Big Oil

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Every time you put gas in your car, you support Big Oil, the major oil companies, some of the largest global corporations in the world. To give an example, the top six oil companies take in about $100 billion a year in profits. Not sales. Not revenues. Profits. Among those, Exxon/Mobil in 2013 ranked 1st in the world in profits, Shell Oil ranked 7th, Chevron ranked 8th, BP ranked 30th and Conoco/Phillips ranked 50th and then only so low because it had previously sold off its refining operations.

 

In all, the value of publicly traded oil companies amounts to roughly $1.95 trillion. One out of every ten dollars of corporate securities held by institutions or private investors is in oil stocks. Oil is a very important component of our national economy. For example, public and private pension plans hold about $561 billion in oil and gas company stocks. IRAs hold another $348 billion. The numbers are not inconsequential. Because you buy oil products every day, you are involved, like it or not.

 

We might argue that the roughly 39% of individual stock ownership in oil companies, as opposed to the roughly 60% owned by institutions, like pension funds, could be more money than those individuals—some very, very wealthy individuals…should be entitled to. But if you want to change that now, even while those individuals are doing their best to impoverish you and turn your country into a Fascist, racist state, you’re on the short end of our political philosophy. Your only hope is to slap a tax on those individuals so high that it will finally be necessary to actually look to see how many billions they still have left.

 

It is not simply the income or wealth of the inheritors of oil company founders that is dubious. And, to be fair, some have given themselves to philanthropy in huge measures. Society does require equity between average income and the unrestricted  disbursement of corporate profits if it is to remain a flourishing democracy. The average oil company CEO makes $20 million a year. It is a highly complicated job. So, some incomes can become quite high. Charf Souki, for example, of Houston-based Cheniere Energy, a natural gas developer and marketer had an income of $171,949,280 last year. 

 

Oil industry CEO salaries may range from under a million to maybe 5 million but stock options make up the rest of the $20 million.  Still, the ownership of stocks in oil and gas companies by industry executives and board members is only about 2.9% or $55.1 billion. For the most part, the CEOs of Big Oil, here in the U.S. seem to be arch-conservatives, most of them, in a business which, once it puts a well into operation, wants the gold to flow and nothing to interrupt, please. So, they are paid handsomely to see to it that once a well is flowing that no one be allowed to challenge that flow of black gold or let anyone demand that the site be cleaned up and hospitable to human life.

 

Oil is in such demand that the oil companies truly believe that they are doing us a favor with $4 or $5 per gallon gasoline. In the context of hundreds of billions of dollars, per company, numbers can become distorted. For example, as reported by “Fuel Fix” which seems to be a daily blog on the oil industry, as of April 2014, things were not looking good:

 

“At Irving, Texas-based Exxon Mobil, CEO Rex Tillerson’s total compensation dropped by $12.1 million to $28.1 million in 2013. Tillerson’s total pay in 2012 was boosted by a $13 million increase in the value of his pension and deferred compensation, which was unchanged in 2013.

John Watson, chief executive of San Ramon, Calif.-based Chevron, saw his compensation fall by $8.2 million to $24 million in 2013.

Among all the top executives listed in regulatory filings for the two energy giants, only one saw an increase in total pay last year — a $75,000 bump to $5.1 million for Chevron’s general counsel.

Houston-based Conoco/Phillips stood out among the largest U.S. oil producers, hiking CEO Ryan Lance’s total pay by $4.2 million to $23.4 million last year.”

 

Oh, such deprivation! Let the charity benefits begin. Anyone with a compassionate state of mind would ask where individuals wishing to donate could send money to these destitute individuals…items of clothing or non-perishable food perhaps. In particular, the attorney for Chevron whose job is composed of things like writing contracts to insure that no one may obligate his firm to clean up or replace damages to land or toxicity to water or making agreements that conceal the fact that the local community will have responsibility for the restoration of land once Chevron moves on. Only a $75,000 bump in salary? Well, Judas sold out for much less.

