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API: Big Oil Generating Big Returns for Pension Funds

Ahead of the first quarter earnings reports by the biggest of the Big Oil companies, the American Petroleum Institute (API) on Monday offered evidence that those oil and natural gas company profits are generating big benefits for public pension funds.

Sonecon, an economic advisory firm commissioned by API, is analyzing public pension funds in 17 states; the complete report is to be issued later this year. According to the interim report, oil and natural gas stocks comprise less than 4% of the holdings in public pension funds in Michigan, Missouri, Ohio and Pennsylvania. However, the energy stocks generated 8.6% of the funds' returns from 2005 to 2008.

The four initial states' findings will be used to develop the methods for the broader review, as well as "educate" the public and lawmakers about the retirement benefits that the energy industry provides, an API spokesman said.

"As proposals are raised that would hurt the economic viability of the oil and gas industry in the United States, it is important for policymakers to understand who it is that gets hurt," said API's Kyle Isakower, vice president of regulatory and economic policy.

The Obama administration's fiscal year (FY) 2012 budget proposes to end $3.5 billion in subsidies for oil, natural gas and coal, and a total of $43.6 billion of subsidies over the next decade (see Daily GPI, Feb. 15). The president made similar proposals in his FY 2010 and 2011 budgets, but they languished on Capitol Hill.

The administration last week also launched an investigation into possible price gouging by oil and gas companies (see Daily GPI, April 25). And White House spokesman Jay Carney on Monday said oil companies' huge profits are evidence that tax breaks should be eliminated.

"It's good for American companies to have profit," he said. "What is not necessary is for the taxpayers to subsidize companies that are experiencing those kind of record or substantial profits, and especially when we can't afford it."

However, Isakower noted that during "vigorous expansion or deep recession, oil and natural gas investments outperformed other public pension holdings by more than two times. The oil and natural gas industry supports millions of jobs and a significant portion of our economy, and the retirement benefits of America's teachers, police officers and thousands of others with a pension or 401(k)."

Researchers found that for the two biggest pension funds in each of the four states -- school employees and state government workers -- the earnings impact was evident. Returns on oil and gas investments for the two groups from 2005 to 2009 averaged 46.5%, compared with 13% for all other pension assets. Every dollar invested in 2005 in oil and gas stocks grew to nearly $1.47 on average by 2009. Every other dollar invested in the pension portfolios grew to about $1.13 on average.

Oil and natural gas holdings make up an average of 4% of the pension funds of school employees and state government workers, but those holdings contributed on average 10.4% to the funds' total gains from 2005 to 2009, researchers found.

"Millions of American retirees rely on the income and capital growth these companies provide," Isakower said. "And all Americans benefit from the job creation and economic growth supported by the more than $2 trillion invested in U.S. capital projects over the past decade."

According to Sonecon, energy stocks are owned by "tens of millions" of Americans, with more than 29% held in mutual funds; 27% in pension funds; 23% by individual investors; and 14% in individual retirement accounts. Another 5% are held by institutions, while 1.5% of the shares are owned by the corporate management of the energy firms.

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