Chevron, Exxon Should Focus on International Production

The House of Representatives grilled executives from five major oil companies. Congressmen bitterly complained about rising oil prices. They have demanded that the oils rein in gas prices and invest heavily in renewable energy or face large tax increases. Chevron (CVX) and Exxon (XOM), two of our largest oil producers, get most of their revenues by drilling internationally.

Chevron, for instance, produced 730,000 BPD in the United States while bringing in 1.88 milllion BPD elsewhere. Its U.S. upstream earnings for 2007 came to $4.5 billion while overseas it made $10.3 billion. Its income tax for 2007 came to $13.5 billion, a whopping 42% of income. Exxon's income taxes were similar.

As the Wall Street Journal pointed out in yesterday's editorial:

Over the past five years, Exxon Mobil's total U.S. tax bill exceeded its U.S. revenues by some $19 billion.

Chevron and Exxon do not set the price of a barrel of oil. They don't control the price you pay at the pump for gas. Without them, our energy policy would be at the mercy of overseas oil producers. How much would the United States like to solely negotiate its energy needs from Venezuela, Russia, China? Rather than bashing our integrated oils, we should be doing whatever we can to strengthen them. Unfortunately, the political realities do not allow this.

So I have a modest proposal. Oil producers have become pariahs in the halls of Congress similar to big Tobacco. I suggest that Chevron and Exxon follow in the footpaths of Phillip Morris and split their companies into U.S. and international divisions. This would allow their international divisions to continue to flourish without the hefty burden of high taxation and U.S. regulation and unlock share holder value.

International oil production has been growing far faster than that in the U.S. owing to the U.S. blocking new oil exploration. The remaining smaller U.S. divisions would be left to negotiate their way in the current hostile environment.

Disclosure: Author has a long position in CVX

Comments

[timco42]

Nicely put. In California, where I am, all one needs to say to cause screeching and flailing is "Drill for oil off the coast." And, of course, at the same time, we pay the highest gasoline costs in the country. A hallmark of our idiotic age is the mental disconnect between cause-and-effect, and a childlike addiction to magical thinking. Don't bother me with details, it's someone else like Big Oil that's causing all my problems, or maybe it's just The Rich? We Americans refuse many things, including being sensible about energy usage and production, and perhaps this time we will not escape the piper who waits to be paid.

[WWW]

It appears to me that our do nothing but continuing resolutions congress will drive the majors to move to foreign countries.

[xander]

watching senate democrats acting up on oil exploration and development over the last 40 years reminds me of what president john adams once said :one useless man is a shame, two such men a law firm, three or more a congress.

[swimjames]

what an interesting perspective!