 

So…what is the point? Should oil companies work for nothing? We need gasoline. They charge a certain amount based on world oil prices, plus a reasonable profit. Oil extraction is an enormously expensive, capital intensive business. Are they to blame that the government has allowed oil companies to consolidate to the point that they now control prices on a diminishing natural resource? After all, whose resource is it? Let us make one point vividly clear. Oil does not belong to the citizens of the United States. It belongs largely to very wealthy individuals who have compounded their investment.

 

Oil doesn’t belong to you, Mr. Citizen. Most of you are happy to have the source of your auto and plane and boat fuel controlled by one of these fine, upstanding global corporations. If they want to pour oil down the drain, they can. If they want to burn off all the natural gas, they can. If they wanted to give it all away to China or Japan, they could. And the Koch Brothers, worth roughly $40 billion dollars, can use their profits to hire political hacks who will do their bidding…try to eliminate your Social Security, prevent you from access to affordable health care, take your well-paying union job away, restrict your right to vote, keep the minimum wage at poverty levels and obstruct any progressive activity that would create more good jobs here in the United States. This is how a portion of every dollar of gas you put into your car is used against you.

 

Global oil companies, even foreign corporations own the natural resources in Texas and Wyoming and California and Oklahoma and now in North Dakota. The resources may be under the ground where you live, but these corporations own them and they are by now rich enough to see that, even if you found the largest oil deposit in the world under your porch, you could not use it. You could not sell it or do anything with it because the major oil companies own everything you would need to get it out of the ground and into the marketplace.  In fact, because of the separation of mineral rights from property rights, many individuals not only have no right to the wealth that may exist under their land, they have no right to say when or whether it will be exploited.

 

Big Oil has a lot invested in bringing you oil, and so a tidy income of $20 million to the CEO to see to it that the company makes $20 billion or $30 billion, seems reasonable by today’s standards to investors in oil. If a few families each make a few billion because granddaddy was smart enough to sell his land or his oil rigs to a big corporation for stock instead of cash, why not? Oil has always been a speculative business, risky in the extreme, from a capital-use standpoint. The oil companies like to point that out. They will give you the example of Harold Hamm, a lifelong, dedicated worker in the oil fields and an oil explorer. He is the person chiefly responsible for finding oil in the Bakken Shale area of North Dakota. His dedication and vision and accomplishment in finding and extracting oil from shale earned him well over $11 billion. Isn’t that the American Dream.

 

Yes it is. But the American Dream may also turn into a nightmare. Despite the good—the jobs, the increased oil production, the addition to economic growth–the surface area of North Dakota looks like a moonscape rather than a pastoral farming area. Fracking uses, and destroys, great amounts of water. Since 2005, fracking in the U.S. has used over 250 billion gallons of water, about half of which were used in a fairly dry state, in fact a draught-prone state, Texas.

 

But fracking has another problem. The injection of water and chemicals into the substrata has caused minor earthquakes. Officials at the earthquake laboratory at the University of Oklahoma, the state where Harold Hamm’s corporation is headquartered, say that the increase in minor quakes, about 600 more than normal in Oklahoma, is because of fracking, the injection of water and chemicals deep into the porous spaces between rock, which is the fracking process. Here is where the nightmare part begins and the dream leaves off. Harold Hamm doesn’t want anything interfering with his plans and his plans involve fracking. So, being a billionaire, he went to the university to see why the university isn’t following his orders, at least lying about the fracking process. If he could stop these reports, or have the scholars dismissed, or the laboratory at the University of Oklahoma shut down, his dream…more billions…could continue.

 

Hamm is nothing if not single minded. But he is no more or less focused than other oil men are and have been since oil was discovered in Titusville, Pennsylvania some 100-plus years ago. And it isn’t just in the United States. It is worldwide and in places you might least expect it. Many of us think of oil as coming from Texas or Saudi Arabia. But in fact, most of our that is not domestic (and much of that now comes from North Dakota) is imported from Canada and Mexico. We import well over 3 billion barrels of oil each year. The OPEC countries provide about 1.75 billion barrels.  Our biggest imports come from Canada (1.25 billion barrels) and Mexico (300 million barrels).

