$1 Trillion in Profits and Still at the Trough: Oil and Gas in the 21st Century

Attributed Authors: Democratic Staff, Committee on Natural Resources, US House of Representatives Published: Feb 2011

The Democratic Staff of the Committee on Natural Resources of the U.S. House of Representatives provides a review of recent oil industry profits and examines the tab for some of the more visible tax breaks to the oil and gas industry.  In addition to looking a gross industry profits, the report notes that those profits have increasingly gone to distributions to shareholders or stock repurchases rather than to expanded exploration.  (Interestingly, share repurchases tend to boost the returns to remaining shareholders -- often the executives themselves -- and may also make it easier for upper management to hit performance targets linked to firm share performance, thereby boosting their bonuses.)  The Staff suggest that this trend belies industry claims that the subsidies are needed for US oil security reasons.  They also call for eliminating needlessly favorable royalty regimes (which, in the Gulf of Mexico, actually involved unbelievably incompetant federal officials who left out royalty provisions entirely on some leases).

As the Obama administration and the G20 have both supported removing subsidies to oil and gas, it is useful to have reports such as this to highlight what is at stake.  However, by sticking only to the party line targeted items (see figures 3 and 4 in the report), the Committee Staff actually dramatically understate the subsidy problem.  Further, because they ignore some of the most important subsidies to foreign production (e.g., disguising royalties as creditable foreign taxes and masking the costs of oil security), they needlessly worsen the relative competitiveness of domestic oil and gas producers.

 

Tags: oil and gas subsidies subsidy reform tax subsidies