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.
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