 

From the late 1800s through the 1070s, the United States played a major part in the oil business. When our reserves began to decline and the oil reserves of the Persian Gulf countries began to peak, the balance of power began to shift. Middle Eastern countries began to demand greater prices for oil. And they succeeded. After World War II, the control of oil was largely in the hands of British and American corporations. The so-called “Seven Sisters” was composed of BP (British Petroleum), Gulf Oil, Shell Oil, Standard Oil of California (later Chevron), Standard Oil of New Jersey (Exxon/Mobil), Standard Oil of New York (Mobil, now Exxon/Mobil) and Texaco (now part of Exxon/Mobil).

 

Now we have a new “Seven Sisters.” It reflects the times and the recognition of how much oil reserve you actually have. It is composed of Saudi Aramco (Saudi Arabia), China National Petroleum, Gazprom (Russia), National Iranian Oil, Petrobras (Brazil), PDVSA (Venezuela) and Petronas (Malaysia.)

 

Oil companies get huge tax breaks. Just to give you an idea of a few of the tax breaks….

  1. The repeal of the last in—first out accounting procedures amounts to a $26 billion tax break for oil companies.
  2. The so called “Domestic Manufacturing” deductions account for another $12 billion.
  3. The “expensing of intangibles drilling costs” deductions gives oil companies another $13.9 billion
  4. The old, but still applicable, “oil depletion allowance” deduction comes to $11 billion.
  5. They also may get a “dual capacity deduction.” For every dollar of tax they pay abroad, they get a dollar’s reduction in taxes in the U.S.

 

So what kinds of monies are we talking about here? You probably really don’t want to know. If someone took a nickel from your purse you might say…”Just forget it.” But if they took $5,000 from your purse or your wallet, you would most likely be concerned. Here’s what a few oil companies generate in volume. To give you an idea of what kinds of dollars are being generated, we’ll use the representative amounts of oil they produce, by company. First, we’ll use Saudi Aramco Oil as a benchmark. They generate about 12.5 million barrels a day. This nets them about $365 billion a year in revenue.

 

If you, on the other hand, drive 15,000 miles a year at 20 miles per gallon, and pay $2.00 per gallon, you spend $1,500 or about $125 per month for gas. But if they raise the rate to $3.50 (for any reason they choose) you now pay $2625 per year, or $218.75 per month. And we have experienced both those prices in the last 12 months. Now if you take the differential between what you spent on the low end and what you spend on the high end—just the amount that the oil companies can charge you differentially by simply making any excuse—so, in this case, $1.50 per gallon—the oil companies would make (and do make) an increase of $183,375,000 (one hundred and eighty-three billion, three hundred and seventy-five million dollars.) That’s why they call it “big” oil.

 

So how big is big? Gazprom, the Russian oil company generates 9.7 million barrels a day.  Iranian national oil generates 6.4 million barrels a day.  Exxon/Mobil produces about 5.3 million barrels a day and they had profits, all by themselves, after taxes of $40 billion in one year. (Does that give you an idea of the scope?) Petro/China produces 4.4 million barrels a day, BP oil…4.1 million per day, Shell Oil…3.9, Pemex (Mexico)…3.6, Chevron…3.5, Kuwait Petroleum…3.2, Abu Dhabi National Oil…2.9, Sonatech (Algeria)…2.7, Total (France)…2.7, Petrobras (Brazil) 2.6, Rosneft (Russia)…2.6, Iraqi Oil Ministry…2.3,  Qatar Petroleum…2.3, Lukoil (Russia)…2.2, Eni (Italy)…2.2, Statoil (Norway)…2.1, Conoco/Phillips…2.0, Petroleos  de Venezuela (PDVSA)…1.9, Sinopec (China)…1.6, Nigerian National Petroleum…1.4, Petronas (Malaysia)…1.4.

