First quarter profits for American oil companies are jaw dropping. Exxon earned nearly $11 billion, up 69 percent from a year ago. Royal Dutch Shell PLC, Europe’s largest oil company, announced it made $8.78 billion in the first quarter, a 60 percent increase over last year. Much of it, but not all, is due to higher gas prices, over which the companies have very little control due to our heavy reliance on foreign oil.
Some in Congress — mostly Democrats, but a few Republicans — are calling for an end to tax breaks enjoyed by the oil companies and in some cases, higher taxes on their profits. But the Obama administration is contributing to higher energy prices, which inflate the companies’ bottom line.
The Environmental Protection Agency has prevented Shell from proceeding with its Northern Alaska drilling project after Shell reportedly invested more than $4 billion in the project. How can companies make costly investments when they are uncertain that policies allowed in one administration will still be allowed in the one that follows?
In March, when visiting South America, President Obama promised that the United States would help Brazil develop its offshore resources. But he won’t allow much new drilling in the Gulf of Mexico, or Alaska. So we are going to help Brazil drill for oil, and then import it? Gas prices have nearly doubled since Obama’s inauguration and yet the media don’t blame him for it, as they blamed his predecessor when prices soared to current levels.
What about taxes? Oil companies are already heavily taxed. According to the energy research firm Wood Mackenzie, between 1998 and 2008, the oil and gas industry paid $1 trillion in total income taxes. That’s in addition to the $178 billion the companies sent the federal government in rent, royalty and bonus payments between 1982 and 2009. What oil companies pay in taxes is higher than the average American manufacturer, more than their “fair share.”
Wood Mackenzie also found that should taxes be increased on oil companies by $5 billion a year, that “would result in a $128 billion loss in government revenue and would reduce domestic production by 400,000 barrels per day by 2025,” with an additional 1.2 million barrels per day at risk. “This tax increase would increase, not decrease our reliance on foreign sources of oil.”
As for those large profits, the American Petroleum Institute (API) reports that in the latest published data for last year’s third quarter, “the oil and gas industry earned 6 cents for every dollar of sales in comparison with all manufacturing, which earned 8.6 cents for every dollar of sales.”
This administration gives lip service to the successful, while punishing them and subsidizing the unsuccessful. If the president is serious about reducing the cost of oil (and given candidate Obama’s frequent statements in favor of increased energy prices to force more of us (but not him) to drive hybrid, even electric cars — he can emulate George W. Bush.
In July 2008, President Bush lifted an executive order banning offshore drilling, a token gesture since a federal ban on offshore drilling remained in place, but his action caused oil prices to drop, as suppliers believed we were getting serious about obtaining more oil from domestic sources. The argument from the anti-drilling side is that new drilling projects would have no effect because of the time it takes to find and then refine the oil. If new drilling had begun five or 10 years ago we would be pumping far more oil than we are now. If we begin now, in five or 10 years we’ll see the results.
Demonizing the oil companies won’t produce one more drop of oil. Neither will higher taxes, which will affect employment and create many more negative consequences.
Last week, former President George W. Bush reiterated his support for more drilling: “I would suggest Americans understand how supply and demand works. And if you restrict supplies of crude, the price of oil is going to go up.”
President Obama either doesn’t understand supply and demand, or he is deliberately ignoring it in hopes of imposing his radical environmental views on us all.
Cal Thomas is a syndicated columnist and author.