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Big Oil’s Second Quarter Profits: What to Look For

By Climate Guest Contributor  

"Big Oil’s Second Quarter Profits: What to Look For"

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by Valeri Vasquez, Daniel J. Weiss and Noreen Nielsen

The Big Five oil companies—BP, Chevron, ConocoPhillips, ExxonMobil, and Shell— will announce their second quarter profits this week, and expectations are running high. Analysts forecast a surge over last year’s earnings thanks to significantly higher crude prices that continue to hover near the $100 per barrel mark.  Additionally, gasoline prices have jumped for the first time since early May by 8.5 cents due to an increase in crude prices.

These large profits raise some important questions, based on important findings from previous quarters:

  1. How is this quarter expected to compare to the first quarter of 2011?
  2. How is this quarter expected to compare with the second quarter of 2010?
  3. How have oil and gas prices contributed towards these earnings?
  4. What percentage of earnings will be used towards repurchasing company stock?
  5. Have oil companies that make huge earnings paid their fair share of income taxes?
  6. Will the earnings enable these companies to forgo the benefits of oil industry and other tax breaks?
  7. How profitable were the Big Five oil companies from 2001-2010?
  8. What have the company’s lobbying expenditures been this year?
  9. How much has the company contributed toward political campaigns?

Announcement schedule:

  • BP announces on Tuesday, July 26, at 2 a.m. EDT
  • ConocoPhillips announces on Wednesday, July 27, at 11 a.m. EDT
  • Shell announces on Thursday, July 28, at 2 a.m. EDT
  • ExxonMobil announces on Thursday, July 28, at 11 a.m. EDT
  • Chevron announces on Friday, July 29, at 11 a.m. EDT

Below is valuable background information about each of these questions:

1. How is this quarter expected to compare to the first quarter of 2011?

Background: In the first quarter of 2011, the Big Five reported a profit jump over the first quarter of 2010. ExxonMobil and Shell are expected to post a 50 percent increase in earnings over last quarter, and BP is forecast to net a respectable 21 percent more than its first quarter 2011 profits. Chevron and ConocoPhillips are expected to have large gains, as well.

2. How is this quarter expected to compare with the second quarter of 2010?

Background: Given the enormous jump in oil prices this year, and projected earnings that are expected to exceed even last quarter’s high figures, profits during the second quarter of 2011 will likely dwarf those from the second quarter of 2010. BP in particular will make large gains over last year, when the oil spill disaster in the Gulf of Mexico sank their balance sheets more than $17 billion into the red.

3. How have oil and gas prices contributed towards these earnings?

Background: Oil prices were 39 percent higher in the second quarter of 2011 compared to the second quarter of 2010.  A corresponding increase in profits is expected because high oil profits drive up oil company profits. Additionally, gasoline prices have jumped yet again, rising by 8.5 cents since the early May, which experts contribute directly to an increase in crude prices.

4. What percentage of earnings will be used towards repurchasing company stock?

Background: In the first quarter 2011, 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 its own stock. ConocoPhillips followed suit, spending more than 53 percent of its earnings on stock buybacks. Chevron spent $750 million on driving up its share price.

5. Have oil companies that make huge earnings paid their fair share of income taxes?

Background: According to its own estimate, Exxon Mobil paid an average 18 percent federal effective corporate tax rate on its annual earnings in the three years spanning 2008 to 2010. That’s 16 percent below the average individual federal tax rate of 20.4 percent.

6. Will the earnings enable these companies to forgo the benefits of oil industry and other tax breaks?

Background: Big oil tax loopholes, including oil industry specific tax breaks and unnecessary general provisions, will cost the federal treasury $40 billion over the next decade.  The Big Five share is approximately $20 billion, which pales compared to its first quarter 2011 profits.  Yet they have been spending millions of dollars to pressure Congress to retain these tax loopholes that will add to the deficit and be paid for by taxpayers already bearing the brunt of high oil and gasoline prices.  To put this in perspective, the House passed FY 2012 budget would cut Medicare spending by $30 billion over a decade, while maintaining the $40 billion in tax breaks to Big Oil.

7. How profitable were the Big Five oil companies from 2001-2010?

Background: These five companies made more than $900 billion in profits (figure in 2011 dollars) – almost a trillion dollars – over the past decade.

8. What have the company’s lobbying expenditures been this year?

Background: The oil and gas industry ranks as the fourth largest spender on lobbying in 2011, spending a combined total of nearly $40 million. Of the top five oil and gas lobbying spenders, Big Oil companies ConocoPhillips, Shell, Exxon and Chevron etched out the top four slots, with Koch Industries coming in at number five. And according to a recent Politico article, Exxon’s 2011 lobbying expenditures “increased by at least 25 percent from the first quarter to the second.”

9. How much has the company contributed toward political campaigns?

Background: Four of the top five Big Oil companies have already spent $723,575 on campaign contributions in 2011, with the vast majority of that money going to Republican members. Not surprisingly, Exxon ranks in as the top contributor in 2011, contributing $384,030, followed by Koch Industries and Chevron Corp.

— Valeri Vasquez, Daniel J Weiss, and Noreen Nielsen

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