Exxon Mobil: The Root of all Evil? 54 comments
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"Since the gas lines of the '70s, Democrats and Republicans have talked about energy independence, but nothing's changed — except now Exxon's making $40 billion a year, and we're paying $3.50 for gas. I'm (candidate's name). I don't take money from oil companies or Washington lobbyists, and I won't let them block change anymore. They'll pay a penalty on windfall profits. We'll invest in alternative energy, create jobs and free ourselves from foreign oil." - Presidential Contender (who shall remain nameless)
In the very emotional debate over oil, our title suggests what at least a couple (we won’t name names) of the current Presidential candidates believe. One recently suggested that Exxon’s (XOM) $40 billion 2007 profit should be subject to a windfall profit tax. Great idea!
Let's punish big oil, they are gouging us at $3.50/gallon. If we garnish their profits, surely we’d all be better off, and the price of gas will fall. We should also force them to contribute to renewable energy solutions, viable or not.
It's not sufficient enough that the evil Exxon empire paid $29.864 billion in taxes last year to Uncle Sam. Nor, that the government picked up another $1 billion in taxes paid on $7 billion in dividends that Exxon paid shareholders last year. Nor that there's a $.184 per gallon federal tax on gasoline; not to mention the billions states receive through gasoline taxes.
Exxon's 11.32 percent net profit margin is obscene. Let's tax them to the point that it is no longer worth being in the oil business, no longer worth developing technology to find oil in very difficult to reach places. That will make us all very happy. We can all grow our own corn, make our own ethanol and we’ll never be beholden to big oil again.
Disclosure: The author does not have a position in Exxon-Mobil, but does have a position in Vanguard's Energy Fund.
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This article has 54 comments:
In the mid- 1970's, Congress implemented CAFE standards to combat an oil shortage driven by the policies of OPEC. The standards raised fuel efficiency in American cars by 7.6 miles a gallon over six years, causing oil imports from the Persian Gulf to fall by 87 percent.
The CAFE standards worked so well that they produced an oil glut by 1986. That's when the Reagan administration intervened to rescue America's domestic oil industry from gasoline price collapse. Reagan's rollback of CAFE standards caused America, in that year, to double oil imports from the Persian Gulf nations and to burn more oil than is in the Arctic National Wildlife Refuge.
If the United States had continued to conserve oil at the rate it did in the period from 1976 to 1985, we would no longer have needed Persian Gulf oil after 1985. Every increase of one mile per gallon in auto fuel efficiency yields more oil than is in two Arctic National Wildlife Refuges. An improvement right now of 2.7 miles per gallon would eliminate our need for all Persian Gulf oil!
Yet the Republican Congress in 1995 made it illegal for the EPA even to study higher CAFE standards. The result is that America now has the worst energy efficiency in 20 years.
The 1986 oil price crash can be solely attributed to the Saudi government reacting to loss of market share (and income), flooding the market with their oil, and running higher cost producers out of business.
Saudi Arabia was faced with the no-win choice of either cutting production to maintain the official selling price or cutting prices and flooding the market. Between 1980 and 1985, Saudi Arabia cut production from 9.9 million barrels per day to four million barrels per day losing significant market share.
By 1985, Saudi Arabia was tired of shouldering the full burden of price defense and looking on as its revenues declined. In September 1985, Sheikh Yamani, in conjunction with the Aramco partners, instituted a dramatic change of policy to regain Saudi Arabia's lost share of the crude oil market. Between August 1985 and August 1986, Saudi Arabian production increased from 2.2 million to 6.2 million barrels per day, and the spot price of many world crudes fell to less than $10 from their previous 1985 levels of around $26 to $29 per barrel.
Hence, rising oil prices led to oil conservation and substitution; which led to reduced demand; which led to cutting production in an attempt to prop up prices; which led to lost market share; which led to increased production to recapture market share; which led to significantly increased downward price pressure.
Sounds to me like fuel conserving standards and oil substitution in the form of alternatives is a pretty good thing.
The $18 billion of so called tax breaks are not "oil company" tax breaks. It simply amounts to the oil companies using the same tax code that applies to every other US Company. For some reason, which I don't understand, members of Congress seem to have the idea that the country would be better off if Exxon was domociled in another country, beyond the reach of US taxing authorities. Why else would Congress single them out for punishment when they are profitable? Maybe Hong Kong would be a better location.
Lets tax the hell out of the US oil companies, and the next time they are looking at a multi billion dollar project to bring in more oil, they can decide to let it go by the way side to avoid more "windfall profits"
The last thing we need as a country is a govt devised "energy policy" of anything other than "produce more of it" and hopefully with a profit for the producer. As to the alternative fuels, if profitably replacing $100 oil is not enough incentive for the Alternative folks, they really don't have much of an Alternative to start with.
