Q2 Q&A On Oil & Gas Profits

Our Research Team Answers Your Questions About Big Oil’s Big Profits.

While Americans were struggling with record high gas prices, oil and gas giants were raking in billions of dollars. Climate Power Education Fund’s research staff tracked the quarterly earnings announcements, financial statements, and other public records for 28 publicly traded oil and gas companies to see where all of those hard earned dollars that were spent at the pump ended up. We’ve got the receipts on Big Oil’s profiteering, and we’re here to answer your questions.

 

Q: How Much Money Did Oil Companies Make Last Quarter?

A: According to President Biden, “more money than God”

That actually checks out if you consider that donations to religious charities bring in about $128 billion per year (that’s the full year, not just a single quarter).

The 28 companies that Climate Power Education Fund tracked brought in a combined $116.3 billion in adjusted earnings (Table 1), or $120.6 billion in net income under U.S. GAAP accounting rules (Table 2). At an annualized rate, these companies booked more in earnings than the projected 2022 GDP of 158 countries.

On average, these companies saw their quarterly profits increase 231% year-over-year (Table 1).

 

Q: Where did all the money go?

A: Stock buybacks and dividends, mostly. 

The companies that we tracked spent $35.27 billion on stock buybacks and $31.56 billion on dividends, for a total of $66.87 billion funneled to shareholders (Table 3). This has been a bonanza for billionaire investors and executives whose compensation is tied to stock values. 

We won’t get the full picture of just how big of a deal this was to CEOs and major investors, but the data from 2021 gives us a pretty clear picture. According to the Forbes billionaires list, American billionaires whose wealth came primarily from oil saw their personal wealth increase by another billion dollars on average in 2021.

With compensation packages often tied to stock performance and options, CEOs and executives do far better when the company’s focus is on making their stocks attractive to investors, rather than the actual productivity of the company. In fact, when we reviewed 2021 CEO compensation data, we saw CEOs making anywhere from 50 times the median worker income to as high as 291 times the median worker’s income (Table 4).

 

Q: Did they reinvest money back into raising production to help lower prices?

A: Not significantly.

In a competitive market economy, high prices should incentivize companies to reinvest capital to increase production, eventually bringing prices back down.

The thing is, oil company executives made it clear earlier this spring that they have no intention to reinvest their massive cash surpluses, and they clearly don’t feel any pressure to change course because they know that they’ll still be able to sell their product at any price, and higher prices bring in more money.

Check out what they had to say in their own words:

  • “The first financial priority is to grow the dividend. We’ve done that for 35 consecutive years, increased it 6% earlier this year. It’s up 20% since right before COVID, and it’s doubled since 2010.” – Chevron CFO Pierre Breber, 7/29/2022
  • “I think we’ve accomplished a mindset shift in Chevron, and this is throughout our workforce, being very focused on returns, not chasing a production target, but continuing to run this as a business and thinking about the returns we can get.” – Chevron Executive Vice President Jay Johnson, 7/29/2022
  • “So what we are seeing is significantly lower production, but we’re really the value over volume coming through and it’s really working.” – Shell CFO Sinead Gorman, 7/28/2022
  • “People have asked me at $100 oil at $150 oil are you going to grow more than 5% and the answer is no. We’re just going to return more cash back to the investor, so I just don’t think we have an obligation to grow production, because we’ve done it twice. We’ve added too much oil several different times over the last ten years and we’ve had a price collapse.” – Pioneer Natural Resources CEO Scott Sheffield, 12/7/2021

 

Q: Do these oil companies at least pay taxes on all of their enormous profits?

A: LOL, no.

Again, data for the current quarter is limited, but for the full year in 2021, we identified 19 U.S. based companies that paid an average effective tax rate of 2.86% on current U.S. federal income tax. Six of these companies paid nothing (Table 5).

Going forward into 2022, we can reasonably expect that business as usual for these oil and gas companies means they will continue paying far lower income tax rates than ordinary Americans unless Congress closes tax loopholes.

We estimate that they managed to avoid $8.5 billion in federal income taxes versus what they would have paid if they actually paid the full 21% corporate tax rate. A 15% corporate minimum tax like the one being considered in the Inflation Reduction Act would have forced them to pay $6 billion more than what they paid last year (Table 6). 

Another provision in the Inflation Reduction Act would make corporations pay a 1% surtax on stock buybacks. If these oil companies kept spending money on stock buybacks at the rate they spent this last quarter for an entire year, they would owe $1.4 billion in taxes under the proposed stock buyback tax (Table 7).

 

Q: Who else benefited from Big Oil’s cash surplus?

A: Republicans in Congress.

Thanks to data provided by the Center For Responsive Politics, we know that the oil and gas industry has given at least $18.2 million in campaign contributions so far in the 2022 cycle, with more than 40% of that total coming in just the last quarter alone. $14.1 million, or 77% of that total went to Republicans.

