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The Zephirin Group
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The Zephirin Group, Inc. (ZGI) is a forward thinking, Independent Fundamental Equity Research company focused on under-followed large, mid and small capitalization companies. Our philosophy is that our research is “made to measure.” Awards: Ranked as the No. 1 Stock Picker in the 2010... More
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  • The Wealth of the States. Tax Profits = +$1 trillion…! 0 comments
    Jun 21, 2010 10:50 AM | about stocks: DO, ESV, HERO, NE, PDE, RDC, RIG, SDRL, BP
    • Over the years, higher commodity prices have generated strong EBITDA, earnings, cash flow for oil & gas companies, as well as strong dividend pay-outs for investors. However, often ignored in the profit gain and dividend paid-out are the corollary facts that the ensuing tax revenues collected by the federal government, state and local municipalities from the oil & gas companies are at near historical highs.
    • According to our data, compiled from a small sample of oil & gas companies and data provided by the Department of Energy Information Administration (DEIA), the reported estimated profit (earnings) from our sample in 2009 was $84 billion compared to tax revenues of $91 billion.
    • From 1977 through 1997, the average reported earnings from the oil industry was $20.3 billion, compared to the average tax profits of $44.3 billion, equating to a tax rate of 68.6%. In 1998, the good time came to an end when oil & gas earnings fell to $12.8 billion; nonetheless, tax revenues were up by $1.2 billion. From 1999, earnings were rising, ranging from $24.8 billion to a high of $125.2 billion in 2006 – this as a result of higher commodity prices accompanied by increased global demand.
    • The wealth of the states: We note that since 1977, governments collected more than $1.78 trillion, in tax revenues. This is $517.0 billion more than the amount of profits earned by major U.S. oil & gas companies during the same period. No other industry is capable of generating such tax revenues for the federal government. Further, our analysis excludes gasoline tax revenues that average approximately $0.477 cents per gallon nationwide, which is significant on its own.
    • Presently, with the moratorium in place, we estimate that the federal government, state and local municipalities are losing approximately $6.5-7 billion per month in tax revenues. Given the staggering loss of tax revenues, we are confident that the moratorium will be lifted before six months.
    • This being the case, it is safe to conclude that the most recent barrage of media and political strife will slowly diminish; further, we believe that investors’ concerns about the imminent crisis are likely overstated and the overhang appears to have been slowly removed. Go long the offshore drillers.


    Disclosure: All of the recommendation and views about the securities and companies in this report accurately reflect the personal views of the research analyst named on the cover of this report. Does not own any of the mentioned securities.
    Themes: offshore drillers, oilfield services and equipment Stocks: DO, ESV, HERO, NE, PDE, RDC, RIG, SDRL, BP
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