June 13, 2008
Oil companies spend more on taxes than on oil supply development
If didn't know better, I would think the Democrats are really trying to lose this election. First they offered up the cap and trade global warming bill in the Senate that was quickly withdrawn when they realized what a debacle they were creating for themselves. Then this week they planned to use a windfall profits tax to vilify the oil companies and distract the public from their negligence and malfeasance for failing to enact laws and make policies to encourage the production and distribution of the life-blood of the nation- oil.
Congress has repeatedly failed to produce legislation to that would lead to more meaningful energy supplies, preferring instead to pass bills that payoff favored special interests and rent seekers. This effort has been largely lead by the Democrats with RINOs aiding and abetting the cause.
There is considerable debate among energy producers about how to meet growing worldwide demand. According the Energy Information agency, there is a daily supply deficit approaching one-million barrels a day. Coincidently, this approximates the amount of oil that is projected to be lifted out of ANWR in Alaska that the Democrats with assistance from a few Republicans have been blocking for almost 3 decades. In the debate over the windfall tax Democrat Senator Chuck Schumer mindlessly argued that bringing the new Alaska production online would not materially reduce the price of gas.
Historically, daily world supply and demand track very closely. The graph below shows daily average production and consumption since 2003. This shows alternating supply deficits and surpluses through the third quarter of 2006 that turns to a persistent deficit thereafter. Clearly small incremental changes in supply and demand cause huge price fluxuations. In an interview several years ago, then Exxon CEO Lee Raymond, indicated that they don't even attempt price forecasts when they make multi-decade future investment plans.
Over the last several the major oil companies have been driven away from investing money in future exploration and production. The so-called Supermajors, Exxon, BP, Shell, Chevron. Conoco, and Total have paid more in taxes than they have invested in the oil business. For the three year period, 2005 to 2007 these companies have paid $292 billion in taxes and invested $265 billion in capital projects. Stunningly, Exxon has spent nearly twice as much buying back it's own stock ($78 billion) as it has on capital projects ($44 billion).
Exxon Mobil has been a favorite whipping boy in Washington, even Standard Oil scion Democrat Senator Jay Rockefeller couldn't resist getting in on the fun. While. dilletantes like Rockefeller and many of his Senate brethren, can afford to play around like with this, the country cannot afford this luxury. Exxon Mobil's three year record of capital spending, stock buybacks and tax payments are indicative of serious secular and structural changes in the provision of energy. Exxon Mobil is buying back stock because they can't find enough energy investments to deploy their excess cashflow. Domestic drilling is severely constrained and international opportunities are scarce. If the business was so great they would use more money to invest in exploration.
The voters are rapidly awakening to this policy and legislative failure. Beware, Democrats.