Air Date: Week of July 28, 2006

The oil industry is enjoying a gusher of profits. Just where does that money go? Living on Earth's Washington correspondent Jeff Young follows the oil money pipeline.

Transcript

GELLERMAN: Second quarter reports are in for the major oil companies and it’s another gusher. The world’s largest oil company, Exxon Mobil, made 10-point-4 billion dollars in profits over the last three months—that’s just shy of an all time record. It marks the first time in US history that a company’s revenues topped a billion dollars a day. Let me say that again: a billion dollars a day. BP, Shell, and Conoco-Phillips also saw profits soar 30 percent or more. Living on Earth’s Jeff Young took a look at just what the oil industry is doing with all that money.

YOUNG: John Felmy has a tough job. As chief economist for the American Petroleum Institute Felmy needs to persuade you that those record oil profits you hear about really aren’t that big.

FELMY: What API is trying to do is put our earnings in perspective. While the earnings from the companies are very large, it’s simply because the companies are very large. But if you calculate earnings in terms of cents in the dollar you’ll find that our earnings as an industry are in line with the earnings of the average of all other industries.

YOUNG: API – the trade group for the major oil companies – has increased its spending on advertising to make the point. Graphs in the ads show banking and pharmaceuticals making much more on the dollar than the oil industry, which has earnings between 8 and 9 percent.

FELMY: And that’s fair given everything we have to do as an industry to find, produce, refine, market and transport oil to consumers.

YOUNG: And Felmy says they’re putting those profits into exploration, research and development the country will need as energy supply tightens and demand grows.

FELMY: The oil and natural gas industry is investing more than they make in earnings. So we’re plowing the money back in to produce more oil and gas in the future.

YOUNG: Felmy and his peers can’t afford to look too happy with their success. Already there’s talk on capitol hill of windfall taxes on oil profits, new laws against price gouging at the pump, and repeal of some industry subsidies. Oregon Democratic Senator Ron Wyden is skeptical of Felmy’s claims.

WYDEN: I think the American people deserve a true accounting of what’s been going on behind the numbers at the gas pump and where their hard earned money has been going for the past several years.

YOUNG: Wyden asked the non-partisan Congressional Research Service to look into oil company profits and investment over the past 6 years. The report found the industry doubled its spending on exploration. But both the industry’s return on equity and its cash reserves increased six times over.

WYDEN: The bottom line is that the major oil companies are only putting back in the ground a modest fraction of what they have been siphoning away from consumers at the pump across our country.

YOUNG: Wyden wants to close a loophole that allows oil companies to escape billions in royalty payments to the government for drilling on federal property. So far the idea hasn’t gained traction. And those proposals to tax windfall profits and repeal subsidies also fell by the wayside. Ideas like those run into another oil industry investment: hundreds of millions in lobbying and campaign cash. The non-partisan Center for Responsive Politics says the oil industry spent 60 million dollars lobbying Congress last year. It gave more than 80 million in campaign cash over the last 3 election cycles—mostly to Republicans. And it gave four and a half million to help elect former oilman George W. Bush, president.

BUSH: I urge congress to pass legislation that makes America more secure and less dependent on foreign energy.

YOUNG: The Public Interest Research Group, an advocacy organization, says the energy bill president bush signed a year ago gave the oil industry 6 billion in subsidies and tax breaks. The Petroleum Institute’s Felmy denies his industry benefits from a Bush White House.

FELMY: I don’t see how you can possibly say the change in the White House was a significant impact on the industry because what it was that changed everything was the change in the markets. But as far as a political change, I see no impact on the industry.

YOUNG: Felmy says Wyden’s study intentionally picked the years with the lowest and
highest industry take so the math would make a more dramatic point. But some industry analysts also find fault with how Felmy’s using the numbers. For example, his claim that the industry invests more than it earns doesn’t wash with analyst Lyle Brinker.

BRINKER: They have so much money they probably can’t spend it all even if they wanted to.

YOUNG: Brinker’s with the John Herold Energy Research Firm. Brinker’s also skeptical of industry talk about renewable and alternative energy. BP recently pledged to double its investment in renewable energy and devotes much of its advertising to topics other than oil.

AD SOUND: There are so many opportunities that haven’t been looked at, that the transition from oil to another alternative source is a must.

BRINKER: They’re probably much more of a PR issue than actual dollars spent. Or you might get the impression from some ad campaigns from some companies that they’re spending more than they really are. It’s still a very small piece of their overall capital budgets.

YOUNG: Even small pieces of budgets that big do add up. BP already has about 10 percent of the world’s market in solar power. And Exxon Mobil pledged 100 million dollars over the next decade for Stanford University to develop technology to lower emissions that contribute to global warming. But Exxon Mobil is taking heat from environmentalists for its stand on climate change policy.

DAVIES: Exxon is the laggard in corporate responsibility on global warming, full stop.

YOUNG: Kert Davies at Greenpeace has a research project called Exxon Secrets. They aren’t secrets, so much as information hidden in plain view, in this case, in Exxon Mobil records on charitable giving. Davies finds Exxon gave 19 million dollars over seven years to think tanks and advocacy groups who oppose action on global warming.

DAVIES: Groups some people may never have heard of, the George Marshall Institute, or Frontiers of Freedom, Competitive Enterprise Institute, basically a who’s who of the right-wing think tank industry.

YOUNG: Now in the Exxon world, this is chump change we’re talking about. But they’re getting a pretty good value on this.

DAVIES: They’re certainly getting their money’s worth out of these groups. These are the groups that have injected uncertainty questions into the journalistic coverage of global warming for the past 8 years, and successfully beat back policies on Capitol Hill to combat global warming.

YOUNG: Davies found a Washington-based think tank called the Competitive Enterprise
Institute gets the most Exxon Mobil money. CEI as it’s known, recently produced and ran this television ad timed to counter the release of Al Gore’s global warming film.

AD EXCERPT: Now, some politicians want to label carbon dioxide a pollutant. Imagine if they succeed. What would our lives be like then? Carbon dioxide: they call it pollution. We call it life.

YOUNG: Myron Ebell leads the CEI climate policy program. Ebell is a regular at climate-related events in the capital, fighting what he calls the global warming alarmists.

EBELL: Well I’m talking about the view that global warming is a very serious problem and the impacts or consequences or effects of global warming will be both severe and very adverse, and therefore the need to do something about it is overwhelming. I think that’s the three steps of the alarmist argument.

YOUNG: A spokesperson for Exxon Mobil declined an interview request. Greenpeace and other environmental groups say they’ll keep pressuring Exxon on climate change. Amid all the finger pointing, there is one more telling statistic to consider. As company profits rose so did consumer demand—up a little more than one percent in the last 3 months. For all the griping over gas prices and fretting over global warming we still want more oil.

For Living on Earth, I’m Jeff Young in Washington.

[MUSIC: JoRane "The Cave" from ‘The You and the Now’ (Six Degrees Records – 2005)]

 

Links

American Petroleum Institute’s "Facts on Earnings"

Greenpeace "Exxon Secrets" page

Exxpose Exxon - a project of several environmental groups

ExxonMobil

BP page on alternative energy

Congressional Research Service report