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Facts About Oil

The Democrats are furiously demagoguing energy costs, hoping to dodge the blame for their failed policies. When gas prices spiked in 2008, whom did they blame? Nancy Pelosi attributed high gasoline prices to the “oil men in the White House.” This time around, she is staying out of sight.
Other Washington Democrats are blaming the oil companies, and are trying to change the subject to alleged “subsidies”–which, of course, have nothing to do with oil prices. ExxonMobil counters the Democrats’ myths with facts:

The part of [our] business that refines and sells gasoline and diesel in the United States represents less than 3 percent – or 3 cents on the dollar – of our total earnings. For every gallon of gasoline, diesel or finished products we manufactured and sold in the United States in the last three months of 2010, we earned a little more than 2 cents per gallon. That’s not a typo. Two cents.

Taxes represent around 48 cents per gallon, on the average–twenty-four times as much as ExxonMobil’s profit. So who’s gouging?
ExxonMobil makes a point that we, too, have made repeatedly over the years. The United States has the world’s largest energy resources, but because of our government’s foolish policies, American oil companies have access to very little crude oil:

Take a look at the chart at right. ExxonMobil owns less than 1 percent of the world’s oil reserves, and it produces less than 3 percent of the world’s daily oil supply, so it’s really not credible to suggest that we are responsible for world oil prices. [Click to enlarge.]
Largest-oil-companies-by-reserves.jpg
ExxonMobil actually buys more crude oil than we produce. Last year, we spent $198 billion on crude oil, which we used to make refined products such as gasoline.

Contrary to the administration’s claims about “subsidies,” ExxonMobil is a huge taxpayer, as are the other privately-owned oil companies. There is a real irony here; the “green” energy that the Obama administration prizes really is subsidized–it represents a net drain on the taxpayers.

Last year, our total taxes and duties to the U.S. government topped $9.8 billion, which includes an income tax expense of $1.6 billion. Over the past five years, we incurred a total U.S. tax expense of almost $59 billion, which is $18 billion more than we earned in the United States during the same period. Critics often try to ignore these facts by saying the oil and gas industry receives “subsidies.” But what they really mean is that they want to increase our taxes by taking away long-standing deductions for our industry while leaving these same deductions in place for other sectors of the economy.

So ExxonMobil functions, in economic terms, mainly as a tax collector. Unbelievable. Once again, it is the government that is gouging, not the oil companies.
The Wall Street Journal editorialized this morning:

One of the main so-called subsidies that Mr. Obama wants to eliminate is for the expensing of intangible drilling costs, which has been part of the tax code since its inception. This immediate deduction–rather than amortizing the costs of development over a longer period–provides the capital and cash flow necessary in an industry where the risks are huge and returns are realized over many years, if not decades.
The rest of the items on Mr. Obama’s list are tax credits offered to all manufacturers, not just oil and gas. Mr. Boehner’s full comments at least revealed the right instincts–namely, proposing to eliminate such carve-outs in return for a lower corporate tax rate as in the Republican budget. The same reform should apply to clean (as well as all other) energy concerns too.
The liberal drive to tax Big Oil is rooted in an ideological commitment to higher energy prices, not consumer relief.

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