Apple Beats Exxon: Less than Meets the Eye

Apple has passed Exxon in market capitalization. The two companies traded places over the course of yesterday; at pixel time, Apple was in the lead. The headlines are emphatic. Dow Jones Newswire: “Apple Inc. briefly overtook Exxon Mobil Corp. to become the world’s most valuable company on Tuesday”. Forbes: “Boom. Apple, Briefly, World’s Most Valuable Company”. Washington Post: “Apple Overtakes Exxon Mobil as most valuable company”.

Analysts of varying stripes are heralding this as a portentous event. Walter Mead captures the mood with the headline “Good News for Gaia”, claiming it shows that “the fundamental direction of the global economy is away from stuff and toward ideas”. Chris Mooney, though a bit more circumspect, echoes the theme.

I wish they were right, but I think people are overreading the data. Apple may have passed Exxon as the most valuable publicly traded company, but that probably says more about the balance between markets and governments than it does about anything else. Exxon ranks somewhere between tenth and twentieth among oil and gas companies in terms of reserves; the top ten are state owned firms. (The chart I’ve linked to ranks Exxon at #17 but reports much smaller reserves than Exxon itself claims.) The top oil and gas concern (which is almost certainly the biggest company in the world) remains Saudi Aramco, with reserves of 303 billion oil equivalent barrels as of 2007 compared to 25 billion for Exxon. If you value Aramco at the same amount per barrel as ExxonMobil, you find a value of about four trillion dollars, about ten times Apple’s market cap.

Take this as a very crude estimate. It may undershoot: I’ve compared reserves by barrels of oil equivalent, but about half of Exxon’s reserves are less valuable natural gas, in contrast with only fourteen percent for Aramco. Moreover, I’ve only valued reserves at about fifteen bucks a barrel, a small fraction of the current price of oil. But it could be an overestimate too, since Exxon has substantial assets beyond its reserves, and because Saudi reserves are disputed.

Perhaps this is biased by the size of a few massive national oil companies? I doubt it. The BP Statistical Review of World Energy pegs global oil and gas reserves at 2.73 trillion barrels of oil equivalent (56% of which is oil). If you scale up from ExxonMobil’s market capitalization, that works out to 37 trillion dollars of value. The total market capitalization of the world’s stock exchanges, in contrast, added up to about 58 trillion dollars back in May, a total which, of course, includes many resource companies (and which as dropped a wee bit in the last couple weeks). The NASDAQ, to take another data point, is worth around four trillion dollars.

No doubt the “ideas” economy is gaining. Indeed that can’t happen quickly enough. For the time being, though, we still live in a material world – and traditional energy remains a huge part of it.