Big Oil Rakes in Huge Profits, Again
SOURCE: AP/Mark Duncan
It’s been quite a week for Big Oil. The big five oil companies—BP, Chevron, ConocoPhillips, ExxonMobil, and Shell—reported their second-quarter 2013 profits this week, which were a combined $19.5 billion. That comes out to $145,000 in profit per minute—more than 88 percent of American households earn in an entire year. Despite these large amounts, however, the profits are still lower than analysts’ expectations and less than the second-quarter 2012 profits. This is partly due to lower gasoline prices in the second quarter of 2013 compared to the second quarter of 2012, as tabulated by the Energy Information Administration. Nonetheless, the $47.4 billion in 2013 profits so far is reason enough to end special tax breaks.
Each of the big five oil companies provided a different reason for why its profits were lower in the second quarter of 2013 compared to this quarter last year:
- BP’s profits were lower than expected due to rising claims from its Deepwater Horizon disaster in 2010.
- Chevron’s second-quarter profits were down due to lower oil production, lower prices, and refinery outage.
- ConocoPhillips had lower profits due to “a cost increase in domestic crude processing.”
- ExxonMobil’s profits were lower due to reduced volumes at its refineries.
- Shell’s second-quarter profit was lower than expected, partly due to reduced oil production in Nigeria and expensive tight oil production in North America.
Amid the profit announcements from the big five oil companies, President Barack Obama delivered a speech on jobs for the middle class, in which he proposed to end billions of dollars of tax loopholes for Big Oil and other industries. During his speech, the president correctly noted that:
Our tax code is so riddled with loopholes and special interest tax breaks that a lot of companies who are doing the right thing and investing in America pay 35 percent in their taxes; corporations who have got fancy accountants and stash their money overseas, they pay little or nothing in taxes. That’s not fair, and it’s not good for the economy here.
This describes Big Oil. The big three publicly owned U.S. oil companies—ExxonMobil, Chevron, and ConocoPhillips—paid relatively low federal effective tax rates in 2011; Reuters reported that their tax payments were “a far cry from the 35 percent top corporate tax rate.” Their effective federal tax rates in 2011 were: ExxonMobil, 13 percent; Chevron, 19 percent; and ConocoPhillips, 18 percent.
As expected, the American Petroleum Institute just began yet another lobbying blitz to save these special tax breaks. However, the claims that API made to justify these tax benefits—worth $4 billion annually—ignore some important facts. The oil industry asserts that these tax breaks are necessary for jobs, yet four of the five big oil companies that report their number of domestic employees have actually reduced their U.S. workforce by 7 percent between 2008 and 2012. Of the 1.6 million workers directly employed by the oil industry in 2012, Bureau of Labor Statistics data indicate that more than half of them work at service stations and are unlikely to be affected by the elimination of these billion-dollar tax breaks.
Also laughable is Big Oil’s claim that its special tax breaks are somehow vital to “economic recovery” or domestic oil production. Despite their lower profits and talk of an industry “slump,” the big five companies still spent $9.6 billion—or one-third of their combined second-quarter profits—to buy back their own stock. This enriches their board of directors, senior managers, and largest shareholders, but adds little productivity to the overall economy. They also had $70 billion in cash reserves.
These Big Oil companies have conditions that ought to be conducive to significant oil production. These include a high oil price ($94 per barrel), profits large enough to afford stock buybacks, billions in dollars in cash reserves, and the special tax breaks to encourage production. Yet despite these advantages, these companies’ total production was 4 percent lower in the second quarter of 2013 compared to the same time in 2012.
In addition to special tax breaks, Big Oil companies also benefit from other government support. Three years after the Deepwater Horizon oil blowout—the worst oil disaster in U.S. history—Congress has still not raised the absurdly low $75 million cap on companies’ liability for economic and natural-resources damages, even after catastrophic offshore blowouts. The Hercules natural-gas well recently suffered a catastrophic blowout in the Gulf of Mexico, spewing gas into the ocean and air. If it causes billions of dollars of damages to Gulf Coast residents, businesses, wildlife, or wetlands, the Walter Oil and Gas Corporation responsible for the blowout would only be liable for the first $75 million in economic and natural-resources losses.
The federal government—meaning taxpayers—would likely be responsible to compensate people and businesses for the remaining damages, and pay for the restoration of harmed natural resources too. Thus, the low liability level is a huge subsidy to Big Oil companies if they have a damaging accident.
Moreover, the big five oil companies’ profits could grow in the third quarter of 2013 due to rising gasoline prices. CNNMoney recently reported that “gas prices are significantly higher and likely to go higher still, which could make this the most expensive summer at the pump in five years.” Higher gasoline prices reflect higher oil prices due to instability in the Middle East, an increase in driving, and potential refinery shutdowns due to severe tropical storms.
The big five oil companies are some of the most profitable companies in the world. Many American industries would gladly have three months where its five biggest companies “only” made $19.5 billion. Surely BP, Chevron, ConocoPhillips, ExxonMobil, and Shell can begin to pay their fair share by surrendering their special tax breaks and support the lifting of the liability cap for future oil disasters.
Daniel J. Weiss is a Senior Fellow and the Director of Climate Strategy at the Center for American Progress. Jackie Weidman is a Special Assistant for the Energy Program at the Center.
Thanks to Stephanie Pinkalla, intern at the Center for American Progress.
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