The Big Five U.S. oil and gas companies — BP plc, Chevron Corp., ConocoPhillips, ExxonMobil Corp. and Royal Dutch Shell plc — made nearly $1 trillion in profits over the past decade and “have ample financial resources” to weather the loss of $41 billion in tax loopholes that have been proposed by President Obama, according to a report by the progressive policy institute Center for American Progress (CAP).
The president has a plan on the table to reduce the federal deficit, which includes eliminating $41 billion in tax breaks for the oil and gas industry (see Daily GPI, Sept. 13). According to the American Petroleum Institute (API) and several other industry groups, cutting the tax breaks would hurt jobs and discourage investments (see Daily GPI, Sept. 23; Sept. 14; Sept. 12).
However, the claims “ignore the fact that the Big Five oil companies…have ample financial resources that dwarf the value of these tax breaks,” said the report’s authors, Daniel J. Weiss and Valeri Vasquez. “These companies enjoy billions in cash reserves, made nearly $1 trillion in profits over the past decade, and at least one company (ExxonMobil) pays a lower effective tax rate than the average American family. In other words, Big Oil can readily afford to contribute its ‘fair share’ to reduce America’s debt.”
A CAP analysis of Security and Exchange Commission filings determined that the three largest U.S. producers — Chevron, ConocoPhillips and ExxonMobil — had $27 billion in cash or equivalent assets at the end of June. BP and Shell, the two largest foreign producers operating in the United States, had combined cash reserves of nearly $32 billion at the end of 2010, the analysis found. “Added together, these five companies are sitting on cash resources of $59 billion, which is 30 times more than the estimated $2 billion in annual tax breaks that these companies receive.”
The oil and gas industry has claimed that the tax breaks help to create jobs and encourage investments. However, the authors pointed to a recent analysis by Democrats serving on the House Natural Resources Committee, which determined that combined, BP, ExxonMobil, Chevron and Shell had reduced their U.S. workforces by 11,200 employees between 2005 and 2010. Including ConocoPhillips, the five companies reduced their global workforces by a combined 4,400 employees in 2010 alone.
“So if the Big Five companies aren’t hiring additional workers, are they investing in research and development [R&D]?” CAP asked. “The Congressional Research Service (CRS) found that the companies invested relatively little in overall research and development,” with total R&D spending of about $3.6 billion in 2010, which was about 4.7% of last year’s profits.
“This finding confirms a 2009 CAP analysis that determined these companies devoted a mere 4% of their collective 2008 earnings to clean tech research and development,” CAP said. “That year was their second-highest profit level.”
CAP’s report claims that instead of hiring new workers and conducting research, producers are using profits to buy back stock that “enriches their boards of directors, senior executives and shareholders. These companies spent slightly more than one quarter of their profits on stock buybacks in the first half of 2011. This dwarfs the previous year’s investment in research and development.”
The Obama administration has attempted to repeal the oil and gas industry’s tax preferences several times over the past three years, but those efforts were nonstarters each time (see Daily GPI, April 27; Sept. 14, 2010).
The nonprofit Institute for Energy Research, an advocate for freely functioning energy markets, said the CAP report was “attempting to change the narrative and again launch an attack on one of the few sectors actually creating jobs in the Obama economy. This report, which relies on questionable facts and a laughable premise, is the latest salvo in the Obama administration’s ongoing war on domestic energy and is a blatant attempt to impose a national energy tax on the America people.”
On Wednesday Swift Energy Co. CEO Bruce Vincent, who also is chairman of the Independent Petroleum Association of America, called Obama’s proposal to scale back $40 billion-plus in oil and gas tax breaks a “horrible policy” (see related story). With more flexible federal rules, 1.4 million new jobs, $800 billion in additional Treasury revenue and 10 million bbl of additional daily oil and gas production could be added by 2030, according to a study prepared for API (see Daily GPI, Sept. 8).
“Our industry has kept more than nine million Americans employed through some of the toughest economic times in America’s history,” said API CEO Jack Gerard. “This study shows we could provide another 1.4 million jobs, with as many as one million [to be] created in just the next seven years.”
ConocoPhillips this month also launched a nationwide campaign to convince lawmakers and consumers that domestic gas production holds the key to not only energy security but to thousands of new jobs (see Daily GPI, Sept. 15). “We have a powerful job creation machine available if we put it to work,” CEO Jim Mulva told a Detroit audience.
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