With plenty of money to throw around in elections, the oil and gas industry is able to get access that helps them influence things like the Trump tax cuts and coronavirus aid packages that gave them billions in handouts. They’re also able to use that influence to block action on climate change.

 

Q: Are you telling me that they’re just throwing a bunch of money at politicians and getting what they want?

A: Yup, pretty much.

So far, the oil and gas industry overall has spent at least $63.5 million on lobbying efforts this year, after a whopping $119.4 million in 2021.

 

Check The Stats

Table 1: Adjusted Earnings

Table 2: GAAP Net Income

Table 3: Stock Buybacks & Dividends

Table 4: CEO Pay

Table 5: Effective Tax Rates

Table 6: Hypothetical Taxes Avoided

Table 7: Hypothetical Stock Buyback Surtax

ICYMI: CBO Budget Outlook Warns Of GDP Losses From Climate Change

A new report from the Congressional Budget Office warns that climate change will reduce GDP as well as output on labor productivity. However, successful investments in mitigating climate change are expected to produce federal budget savings and benefit the private sector.

Source: Congressional Budget Office, “The 2022 Long-Term Budget Outlook,” July 2022

Key Points

  • CBO determined that “climate change will reduce GDP,” with real GDP in 2052 being 1% lower than it would have been if climatic conditions from 2022 – 2052 were the same as they were at the end of the 20th century.
  • Climate change is expected to reduce output on labor productivity, labor supply, and the private sector’s production costs:
    • Total factor productivity (TFP) is set to grow more slowly over the next 30 years than it did in the past 30 years, in part, due to climate change. 
    • CBO estimates TFP growth over the 2022–2052 period will be lower by on average 0.02 percentage points per year due to climate change. As a result, TFP will be about 0.7% less and GDP about 0.5% less in 2052 than would have been without the effects of climate change.
  • The report noted that “though CBO’s extended baseline projections incorporate some effects of climate change, unexpected and significant changes to the climate still pose a sizable risk to the federal budget.” 
  • Increased frequency and severity of climate disasters could require increased funding, in the form of emergency disaster relief or infrastructure protection, for example, above amounts projected by the CBO. 
  • CBO determined that successful investments in mitigation or adaptation are expected to produce federal budget savings by reducing physical damage, increasing land and outdoor labor productivity, and lowering health care costs. 
  • Efforts to mitigate or adapt to climate change could provide long-lasting budgetary savings, as well as deliver benefits to the private sector and other governments. Ineffective policies could impose costs on all levels of government without yielding budgetary savings or other benefits. 

What You Need To Know About The Oak Fire

The Oak Fire in Mariposa County, near Yosemite National Park, has quickly become California’s largest wildfire this year at more than 17,241 acres. The fire has destroyed homes, forced thousands to evacuate, and closed roads in the area. Fire officials said the fire is displaying “unprecedented” behavior, with the blaze’s “extremely fast” growth limiting the time authorities have to warn residents to evacuate. CalFire Chief Jon Heggie noted the fire “is a direct result” of climate change, with a combination of rising temperatures, megadroughts, and an abundance of dry vegetation leaving forests vulnerable to fire. California is projected to have an above-normal wildfire season this year. 

  • The Oak Fire has burned 17,241 acres in Mariposa County near Yosemite National Park. The blaze is California’s largest wildfire this year and is only 16% contained as of Monday evening.
    • The fire started on Friday near the town of Midpines and exploded in size over the weekend due to gusty winds, drought conditions, and temperatures that reached 100 degrees. Officials have not determined the cause of the fire.
    • The area has seen nearly two weeks of triple digit temperatures and low humidity, and vegetation is at almost record levels of dryness. Officials reported last month that vegetation was already as dry early in the summer as it would typically be in October.
    • The fire is burning through an area of Mariposa County that hasn’t seen wildfires since 1924.
  • The Oak Fire is the third blaze to burn near Yosemite in recent weeks, and is far larger than the Washburn Fire, which threatened ancient giant sequoias.
  • The fire has destroyed at least 55 structures, forced several thousand residents to flee, and caused numerous road closures, including the closure of a stretch of State Route 140, one of the main routes into Yosemite National Park.
    • Parts of the Sierra National Forest, which partially overlaps with Mariposa County, were closed to the public due to the fire on Sunday.
  • The Oak Fire is threatening multiple mountain communities in the Sierra Nevada foothills west of Yosemite National Park, including Lushmeadows, Midpines, Jerseydale, and Bootjack, from which about 6,062 people had been evacuated as of Saturday afternoon.
  • As of Monday, Pacific Gas & Electric reported about 2,676 homes and businesses in Mariposa County have lost power due to the blaze.
  • On Saturday, California Gov. Gavin Newsom declared a state of emergency for Mariposa County, allowing the deployment of additional emergency personnel. More than 2,500 firefighters were battling the blaze as of Monday.
  • Smoke from the Oak Fire traveled as far as the Bay Area on Monday, with an air quality advisory for the area extended through Wednesday. On Sunday, smoke had already drifted nearly 200 miles north to South Lake Tahoe, where air quality was considered “hazardous to unhealthy.”
  • Currently, 100% Mariposa County is affected by drought, and 2022 is the driest year to date for the county.
  • As well as the Oak Fire, 4 additional large wildfires are burning in California.

