My buddy who owns a few gas stations in the DC area explained Exxon's profits to me this way. Each part of the business is treated as a different cost center, each charged with being profitable on their own merits. So R&D/Exploration, Drilling, Refining each tack on their own profits along the way. R&D's markups affect Drilling's costs, who in turn marks up their costs to refining, who in turn again adds their markup. So by the time he's buying the gas for his stations, there is already 5-6 stages where Exxon has padded their profits. Meanwhile he makes all of one penny on a gallon if he's lucky.
