– Kalen Pruss
This week the five Big Oil companies—ExxonMobil, BP, ConocoPhillips, Chevron, and Shell—posted massive second-quarter profits thanks in no small part to record-high gas prices and billions in unnecessary subsidies paid by American taxpayers.
All five companies sat squarely in the black with $35.1 billion in combined second-quarter profits, 9 percent higher than in 2010. Exxon, at a whopping $10.7 billion, reported the largest profits by far. Shell saw an $8 billion profit for the quarter, a 77 percent increase from last year, putting the company on track to meet or exceed its 2008 record of $31.4 billion—the most a British company has ever earned in a single year. Even BP clocked in at $5.3 billion little more than a year after the fatal Deepwater Horizon disaster rocked the U.S. Gulf Coast, forcing BP to put $20 billion in an escrow fund for people harmed by the blow out.
Big Oil once again has American families to thank for these enormous gains: Oil profits grow when Americans pay more for gasoline. Because oil averaged $107.35 a barrel during the second quarter—a 39 percent increase over 2010—Americans are forking over more than a third more at the pump than they were just a year ago.
While high prices pad oil company coffers, they also make life even more difficult for families struggling to recover in the Great Recession’s wake. Bernard Baumohl, chief global economist at the Economic Outlook Group, notes that every penny increase in gas prices drains $1 billion out of the economy each year.
But high prices at the pump are only part of Americans’ Big Oil bill. They also pay more than $4 billion in unnecessary tax subsidies for domestic oil drilling and production every year. These subsidies are wasteful and expensive. Oil companies produce oil regardless of whether they receive these tax breaks, and they would still realize enormous profits without federal handouts.
Similarly, eliminating oil subsidies would not affect the price consumers pay for gas and oil in the near or long term, contrary to what oil companies and their congressional allies argue. And high prices and the new areas opened up to exploration have led to an oil and gas employment boom that has nothing to do with tax breaks for oil production.
Yet Big Oil’s representatives in Congress stubbornly defend Big Oil giveaways even if it means cutting deep into popular, important programs to make up for the cost. The House-passed fiscal year 2012 budget would cut Medicare spending by $30 billion over a decade, for example, while maintaining $40 billion in tax breaks to Big Oil over the same period. And Sens. Olympia Snowe (R-ME) and Susan Collins (R-ME) were the only two Republican senators to vote for a bill in May that would have repealed Big Oil subsidies. Their Senate colleagues, along with Democrats Mary Landrieu (D-LA), Mark Begich (D-AK), and Ben Nelson (D-NE), filibustered and ultimately killed the bill.
“They are so caught up in their profits that they have lost sight of what is happening…on Main Street and around the kitchen table,” Sen. Jay Rockefeller (D-WV) said of the Big Five oil companies before the bill came to a vote. “If they had expressed concern for people and then refused to give up their subsidies…at least that would have been a bend.”
Of course, it’s no coincidence that so many members of Congress consistently defend tax loopholes for Big Oil. Oil companies spend millions of dollars pressuring Congress to keep their taxpayer-funded subsidies intact. They’ve already spent $40 million on lobbying so far this year, and of all the oil and gas lobbying spenders in 2011, four of the Big Five oil companies—ConocoPhillips, Shell, ExxonMobil, and Chevron—claimed the top four spots. These companies have also donated $745,000 to congressional campaigns so far in the 2012 election cycle, with 93 percent of that total going to Republican candidates.
Meanwhile, many of the Big Five oil companies are investing a big chunk of their quarterly profits into stock buybacks as well. Repurchasing stock can boost a company’s share prices, enriching stockholders, board members, and senior managers. The Big Oil companies spent a full quarter of their first-quarter profits buying back stock. During the second quarter, ConocoPhillips spent an additional $3.1 billion on its own stock, equivalent to almost all of its second-quarter profits. Exxon spent $5.5 billion, and Chevron spent $1 billion in stock buybacks.
The Center for American Progress’s Daniel J. Weiss and Valeri Vasquez note that “Big Oil companies get richer by the minute” with these purchases “while consumers and taxpayers get hit with bills for higher gasoline prices and tax loopholes.”
“Most Americans,” President Barack Obama said on Monday, “don’t understand how we can ask a senior citizen to pay more for her Medicare before we ask a corporate jet owner or the oil companies to give up tax breaks that other companies don’t get.”
With $35.1 billion in total profits this quarter it’s clear Big Oil should no longer come first—and should give up its tax breaks once and for all.
–Kalen Pruss, Editorial Assistant to CAP’s executive team, in cross-post
- Big Oil Visits the Stock Market with Your Money by Daniel J. Weiss and Valeri Vasquez