inflation in the oilfields is running at 10% to 15% annually, because everything from pipe to drilling rigs is in high demand and tight supply.

And these days, the political costs of developing new reserves are also climbing. More and more of the new oil and natural gas being discovered in the world is in territory that belongs to national oil companies that were formed originally to keep the multinational oil giants at arm's length.

In 1987, on average, only about 20% of the oil produced by the globe's multinational oil giants came from countries outside the Organization for Economic Cooperation and Development (OECD) -- essentially North America, Europe, Japan, Korea and Australia. By 2020, calculates wealth management firm Sanford C. Bernstein & Co., on average, about 65% of production will have to come from non-OECD countries such as Saudi Arabia, Qatar, Libya, Indonesia, Russia and Nigeria if the giant multinationals want to stay in the oil and gas business.

If these countries are giving the oil multinationals access at all today, the deals often give the lion's share of the profits to the national government and its oil companies. That may only be just -- it is their oil -- but it certainly cuts the profit margins at the multinationals.

Spending on Refineries

Exxon Mobil did a good job of increasing production of oil and natural gas -- up 6% in the quarter. But the volume of refined product flowing out of the company's refineries actually dropped. Soaring refinery margins account for the bulk of rising gasoline prices recently, so outraged critics have demanded that the company build more refineries.

The company hasn't done so, in my opinion, because it sees a refinery building boom in progress now that will vastly increase refinery capacity by 2010 or so. Starting construction on a new refinery now would just mean that Exxon Mobil might be able to open the new plant for business just as refinery capacity soars and refinery margins shrink.

The company may be wrong in its assessment of refinery market conditions five years from now, but by not starting new refineries now, the company is simply trying to do what it is supposed to do: assure a good return on shareholders' capital.

The bad news for U.S. energy consumers -- and for the multinational oil companies -- is that almost all of this new refinery capacity is being built outside the U.S. That's true even when a U.S.-based oil company is involved.

For example, France-based

Total SA

(TOT) - Get Report

and U.S.-based


(COP) - Get Report

are working to build two 400,000-barrel-a-day refineries in Saudi Arabia, in partnership with Saudi Aramco, scheduled to go on line in 2011.

Other refineries under construction and scheduled for completion around 2010 include a 200,000-barrel-a-day refinery in Qatar and a 500,000-barrel-a-day facility in Abu Dhabi. All these are intended to produce refined petroleum products for export. Relatively cheap local oil -- sometimes selling at a below-market price thanks to subsidies from the government -- will give these refineries a huge edge in the global market. Think Exxon Mobil's refinery spreads are huge? Wait until you see what subsidized oil can do for profits.

That is, of course, unless all these projects -- plus the refineries for local markets being built in China, India and Vietnam, among other countries -- send refinery margins plunging. The chance of that happening is certainly grounds for a cautious company not to commit shareholder capital to a new refinery now.

Exxon Mobil's investment decisions, in fact, argue that the company sees the current period as something of a local (and perhaps temporary) peak in oil prices and oil profits. As I argued in my July 18 column, "

Profit When Oil's Have-Nots Crash," the company seems to believe that some of its competitors are now overstretched and could be in significant trouble if oil prices don't continue to climb. Any prudent company that has hoarded its cash would then be in a position to pick up assets at prices well below today's peaks.

Exxon Mobil has been around long enough to know that the oil business is one of boom and bust and that a company trying to maximize return for its shareholders -- the job of any corporation with a publicly traded stock, I should hope -- plays for both the top and the bottom of the cycle.

For once, a major corporation is managing for the long term, and it's the critics who are hung up on short-term quarterly numbers.

At the time of publication, Jubak did not own or control any of the equities mentioned in this column. He does not own short positions in any stock mentioned in this column.

Jim Jubak is senior markets editor for MSN Money. He is a former senior financial editor at Worth magazine and editor of Venture magazine. Jubak was a Bagehot Business Journalism Fellow at Columbia University and has written two books: "The Worth Guide to Electronic Investing" and "In the Image of the Brain: Breaking the Barrier Between the Human Mind and Intelligent Machines." As an investor, he says he believes the conventional wisdom is always wrong -- but that he will nonetheless go with the herd if he believes there's a profit to be made. He lives in New York. While Jubak cannot provide personalized investment advice or recommendations, he appreciates your feedback;

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