The People of America's Oil and Natural Gas Indusry

Energy Today - May 12, 2011

Rayola Dougher

Rayola Dougher
Posted May 12, 2011

Forbes: Oil Company Earnings: Reality Over Rhetoric: Industry profit margins are cyclical too. But on average, between 2006 and 2010, the largest oil companies averaged a profit margin of around 6.5%. This pales in comparison to profit margins in just about every other industry. The pharmaceutical industry, for example, routinely averages a profit margin of about 16%. The soft drink market is even more lucrative. At the gas tank integrated oil companies make about 7 cents per gallon. Meanwhile, the government extracts more than 48 cents, on average, per gallon. That's right: Uncle Sam takes nearly seven times more out of drivers' wallets via taxation than "Big Oil." For working Americans higher gas prices do indeed mean higher costs of daily living. But strong oil industry earnings (and profits beat losses in just about anyone's book) also lead to very real economic benefits for these exact same families. Compared with a small fraction of oil stocks (about 1.5%) owned by corporate management, the vast majority of such investments are held by average Americans, primarily via retirement accounts. Independent research shows that 14% of industry shares are in IRAs and a full 30% held in mutual funds. My West Texas: CPAs Study Impact of Eliminating Oil and Gas Tax Incentives: The task force reported oil and gas activity impacts the nation's trade deficit and energy security and can influence spending decisions by both business and individuals. Rising oil and natural gas prices can reduce the purchasing power of both businesses and families, affect the travel and tourist industry, impact land values and contribute to inflation. In addition, the study found, the industry provides more than 1.7 million jobs and nearly 25 percent of the economy in Texas. Nationwide, the industry provided 9.2 million jobs, represented 7.5 percent of the overall economy and invested more than $2 trillion in domestic capital projects over the last 10 years. In 2008 alone, the industry paid nearly $100 billion in federal income taxes. The study pointed out that even more jobs are being created as the industry develops new resources such as the Marcellus Shale, where 57,000 jobs were added in Pennsylvania and West Virginia in 2009 and the Eagle Ford Shale play could generate $21.5 billion in total annual economic impact and 68,000 jobs in South Texas by 2020..."Our conclusion is these incentives have been law, for the most part, for many, many years. They're needed, they have economic value to the nation and if they're going to change them, they need to look at what they're doing."

Fuel Fix Blog: Proposed Tax Hikes are 'Discriminatory and Punitive': In his written testimony, Tillerson argues that the targeted tax provisions are similar to deductions and credits used by a range of other companies. For instance, Senate Democrats have proposed axing a domestic manufacturing tax deduction that is broadly available to companies producing goods in the U.S., including farmers, newspaper publishers, movie producers and chemical factories. Removing the Sec. 199 domestic manufacturing deduction for just "a select few companies within the oil and gas industry... is tantamount to job discrimination," Tillerson will say. "Why should an American refinery worker employed by a major U.S. oil and gas company in Billings, Mont., be treated as inferior to an American movie producer in Hollywood, an American newspaper worker in New York or an employee at a foreign-owned refinery in Lemont, Ill.?"

Additional Resources:

Washington Post: Not the Answer to High Gas Prices

Bloomberg: ExxonMobil May Suffer in U.S. Tax Plan

Americans for Tax Reform: Even with Skyrocketing Gasoline Prices, Dems Introduce Bill to Raise Energy Producers' Taxes

WTOV9: Gas Drilling Leases Generating Millions in Revenue to Local Landowners