 

So you can see that even Petronas, the Malaysian oil corporation produces 1.4 million barrels a day. At $80 per barrel, that is $112 million every single day. And that is why oil companies are rich. Oil is necessary. Oil has a termination date. That is each well eventually will play out, expire. So the law of supply and demand is the basic law of the oil industry even more than that of other businesses. Big oil is always looking to the day the oil runs out. And the closer to that date, and the less competition they have as energy supplier, the higher the price. The oil industry has a captive market.

 

For the average citizen that should be a scary thought. It is, in fact, a scary future. People in general have no control over one very large cost that could double overnight. How does anyone know what happens in the oil markets? Not much information gets out. Big oil does not want little citizen to know. Why should they? They control supply. They control prices and profits. Big oil is virtually toying with U.S. citizens like a cat with a canary. But it is worse than that. Some oil companies are owned by people whose idea of being a citizen is giving large amounts (but small by their standards) of money to charities and then using the enormous balances in their check books to support political candidates who will do their bidding. Normally, one might admit that, for some people, this would be considered fair. In other words, some citizens might say that they earned the money, no matter how they did it and no matter who was inconvenienced—and we live in a capitalist system, so let them have it, however much it is.

 

That might be fine in normal times. The problem in these times is that a group of Right Wing Republicans gained control of the purse strings of government in 2001 and by 2009 had added $8 trillion to the national debt, which had been going down. The oil companies and other global corporations saw their incomes taxed less through the variety of tax benefits we discussed before. The owners of oil companies were taxed less on their personal capital gains (their oil company stocks) and so that 39% of oil company stock that goes to individuals rather than investment plans for endowments and pensions became very lucrative. So, with what Republican economists themselves call very high levels of national debt, $17 trillion dollars or so, this could well be considered a national crisis. We are not decreasing, for example, our bloated national defense budgets but increasing them. So debt is important, the possibility of war or terrorist attacks is important and low national income (18,5% vs a historical 20% of GDP) is extremely important. But it is not enough.

 

If you are persuaded that major corporations like oil companies and pharmaceutical companies have been given at least a decade of almost unimaginable tax relief, then the problem of lack of national income can be solved very easily. The oversimplification of the remedy is known simply as “Tax the Rich.” But in reality, it is not all about taxing the rich, simply “redistributing” income as the Republicans refer to it.

 

You have seen how much money the oil companies and their individual stockholders make. Two specific taxes would make our problems lessen to a dramatic degree. The first remedy would be to raise taxes on capital gains, the largest segment of CEO incomes and major stockholder incomes. You have seen the kinds of dollars that an increase in the price of gasoline would create. Now consider the amounts that could be raised by raising the standard amount of taxable income on capital gains to 25%. So the hugely wealthy man (small investors have deductions that protect them) whose stock in an oil company provided ten or twenty millions of dollars in a year would pay a two and a half million or five million but would be left with seven and a half million or fifteen million. Would you take that deal? Of course.

 

The second remedy is to have oil companies and other corporations pay their fair share of taxes. Right now, corporations pay an amount in taxes equivalent to 1% of GDP, which is about $17 trillion.  What they should pay is the equivalent of something like 4% of GDP, which would be about average by historical standards. But even if we hit 2% of GDP as a target for corporate tax revenues, we would, in one brief stroke, end our annual deficits.  There are other revenues that could and should be generated which could be included in our estimates of what can be done to balance the budgets. A minuscule tax on each and every securities transaction would bring in enough, with these other taxes, to cover the cost of health care administration, interest free student loans, and an entire makeover of our inner cities.

 

Rather than trying to gut government at every level, corporations like Exxon/Mobil and Koch Industries should propound intelligent, rational and progressive schemes for balancing budgets, caring for our citizens, growing industry and providing national security without bankrupting the country.