"Ka-Ching: A Round-Up Of Big Oil’s Mighty 2012 First-Quarter Profits"
by Daniel J. Weiss and Rebecca Leber
Together the big five oil companies—BP, Chevron, ConocoPhillips, ExxonMobil, and Shell—earned a combined $33.5 billion, or $368 million per day, during the first quarter of 2012.
Recall that these companies made a combined record profit of $137 billion in 2011, mostly due to high oil and gasoline prices. Their ongoing huge earnings mean that these companies do not need $24 billion for a decade’s worth of tax breaks, particularly since the three American companies pay relatively low effective federal tax rates.
Profits for Chevron continued to grow during the first quarter of 2012 compared to this time last year, while they fell slightly for Shell and ConocoPhillips. ExxonMobil and BP saw a decline in first-quarter profits mainly due to reduced oil production (both) and very low natural gas prices (Exxon).
Cumulatively, profits were 7 percent lower than the first quarter of 2011. And more than one-quarter of these profits were used to repurchase companies’ stock. Meanwhile, CEO compensation grew by a whopping average of 55 percent.
Below we dig a little deeper into the big five’s latest earnings—including how they spent them—and explain why companies this profitable should not be receiving billions in tax breaks especially when this money could be spent on other national priorities.
High oil and gas prices boost Big Oil’s bottom line
High oil and gas prices greatly contributed to the big five’s first-quarter earnings. The most important contributor to high gasoline prices is high oil prices. The Energy Information Administration estimates that the cost of crude oil was two-thirds of the cost of a gallon of gas in March 2012.
During the first quarter of 2012 the average gasoline price rose by 63 cents per gallon, or 19 percent, according to the Energy Information Agency. West Texas Intermediate crude oil prices peaked at $109 per on February 24, but eventually declined to $103 per on March 30 —the same as on January 3. Higher oil prices helped boost gasoline prices, as did closed refineries and other factors.
Also during the first quarter the Brent crude oil price in Europe grew by $12 per barrel, an 11 percent increase. The Brent price peaked at $128 per barrel on March 13 before closing at $123 on March 30. The uncertainty about a Persian Gulf oil supply disruption due to the confrontation with Iran contributed to the higher Brent price. High Brent prices affect Americans on the East Coast because this oil is imported and refined into gasoline there.
Balance sheets most companies would envy
While some of the big five companies saw declines in earnings compared to last year, all of the companies did very well in the first quarter and are still well in the black.
Chevron made 5 percent more in first-quarter earnings compared to 2011 even though its oil production dropped by nearly 5 percent compared to 2011. Chevron spent $1.3 billion repurchasing its stock, which was nearly 20 percent of its first-quarter profits. This practice enriches shareholders but it doesn’t add to oil supplies or investments in alternative fuels or other new technologies that would benefit drivers by providing substitutes for gasoline.
Chevron paid a 19 percent effective federal tax rate in 2011, much lower than the U.S. statutory corporate rate of 35 percent. Its CEO John Watson received $25 million in compensation last year, a 53 percent raise.
Shell’s earnings dropped by 1 percent. It was the only one of the big five oil companies to produce as much oil during this quarter compared to one year ago. Shell CEO Peter Voser’s compensation more than doubled in 2011 compared to 2010.
ConocoPhillips’s first-quarter 2012 profit was $100 million—or 3 percent—less than in 2011, which came to $2.9 billion. Reuters reports this is due to “weak refining margins” and decreased output after a spill in China. The company spent 66 percent of its first-quarter profits—or $1.9 billion—buying back its own stock.
Conoco also spent $20.6 million on lobbying Congress in 2011, making it the sixth-largest overall spender in 2011 and the top lobbying oil and gas company. Conoco paid an 18 percent effective federal tax rate in 2011, and outgoing CEO James Mulva received a $27.7 million salary, a 55 percent jump in 2011.
ExxonMobil’s first-quarter profits declined by 11 percent compared to 2011. But it still made a whopping $9.5 billion, an average of nearly $104 million per day from January 1 to March 31, 2012. This is a balance sheet that most companies would envy. The New York Times notes that:
The company said that production of oil and oil equivalents decreased by more than 5 percent compared with the first quarter of 2011, although revenue rose because of higher oil prices.
Exxon spent $5.7 billion of these profits—or 60 percent—buying back its stock. The company paid a 13 percent effective federal tax rate in 2011, the lowest among the three largest domestic oil companies. Exxon CEO Rex Tillerson’s 2011 salary was $34.9 million, a 20 percent raise from 2010.
Further, Exxon and its employees have already donated more than $1 million to federal candidates in the 2011-12 election cycle, making it the largest campaign funder in the oil industry. Republicans received 91 percent of these contributions.
BP reported a 19 percent decline in first quarter profits compared to one year ago. Its production of oil was 14 percent lower than 2011. Bloomberg reported that this decline occurred because the Gulf of Mexico blowout in 2010 forced the company to “sell assets to raise cash…asset sales lowered production and refining weakened.” Despite the drop in profits, BP CEO Robert Dudley received a 300 percent salary increase to $6.8 million. This was the largest salary change among the big five CEOs.
These companies clearly don’t need $24 billion in tax breaks
Amid their very remunerative first quarter, these extremely profitable companies continue to pressure Congress to maintain their cherished tax breaks. ExxonMobil and the American Petroleum Institute—Big Oil’s trade association loaded with well-heeled lobbyists—fervently opposed and helped defeat a bill to reduce Big Oil tax breaks despite earning another $33.5 billion in profits during the first quarter. They succeeded by convincing enough senators to vote against the bill to remove their tax breaks that the Senate was unable to muster a supermajority of 60 votes required for passage.
On March 29 the Senate voted down the Repeal Big Oil Subsidies Act, S. 2204, sponsored by Sen. Robert Menendez (D-NJ). It would have eliminated $24 billion in tax breaks over the coming decade for the big five companies while investing in clean energy technologies. This included an extension of the production tax credit for wind energy, which would save 37,000 jobs. The bill received a majority of votes, 51 to 47, but this was nine short of the votes required for passage.
These Big Oil subsidies, combined with a low effective federal tax rate, simply shift the tax burden on to the middle class. Martin A. Sullivan, a former Treasury Department economist, observes that “when America’s most profitable companies pay less, the general public has to pay more.”
The big five oil companies continue to be spectacularly profitable, as their first-quarter 2012 earnings demonstrate. They earned $100 for every man, woman, and child in the United States. But instead of asking these companies to relinquish their billions of dollars in tax breaks, the House Republican leadership proposes to cut investments in women’s health programs to avoid the doubling of student loan interest rates.
This spending unfairness is the Big Oil equivalent of Warren Buffet’s secretary paying a higher tax rate than he does. Congress must enact a “big oil fair share” rule so that the companies that made a combined $33.5 billion in profits in just three months no longer receive billions of dollars of tax breaks, too. This money could definitely be put to better use to assist every day Americans instead of further enriching gigantic oil companies.
Daniel J. Weiss is a Senior Fellow and Director of Climate Strategy and Rebecca Leber is a Research Assistant for Think Progress at the Center for American Progress. This piece was originally published at the Center for American Progress.
Thanks to Noreen Nielsen, Energy Communications Director, Center for American Progress, Richard Caperton, Director of Clean Energy Investment, and Jackie Weidman, Special Assistant for the Energy Team.