Oil Giants Predict Big Gains From Consumer Pain

Early Data Reveals Massive Windfalls From Refining Profits

This week, oil industry executives have been busy crunching the numbers on the past few months. With Americans paying record high prices at the pump, oil companies have been making massive profits on refinery margins, the profit that they make by selling gasoline for more money than the cost of the crude oil it came from. Full quarterly reports will come later this month, but in the meantime, some early filings from ExxonMobil and Shell have given the public some insight into just how much the oil industry is raking in from consumers paying high prices.

Here are some key takeaways from the recent filings:

  • A filing by ExxonMobil revealed that they anticipate between $1 billion and $1.4 billion in profit growth from liquid fuels, and another $1.5 billion to $1.9 billion from gas. 
  • Overall, analysts expect ExxonMobil to report as much as $18 billion in profit for the months of April, May, and June.
  • Meanwhile, Shell also revealed in a filing that their refining margin more than doubled from the first quarter to the second quarter of the year, which is expected to add more than $1 billion to quarterly earnings.

Biden Visit To New Mexico Amid Record Wildfires

President Biden To Visit New Mexico As The State Battles Its Largest Wildfire In History

For the past two months, New Mexico has been in the midst of the largest wildfire in state history. The Calf Canyon-Hermits Peaks Fire has burned more than 315,00 acres of land– equivalent to the size of Los Angeles– and damaged or destroyed at least 350 homes. On Saturday, June 11, President Biden will travel to New Mexico to receive a briefing from state and federal officials on the status of the fire, and visit the New Mexico State Emergency Operation Center. The fire is about 62% contained, and New Mexico faces at least another month of peak fire risk. Officials worry that the fire may lead to flash floods, landslides, and destructive ash from the burn scar. 

Climate change is contributing to this staggering increase in wildfire activity in recent years, with New Mexico fires starting earlier in the season and growing stronger than ever before. And by 2050, New Mexico is projected to have nearly 40 days with high wildfire potential, compared to about 15 in 2000. As climate change worsens, people in New Mexico are becoming increasingly vulnerable to wildfires impacting their homes, economy, safety and health. More than 1.4 million people, or 70% of New Mexico’s population, live in areas at elevated risk of wildfires.

So far in 2022, there have been 351 wildfires that burned more than 790,000 acres across New Mexico. That’s about six times as many acres as the state experienced in the entirety of 2021. Earlier this spring, another large wildfire near the village of Ruidoso, which has since been contained, damaged more than 200 structures and resulted in two fatalities. In the past decade, New Mexico has witnessed four extreme wildfires that caused a total of $33 billion in damages and resulted in 67 deaths in the region. 

Fortunately, New Mexico is an ideal place for investing in clean energy to address climate change and fulfill the state’s commitment to reach 100% renewable energy by 2045. In fact, New Mexico has the potential to power the state’s electricity needs 50 times over with wind energy and 600 times over with solar energy alone.. As of 2020, there were over 11,000 clean energy jobs in the state, accounting for 1.44% of the state’s total workforce. Through targeted federal clean energy investments in renewable energy, energy efficiency and grid modernization, New Mexico could generate nearly 8,000 new jobs each year over a five year period.

Gas Volatility Threatens Grid Stability

A Fossil-Fuel-Powered Electrical Grid Remains Vulnerable To Supply Disruptions

As extreme summer heat begins to threaten electrical grids across the country, fossil fuel executives who are cashing in on record high prices would love to shift the blame to anyone but themselves. Let’s not forget that our continued dependence on fossil fuels is what is keeping our grid and our utility bills subject to volatile prices and unstable supplies.

Key Facts

  • According to the Energy Information Agency, Henry Hub front-month prices for natural gas were up 53% from April, reaching $8.78/MBtu in May.
  • Storage inventories for gas also remain below the five-year average while exports to Europe have surged to help replace Russian supplies.
  • Burning fossil fuels only accelerates the extreme weather that strains demand for electricity and threatens the availability of fossil fuel supplies.
  • Renewable energy sources are more stable and reliable than fossil fuels and a clean energy economy can save consumers money.