Putting 'Big Oil' to Rights

“Big Oil” has taken a public relations pounding. After all, the industry is thoroughly protected and its profits guaranteed out of necessity of the market. With the economy tanking and the government unable to do anything except make matters worse, politicians will turn to rhetoric to snuff out a boogieman. At no other time, save for Huey P. Long’s rein in Louisiana, has there been more Democrats who’ve aimed they’re vitriolic class-anger towards Big Oil. After all, we had the oil spill in the Gulf. We continuously hear about the evils associated with innocuous objects such as corporate jets. But most unacceptable to them is the level profits oil companies continuously reveal. Never mind the fact that Apple has more cash than our government. The search engine giant, Google, has roughly half.

I’ve written on the campaign against Big Oil before.

Their law makers, with the help of Obama’s pen and rhetoric, have declared war on energy. They chose to tax “Big Oil”, limit oil production and exploration, revoke leases for inland production and rendering it financially backbreaking for businesses to drill on federally owned land. Democrats decry record profits made by the oil industries as evil and mislead the country to believe they are only leveling the playing field between consumer and producer. In actuality, the Earth-Democrats are engineering a sinister plan for blowback. A person who possesses even an elementary understanding of macroeconomics would know these added costs will simply be passed on to the consumer. Since the days of horse and carriage are long gone, and Americans still rely on oil and gas to commute and move produce across a country roughly the size of Europe, the market will survive out of necessity. That is until taxes on gas and mileage go up. The word is sabotage.

Right on cue, our leftist friends at Center for American Progress (to only name one) go into great detail in itemizing the evils of oil profits. They note that the five major oil companies — ExxonMobil, BP, ConocoPhillips, Chevron, and Shell–posted record profits in the second quarter. They did this off the backs of slaves: The American consumer, they admonish. (You can also read how the New York Times churned out a recent propaganda piece for the generally misinformed. “And reporters too? NYT public editor takes aim once again at questionable reporting at center of natural gas attack series.“)

All five companies sat squarely in the black with $35.1 billion in combined second-quarter profits, 9 percent higher than in 2010. Exxon, at a whopping $10.7 billion, reported the largest profits by far. Shell saw an $8 billion profit for the quarter, a 77 percent increase from last year, putting the company on track to meet or exceed its 2008 record of $31.4 billion–the most a British company has ever earned in a single year. Even BP clocked in at $5.3 billion little more than a year after the fatal Deepwater Horizon disaster rocked the U.S. Gulf Coast, forcing BP to put $20 billion in an escrow fund for people harmed by the blow out.

Normally I would not cite the Center for American Progress, nor give credence to the petulant crowd it represents but it offers a good segue to the heart of the matter. How many corporate jets does each company own? Quite a few I imagine. How rich are their executives? Very rich; filthy rich is more like it. But do they keep all of it to their greedy selves? Hardly.

For the sake of brevity, let’s simply list out a few things Big Oil directly contributes to the economy through jobs, spending, wages, and dividends and to the government through taxes. (Oil and Gas Journal, March 7, 2011; PWC May 2011; Company Annual Reports to Shareholders)

A Gentle Giant

• In 2010, oil and natural gas companies directly contributed over $470 billionto the U.S. economy in spending, wages, and dividends – more than half the size of the 2009 federal stimulus package ($787 billion)
• Spent $266 billion in 2010 to open and develop new energy projects and to improve existing ones, and to enhance refinery and other downstream operations.
• Paid $176 billion in 2010 to 2.1 million U.S. employees in wages and salaries, benefits and payments to leaseholders.
• Distributed approximately $35 billion in dividend payments to shareholders in 2010.

A Good Servant

• On average, the industry contributes about $86 million a day to governments in taxes, royalties and other fees or about $31 billion a year.
• In North Dakota alone tax revenues from oil has produced a windfall of over $100 million, marking a 24 percent increase from the prior month and a 66 percent increase from last summer.

The model here isn’t to milk the cash cow in the form of more taxes. Oil companies are a service provider. It costs to operate in order to offer that service. Taxing, regulating, and obstructing operations will not, and cannot, increase revenues. The industry must be allowed to return to work and enjoy the advantages of the Section 199 tax deduction and the Dual Capacity Taxpayer credit, both of which are available to a wide array of American companies.

• A 2011 Quest study estimates 190,000 new jobs in the Gulf of Mexico could be created if drilling returns to pre-2010 levels.
• A 2011 Wood Mackenzie report estimates 530,000 new jobs could be created with the right government decisions on access.
• A 2010 Natural Resource Economics study estimates 282,000 new jobs could be created developing Marcellus Shale gas in NY, WVA and PA.
• A 2011 Canadian Energy Research Institute study estimates that more than 500,000 new jobs could be created from Canadian oil sands operations and development of associated infrastructure in the United States.

While charging that Big Oil is an inherent evil to our economic system and promising to raise taxes on the American oil and gas industry is good for the liberal base, it will have real disastrous effects on the American economy. The oil industry employs over 9 million jobs for American workers. It is also a valuable partner and a major part of our economy as well as rich source in tax revenues. The president cannot win through addition by subtraction.

Allowing for expanded domestic exploration and production would be a massive stimulus to the U.S. economy that wouldn’t cost the government a dime. Dr. Mason estimates that opening our nation’s Outer Continental Shelf would produce an extra 1.2 million jobs, $273 billion in economic activity, and $87.7 billion in tax revenues over the next 30 years.

Many thanks to Anath H. for helping me with some of the stats and analysis.