Shortly after the company unveiled its staggering quarterly earnings report on Thursday, ExxonMobil Corp. launched a media blitz, accusing the White House and members of Congress of playing politics in their zeal to repeal annual tax incentives for the oil and gas industry.
The Big Oil company demonstrated what "big oil" means after posting $10.8 billion in earnings in the first quarter, up 69% year/year (see Daily GPI, April 29). By one estimate, the producer in the first three months of 2011 earned about $4.93 million/hour on sales of about $53 million/hour.
ExxonMobil, as well as Chevron Corp., ConocoPhillips, Royal Dutch Shell plc and BP plc, all reported strong quarterly profits, just days after President Obama urged Congress to take "immediate action" to eliminate oil and gas tax breaks, using comments by House Speaker John Boehner (R-OH) to bolster his argument (see Daily GPI, April 27).
Hours after the quarterly report was released, ExxonMobil's Ken Cohen, vice president of public and government affairs, offered the "real story," vehemently defending the company profits in a blog posting and in calls with reporters.
"Big numbers make headlines," Cohen said, but "what may not make the headlines is the context surrounding that number." The super major, he said, operates in more than 100 countries around the world, and in the first three months of 2011 "more than three-quarters of our operating earnings came from outside the United States."
The U.S. government is "reaching for the political playbook rather than seeking real solutions. We understand that it's simply too irresistible for many politicians in times of high oil prices and high earnings -- they feel they have to demonize our industry."
The recently established task force, he said, charged to investigate energy markets is a "time-honored tradition when prices increase" (see Daily GPI, April 25). But it offers "predictable political positioning but no action to actually help bring down energy prices."
The abundant U.S. gas reserves offer a solid answer to helping protect U.S. energy security into the future, Cohen said. However, he warned that onshore production could be stymied if the government imposes unnecessary regulations. ExxonMobil is the largest U.S. gas producer, with a leasehold in almost every productive basin of the country.
"Political overreaction to a small number of isolated environmental issues could jeopardize this emerging industry and the benefits it provides," he said of the gas industry. "Government policies did not cause the shale gas revolution in this country -- but they could stop it in its tracks."
In addition, he urged policymakers to review the "massive tax breaks" given to renewable energy sources with little result. Natural gas "doesn't need taxpayer subsidies," he said.
On Friday during a conference call with financial analysts, two Chevron Corp. executives offered reasons why the oil and gas tax breaks need to be kept in place.
"Certainly when you look at the deepwater Gulf of Mexico, it has been a huge royalty relief success for the government," said Gary Luquette, who is president of Chevron's North America Exploration and Production unit. The tax incentives allowed producers to invest initially in unproved resources at "great cost and risk," he said.
"We have tried to take that message and tried to communicate it to anyone that would listen in the administration. Incentives do work and spur investment, and good things follow..."
Chevron CFO Pat Yarrington said the company "takes issue with the word 'subsidy' in the dialogue that the administration is having. These are reductions that are allowed for our industry and a whole host of industries. It's not a subsidy at all. We are trying to get clarity around those points."
Producers were given "an early deduction for a risky business," she said. "For smaller companies in particular, it allows them to afford the huge capital outlays at risk. For smaller companies in particular, this is an enormous issue."
Yarrington said "in order to make more supplies available for the global market and to get prices into an affordable range, we need to 'incent' production, we need to 'incent' supplies, not take away deductions."
Rep. Ed Markey (D-MA), a frequent energy industry critic, countered ExxonMobil's remarks by noting that in the first three months of this year the company "has earned more profits than all of the tax breaks given to the major oil companies in an entire year...There is absolutely no reason to continue to subsidize the most profitable companies in the history of the world."
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