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Big Oil visits the stock market with your money

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"Big Oil visits the stock market with your money"

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Big oil companies use Q1 profits to drive up their share prices

Daniel J. Weiss and Valeri Vasquez in a CAP repost.

Americans spent 28 percent more for gasoline during the first three months of 2011 than the same period in 2010. Meanwhile, the big five oil companies””BP, Chevron, Conoco Phillips, ExxonMobil, and Shell””made 38 percent more profit. The companies then used a major portion of these additional profits to enrich their board of directors, senior managers, and shareholders by purchasing shares of their stock.

A Citizens for Tax Justice report explains that this action:

“¦drive[s] up the companies’ share prices, which also benefits managers, whose compensation depends in part on rising stock values.

ExxonMobil nearly doubled its profits from 2010, reaping close to $11 billion dollars. It spent $5.7 billion””more than half of its first-quarter profit””to buy 69 million shares of stock in order to “reduce shares outstanding.”

Conoco Phillips devoted $1.6 billion of its $3 billion first-quarter earnings to stock buybacks””more than 50 percent of its profits. Chevron spent 12 percent, while Shell and BP each spent less than 1 percent on repurchasing their own company shares. BP continues to have expenditures linked to its Deepwater Horizon oil blowout in the Gulf of Mexico last year.

big oil first quarter profits and stock repurchasing

Adding injury to insult, these same companies are battling to retain $40 billion of tax loopholes that will be paid for by taxpayers who are already providing their additional profits due to high oil and gasoline prices.

While consumers and taxpayers get hit with bills for higher gasoline prices and tax loopholes, Big Oil companies get richer by the minute. Congress must heed President Barack Obama’s call to end this unfairness by eliminating these unnecessary handouts.

– Daniel J. Weiss is a Senior Fellow and Director of Climate Strategy at the Center for American Progress. Valeri Vasquez is a Special Assistant on the Center’s Energy Opportunity policy team.

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10 Responses to Big Oil visits the stock market with your money

  1. BBHY says:

    Chevron has a series of greenwashing commercials. One talks about the companies profits and the Chevron spokeslady says that “Every penny and more” goes to producing energy.

    I would love to hear them explain how buying stock produces oil, or any other form of energy.

  2. Tim says:

    @BBHY

    I would love to hear them explain how buying stock produces oil, or any other form of energy.

    Naturally, you will have a loooooonnnggg wait before you hear anyone in the MSM ask them to explain. I doubt the question will even come up during the reelection (i.e., coronation) campaigns of most of the congressmen voting to continue to tax breaks either.

  3. Chad says:

    In my mind, any corporation who buys back its own shares with its extra cash should immediately fire its board and executives. After all, they have just admitted they have no clue how to profitably invest new money, and therefore are giving it back to shareholders. Therefore, they are worthless, and should be canned.

  4. JCH says:

    When Exxon purchased Mobil each Mobil share was purchased with fractional Exxon shares. When ExxonMobil purchased XTO, each XTO share was purchased with fractional ExxonMobil share.

    From where did those shares, ~$140 billion dollars, come?

  5. Roddy Campbell says:

    If an oil company makes ‘windfall’ profits when oil prices rise sharply (somewhat in the nature of the industry, as it is with gold mines), what would you like them to do with those profits?

    a) Drill

    b) Return some of the cash to shareholders (via dividends or stock repurchase) so that cash can be deployed more usefully elsewhere?

  6. Mulga Mumblebrain says:

    Roddy #6, try ‘Pay some more tax’ so that the government, the alleged expression of the wonderful ‘democratic’ system, can spend money on social welfare, infrastructure etc. As was once observed tax is the price you pay for civilization. Returning it to the parasite class that owns 90% or so of shares just ensures more conspicuous luxury consumption or more speculation by wealth and hedge funds blowing up asset bubbles in the search for the easiest and biggest return on capital.

  7. Roddy Campbell says:

    Mulga, quite right, I amend my first sentence to read:

    ‘If an oil company makes ‘windfall’ profits on an after-tax basis, the taxes having been decided by the elected government of a (necessarily imperfect) democratic system, …….’

    We could even take the case of a state-owned oil company:

    ‘If a state-owned oil company makes ‘windfall’ profits, should those profits be returned to its shareholder to be reallocated elsewhere in society, or used to drill more.’

  8. prokaryotes says:

    Commodity hedge fund loses $400m in oil slide

    http://www.ft.com/cms/s/0/2b9bfa74-79a0-11e0-86bd-00144feabdc0.html

  9. JCH says:

    When you acquire an oil or gas company, you’re buying their drilling. ExxonMobil has limited opportunities to do exploration, so they acquire. The buybacks could theoretically improve the price of shares, but there is little evidence of that. In fact, many shareholders have criticized the strategy for that very reason: they are seeing no increase in share price due to buybacks. When the acquire, it’s often with substantially appreciated shares. They can time acquisitions to crunches in the market. Targets are under financial pressure. Why? They did too much drilling.

    Drill? Where? Much of the world is controlled by state oil companies. Very limited drilling opportunities.

    Is ExxonMobil in the market buying shares today? Who knows. Shares that are for sale will move at market. It doesn’t make a bit of difference whether ExxonMobil buys the share or your Grandmother buys the share. You’ll have a very hard time proving ExxonMobil buybacks drive market prices.