Exxon's real profit margin before share buybacks, and dividends was nearly 71 billion dollars. However, everyone focuses on the net number. Nobody forces XOM to issue 30 billion in dividends and buybacks
The reality is that XOM's real profit margin is closer to 20% than it is to 11.32%. It really annoys the hell out of me that no one in mainstream media or the internet recognizes this.
However, that being said, I don't fault Tillerson & Raymond & co for their obscene profit margin. I'd rather they have it, distribute it to their shareholders, and penetrate the real economy than have the government take it and waste it on stupid pet projects.
I do agree with you about the government, but to state that 20 percent is "obscene" is plain wrong in view of the costs they have to incur to provide us with oil in the future.
Rather than have government regulate the oil companies, I’d sooner see the reverse. We’d probably have a budget surplus instead of a half-trillion dollar deficit.
You're even forgetting your own Econ 101. These oil companies would NOT contribute more to a budget surplus. They, like anyone else, do NOT like to pay taxes either. How do you reach the conclusion that we would then have a budget surplus in the absence of regulation? (For the record, I don't think there is great advantage one way or the other, but I am curious as to your argument.)
Rattus
I meant to imply that if the federal government were as financially prudent and efficient as the oil companies, this country would be in much better shape than it currently is.
For this reason, the price of gasoline needs to stay high, even higher in fact, to provide a financial incentive for us to migrate to EV's, like GM's Volt when they start production in 2010/11.
If you want to migrate before then, worth looking at buying a used Prius and converting it to a plug-in hybrid.
As for your recommendation to expropriate Venezuelan assets; Exxon tried that a few months ago (after Chavez illegally seized Exxon’s oil properties in the Orinoco Basin). A British court promptly dismissed the case.
Oil producing nations will continue to demand an ever-increasing share of the profits and there’s little the oil companies or the government can to do stop them.
Exxon pays a dividend and buys back shares with after-tax dollars. You cannot add share buyback dollars and dividend dollars to profit. Dividends are actually taxed twice. The company pays income taxes then shareholders pay taxes on their dividends. Many folks in DC want to tax dividends more. THis is why companies like Google and other profitable tech companies do not pay dividends.
Why we are on the topic of taxes, corporations do not pay taxes. People pay corporate taxes in the form of higher prices. Corporations have to make a profit that is suitable for the amount of risk they take. Otherwise bankers and shareholders will not invest. This profit is an after-tax number. Thus the more government taxes corporations, the more risk they take for all investments. Higher taxes make it harder for corporations to invest and grow. America is becoming less competitive globally because we are raising corporate tax rates as most other countries are lowering them.
However, it does amaze me how those associated with the oil industry are so damn terrified of change. Does anyone envision a future powered by petroleum? I for one see solar buildings, trash-based fuels, and fields dotted by windmills.
Is clean energy such a bad thing? Why not push for a shift towards fuels that don't cause acid rain, smog, or greenhouse gas emissions? Why not push for technologies that don't require ridiculous amounts of fuel that will eventually run out?
Oh right. Change is hard. Boohoo, Exxon will lose some money. BP will lose some money. Chevron will lose some money. Boohoo, their profits will go to making the world cleaner and towards giving human technology the ability to stand the test of time. Boohoo, you who are invested in Big Oil will lose money.
Except you're investors. Change is a market reality. Spending money to achieve change is also a market reality. How many major, large-cap, high-profit companies were born out of Kennedy's push to reach the moon before the Russians (and his subsequent spending of billions of government dollars)? How many people laughed at Ford for selling the Model T for such a low cost?
Maybe if fools who are too blind or too scared to take a leap and realize that change is what has driven the American economy since its inception open their eyes to see the tremendous possibilities for economic growth (and investor gain) in the alternative energy industry, then money will flood these companies and they'll have the same advantage that Exxon has for its own R&D: lots and lots of money.
Then we'll see which energy solutions are really more viable.
Where will the money for these "decent heads" come from? Are you expecting bright minds to go to solving a difficult problem without good money paying their salaries and funding the equipment needed to do the research? Because that's far more "communist" than the Democrats you so eloquently (and ignorantly) put down.
What needs to happen is an evening of the field. In the same way that globalization has opened the doors to economic growth in previously decrepit nations (did you ever go to India in the early 90s?), a shift in funding from energy sources that do more damage to the world economy (in real costs) to energy sources that do more good will open the doors to new, cost-efficient forms of power.
