Populists Versus the Populace – Oil Exports Edition

Mark Green
Posted October 9, 2015

We’re still more than a year from the next presidential election, but already we’re hearing attacks on energy company earnings, rhetoric calibrated for the sole purpose of riling up the party base. It’s bad political theater that misleads the American public to score political points, distracting from a substantive debate on the right energy path for the country. This has come up most recently in the debate over lifting the 1970s-era ban on U.S. crude oil exports -- which was advanced with bipartisan U.S. House passage of a bill ending the export ban.

Yesterday, we looked at problems with the White House’s opposition to lifting the ban. Goodness knows, export opponents on Capitol Hill have their own faulty reasons. We’ve covered most of these before, including consumer impacts, national security and the oil imports vs. exports muddle.

Some of the biggest confusion comes from those who find it convenient to flay the oil and natural gas industry. Certainly, running around and repeating “Big Oil” over and over again plays well with people who don’t like fossil fuels and/or progress in general. Unfortunately, in their rush to attack those who supply products that the American people actually want and demand – products that power our economy and modern way of life – it’s the American people who take the hit.

According to a 2014 Sonecon study, investors who aren’t company executives or directors own 65.5 percent of the shares in U.S.-based, publicly traded oil and natural gas companies, measured by the value of all shares. This includes public and private pension plans, 401(k)s and IRAs. Asset management companies, including mutual funds, hold 24.7 percent of shares – and lots of individual Americans are invested in mutual funds. Millions of Americans are, in fact, the actual owners of the oil and gas industry. As for industry executives, they hold just 2.9 percent of shares in oil and gas companies:

The sad truth is that some folks in Washington are so ideologically driven to go after “Big Oil” that they fail to see that they’re going after millions of regular Americans – workers, taxpayers and retirees. Being a “populist” these days is a weird, weird thing. Makes you wonder just how popular that brand of populism will be once the American people reckon their rhetoric with reality.

Let’s move on. The attack on earnings also is an attack on energy companies’ ability to invest in America – which they do quite well. Five oil and natural gas companies were among the Progressive Policy Institute’s top 25 in 2014 U.S. capital expenditures, and the energy production/mining sector was second only to telecom/cable in overall capital expenditures last year. So, an attack on industry earnings is an attack on the investment -- the capital expenditures that policymakers, on a bipartisan basis, regularly say is essential for our economy to grow.

Finally, one last point about earnings themselves. As we’ve said, the attack rhetoric – such as calling oil and gas company earnings “excessive” – is nothing more than red meat for folks who’re driven by a narrow ideology. What’s more, this rhetoric is simply detached from a couple of realities in the charts below. First, let’s look at profitability in the second quarter of this year:

According to Standard & Poor’s Research Insight, the most profitable industry sector in the second quarter of this year (most recent quarter available) was biotechnology, followed by banking. The profit margin of the S&P Industrials was 7.3 percent. Oil and natural gas? In red, at the bottom. As detailed above, even in a quarter when industry earnings are in positive territory, attacks on them are misplaced. To attack industry earnings after this year’s second quarter shows the political motivation of the attacker.

Here’s another chart, on effective tax rate:

No problem finding the oil and natural gas industry in this one, right at the top, at 43 percent – well above the effective tax rate of the S&P Industrials at 30.1 percent. America’s oil and natural gas industry supplies tens of millions of dollars a day to the U.S. Treasury in the form of income taxes, rents, royalties and other fees, all adding up to $30 billion a year. As the chart above shows, industry is paying its fair share and then some.

Attacks on our industry come with the territory – and the turn of the political season, we suppose. But they’re disingenuous, uninformed and unhelpful to sustaining and growing a U.S. energy revolution that’s being propelled by this industry – creating jobs, boosting economic growth and making America more secure in the world.

Instead of lobbing bogus attacks on industry, more time should be spent developing energy policies that will benefit all Americans. The right path for America’s energy policy is one that sustains and grows the ongoing U.S. energy revolution. It should start with ending the outdated, anti-energy, anti-competitive ban on U.S. oil exports.

Study after study has shown that crude exports would boost our economy and global trading position while spurring job creation and domestic production. This research has shown that exports wouldn’t negatively impact consumers and actually could help lower prices at the pump.

The United States, the world’s No. 1 producer of oil and natural gas, should stop sanctioning its own oil production – even as it works to allow the resumption of oil exports from Iran – and play a proper role in global crude oil markets.