ExxonMobil will release financial results for the fourth quarter and full year 2011 tomorrow. Although many Americans understand that the energy the oil and natural gas industry produces is vital to U.S. economic recovery and job growth, some in Washington will no doubt use the occasion to call for increased taxes or other punitive measures against the industry.
These critics will likely refer to aggregate industry earnings and try to convey a misleading impression about our industry’s earnings and economic contributions.
So what’s the truth?
ExxonMobil’s profits per dollar are significantly lower than many other industries. Our total earnings are typically large in dollar terms – but so is the cost of running our business. Look, for example, at what ExxonMobil earned and spent in the third quarter of 2011: Our revenues were $125.3 billion, and our total corporate earnings were $10.3 billion – meaning our earnings were about 8 cents per dollar of revenue. The computer, pharmaceutical, beverage and tobacco industries on average earned more than 20 cents on every dollar in the third quarter of 2011– which was about three times greater than what the oil and gas industry earned per dollar. In fact, the oil and gas industry’s average earnings of 6.7 cents on the dollar in the third quarter of 2011 were far below the average for all manufacturing, as this chart shows.
ExxonMobil is one of the largest U.S. taxpayers. In 2010, our taxes and duties to the U.S. government were $9.8 billion – which does not include royalties or lease payments to produce oil and gas on government-controlled lands. From 2006 to 2010, our total U.S. tax expense was almost $59 billion, which is $18 billion more than we earned in the United States during that period. In other words, over this period, governments in the U.S. earned almost $1.50 for every dollar our shareholders earned – without any of the economic risk our shareholders take.
The oil and gas industry is among the country’s largest taxpayers. What critics call “subsidies” are actually standard provisions in the tax code available to many U.S. producers and manufacturers. One is designed to support production and manufacturing jobs in the United States, and applies not just to natural gas producers and oil refiners, but to automakers, farmers, filmmakers, and even newspaper publishers like the New York Times. Another so-called “subsidy” simply prevents U.S. companies from being taxed twice on income earned outside the country. Neither the Treasury Department nor the non-partisan Congressional Joint Committee on Taxation even classifies this as a “tax expenditure,” much less a “subsidy.” In truth, the energy industry continues to have one of the highest effective tax rates of any major industry.
Increased access to energy supplies can produce far more government revenue than increased taxes. Higher taxes on oil and gas companies can hamper investments in energy production – and the jobs, government revenues, and reliable energy supplies associated with it. Increasing access to U.S. and Canadian energy supplies can have the opposite effect. A study by Wood Mackenzie found that with supportive government policies, the oil and natural gas industry could create 1 million new jobs over the next seven years – and 1.4 million jobs by 2030. Such policies could also generate more than $800 billion in new government revenue by 2030.
As with any globally traded commodity, the prices of oil and gasoline are set on open markets. According to the Department of Energy, U.S. crude prices were about 20 percent higher in 2011 than in 2010 not because of any moves on the part of oil companies, but “in response to the disruption in Libya’s oil production and expected stronger oil demand as the global economy improved.” I might also point out that ExxonMobil produces only about 3 percent of the world’s oil supplies.
The taxes on a gallon of gasoline or diesel far exceed ExxonMobil’s profits per gallon. In the first three quarters of 2011, we earned an average 8 cents on every gallon of gasoline, diesel and petroleum products manufactured and sold in the U.S. In contrast, a far bigger chunk of what Americans pay at the pump goes to taxes; local, state and federal gasoline taxes average about 49 cents per gallon nationally.
ExxonMobil is spending record amounts to find and develop energy supplies. ExxonMobil invested more than $26 billion in capital and exploration projects in the first nine months of 2011 alone. From 2006 to 2010, we invested more than $125 billion worldwide in projects to find and develop new energy supplies.
Supplies of U.S. oil and natural gas are growing – and can continue to grow with policies that permit access and promote development. Just last week, the U.S. Energy Information Administration estimated that domestic crude oil production will grow by more than 20 percent over the coming decade, and U.S. natural gas production will rise by more than 25 percent through 2035 thanks to new technologies developed here in the U.S. This growth not only means more reliable and affordable energy for other industries, but also valuable new jobs and tax revenues. On the other hand, actions that create obstacles to new energy supplies in the U.S. – either through punitive taxes, access restrictions, or other means such as the recent decision by the Administration to reject the permit for the Keystone XL pipeline — have theopposite effect.
Meeting our energy needs requires long-term actions, not short-term economic or political reactions. To remain successful for more than 125 years, ExxonMobil has maintained a long-term focus that looks beyond swings in oil and gas prices. In 2008 alone, U.S. crude oil prices fell from a high of $145 a barrel to a low of $30 a barrel –and still the U.S. oil and gas industry remained a steady source of energy supplies, economic activity and job creation. What do we focus on instead of prices? Safety, innovation, a strong and diverse portfolio of projects, and disciplined investment decisions. We also control our costs, manage our risks, retain a skilled workforce and pursue efficiencies that not only save money but also save energy and emissions. These actions benefit consumers, shareholders and the communities where we operate.