Today, executives of the five largest oil companies operating in America (ExxonMobil, BP, Shell, ChevronTexaco and ConocoPhillips) are testifying before the House Select Committee on Energy Independence and Global Warming. With crude oil consistently exceeding $100 a barrel and a national average of $3.30 a gallon for gasoline fueling record profits for the oil industry, these executives should explain why they should continue to receive billions of dollars in subsidies and tax breaks from the American people when the money could be better spent on renewable energy and energy efficiency investments needed to combat climate change.
As I have noted previously, the U.S. House of Representatives passed HR 5351 in February, which repeals $18 billion of oil company tax breaks over the next decade, dedicating much of the proceeds to investments in renewable energy and energy efficiency.
Public Citizen raises four points that Congress should ask the oil executives today:
1. Oil executives have already said they don’t need the tax breaks. In testimony before a joint hearing of the Senate Committees on Commerce, Science and Transportation and Energy and Natural Resources on Nov. 9, 2005, Oregon Sen. Ron Wyden asked executives from these same five oil companies:
“President [Bush] said, and I quote: ‘With $55 oil, we do not need incentives to oil and gas companies to explore. There are plenty of incentives.’ Now, today the price of oil is above $55 per barrel [at the time, $59.65 to be exact]. Is the President wrong when he says we do not need incentives for oil and gas exploration? If I could just have a yes or no answer, going right down the row beginning with you, Mr. [Lee] Raymond [then-CEO of ExxonMobil].”
Mr. RAYMOND. No, I do not think our company has asked for any incentives for exploration.
Sen. WYDEN. Sir?
David J. O’REILLY, Chairman & CEO, ChevronTexaco. Agreed.
James J. MULVA, Chairman & CEO, ConocoPhillips. In my oral comments I said we do not need. What we do need, though, is access—
Senator WYDEN. Just a yes or no.
Mr. MULVA. Yes.
Senator WYDEN. Sir? The President is correct?
Ross J. PILLARI. President & CEO, BP America. He is correct.
Senator WYDEN. Sir?
John HOFMEISTER, President, Shell Oil Co. Yes, he is.
2. Oil companies are spending more on stock buybacks than capital investment. Oil exceeding $100 a barrel should provide the industry with all the incentive necessary to re-invest in energy infrastructure. But since 2005, the largest five oil companies have had cumulative profits of $345 billion and spent $252 billion buying back stock and paying dividends to shareholders. In addition, they are sitting on $53 billion in cash. Indeed, in 2007, ExxonMobil spent $3.34 billion on capital expenditures in the United States, while spending 850 percent more — $31.8 billion — buying back stock. If the oil industry is unwilling to use $100 a barrel oil to make necessary investments here at home, then Congress is justified in revoking recently awarded tax breaks worth billions of dollars.
3. Tax breaks slated for repeal were enacted during a period of record profits. The primary Big Oil giveaway that H.R. 5351 targets for repeal was enacted into law in 2004. By freezing the domestic production deduction only for major integrated oil companies, Big Oil companies will rightly be denied $13.6 billion in tax breaks over the next decade. In addition, the legislation would close a loophole that allows some oil companies with foreign operations to pay less in U.S. taxes. Closing this loophole will require oil companies to pay $4 billion more to the U.S. Treasury over the next decade.
4. Energy futures markets where prices are set must be re-regulated. Two regulatory lapses are enabling anti-competitive practices in energy trading markets where prices of energy are set. First, oil companies, investment banks and hedge funds are exploiting recently deregulated energy trading markets to manipulate energy prices. Second, energy traders are speculating on information gleaned from their own company’s energy infrastructure affiliates, a type of legal “insider trading.” Indeed, in October 2007, BP agreed to pay more than $300 million to settle allegations that the company manipulated American propane futures markets. Closing the “Enron Loophole” to restore transparency and reduce speculative abuses will help bring down prices.