As for ethanol, I agree that corn-based ethanol is a terrible form of energy, from an economic and social standpoint. But not enough dialogue (or money) goes toward cellulosic ethanol. Bluefire Ethanol has licensed a technology that allows it to use methane from decaying landfills to power plants that turn the waste in the landfills to ethanol. No corn, no food prices. Tell me how that is a bad idea.
And since when is Great Britain "socialist"?
No one likes shelling out $3.50 per gallon of gas or $4.00 for heating oil. But more government intervention will lead to a much worse situation: shortages. Putting controls on profits is the same as price controls---and we all know how that usually turns out.
My main question for you, then, is: where do you propose the money to fund these bright minds come from? If not from the profits of companies who are imposing negative externalities on consumers, then where? The principle is the same as forcing tobacco companies to pay for tobacco education ads like "Truth".
Yes, for a while, there will be some price shocks, and there will be some pain. But with the pain of higher gas prices will come the character of driving more fuel efficient cars, updating and using stagnant and archaic public transportation systems, and an eventual transition to forms of technology that will allow us to drive however much we want without worry about the financial or environmental impacts.
Look at our Socialist comrades in Europe: they have the Eurorail and incredible subway systems in every city, their bus systems are well-used and efficiently function, and their cars are clearly not compensating for their "johnsons" - the things are half the size of an American sedan. I agree that the macroeconomic conditions in those countries are less than ideal elsewhere, but in the specific instance of transportation, taxing and spending is exactly what they have done, to enviable effect.
I was involved in the startup of one of America’s first (and still one of the largest) ethanol plants, New Energy Co. in South Bend, Indiana. In 1980, ethanol made economic sense. Corn production exceeded demand; ethanol production absorbed some of the surplus, thereby stabilizing prices. Only a few questioned the long term implications of a food-for-fuel tradeoff. Now we’re left to deal with the consequences.
Is it the increased government revenue that results from tax cuts? (go back and check the revenue increases after tax cuts were implemented. go back to Kennedy's and move forward from there).
Is it the freedom to choose what to do with YOUR money rather than give it to a bunch of inefficient, bloated, wasteful government programs run by bloated dishonest politicians of all ilk (see Jack Murtha who has forced millions and millions of dollars of funding on projects no one in government wants but he wants them. the arse.) I just sent a series of payments to the government to the tune of $75,000 over the year 2007 (not including the additional tax rip off we call social security). Just think how much I could have done with that money versus giving it to the government? I'd rather take that money and donate it to charities to feed people, or fund my retirement rather than rely on a ponzi scheme called social security, or directly fund my mother's retirement and medical care.
While I agree that all parties bear similar traits of misdirected spending, when I hear leaders of Dem's I hear tax more, give away more, screw success and screw businesses. At least the Rep's don't want to do all of them!! This year we get to choose from an older Rep who has proposed many things I hate (opening boarders, campaign finance "reform" and others), a habitual lier who will drive us into a nanny state with her policies, or a young, inexperience marxist who hates a certain race of people. Hmmm, I think I choose none of the above. Or Nader. great.
Stop blaming big oil for Americas thirst for oil. Americans like big cars that drink the fuel. I sure am proud to be American and to have a great job working for BIG OIL.
I believe that what's really happening is that we are fighting two wars in the middle east. One combat and the other economic. I personally feel that we should never put men on the ground anywhere that we don't want to keep. The war in the Middle East is costing us about a billion a week. We are footing the whole bill. And supporting the useless UN operation. ( Who have never been on our side )
The economical war is bleeding us dry at home through higher diesel prices that are forcing the cost of everything we use to esculate.
Both our government and big oil are doing nothing to aleviate this economic problem. Alcohol costs more to produce than we are paying for a gallon of gas. (The political posturing looks good but usually produces nothing). Alcohol has less actual energy. It takes more alcohol to go the same distance than gasoline.
The only sensible direction is atomic power plants, solar power and a large reduction in horsepower and lower rear axle ratios to greatly increase efficiency. Oil fields in Idaho and Canada could help, but, only if they are not restricted to keep prices up.
just reading this stuff has inspired me to take some economics classes in college, and hell, maybe try and get into business. there's so much misinformation and bullshit in the mainstream media/politics that for a while i was severely disillusioned with life. you guys actually get this stuff and can see the eventual light at the end of the tunnel.
the economy should be left to economists.
education should be left to teachers.
medicine should be left up to doctors.
social issues should be left up to the public and the local level.
if everything was like this, and all of the above worked for a balance of profits/better of humanity (the loss of progress in exchange for more profits is ridiculous), i think everything would work out fine. screw politicians! maybe i can start a new system one day? ha-ha-ha.