Who Owns “Big Oil”? (Holdings of Oil Stocks, 2007)

Contrary to popular belief, and what some politicians might say, America’s oil companies aren’t owned just by a small group of insiders. Only 1.5 percent of industry shares are owned by company executives. The rest is owned by tens of millions of Americans, many of them middle class.

If you’re wondering who owns “Big Oil,” chances are good the answer is “you do.” If you have a mutual fund account, and 55 million U.S. households do, there’s a good chance it invests in oil and natural gas stocks. If you have an IRA or personal retirement account, and 45 million U.S. households do, there’s a good chance it invests in energy stocks.

When politicians talk about taxing “Big Oil” or taking their “record profits,” they should think
about who would really be hurt.

Current income taxes paid by oil companies (billions of dollars)

According to publicly available data on the top 27 energy companies tracked by the EIA, the
total current income taxes paid worldwide by these companies nearly doubled between 2004 and 2006, increasing from $44.8 billion to $81.5 billion.

The average effective tax rate (current taxes) of the top 27 energy companies was 37.1 percent in 2006. This indicates that taxes took up 37.1 cents of every dollar of pre-tax income. In comparison, according to the Tax Foundation, the effective tax rate for the market as a whole is 32.3 percent, or 4.8 percent less than the top energy companies.

Imposing additional taxes on the U.S. oil and natural gas industry is contrary to the goal of providing stable and cost-effective supplies of energy for American consumers and discourages the tremendous capital investments needed to meet the nation’s growing energy needs. Repeal of tax provisions designed to encourage investment in the United States will discourage new domestic oil production and refinery investments, threaten American jobs, and make it less economic to produce domestic energy resources – thereby increasing our dependence on imported crude oil and gasoline.

Capital Spending

To understand the oil and natural gas industry one must recognize it as an industry characterized by long lead times, massive capital requirements and returns realized only decades
later in the face of very real investment risks.

Significant oil and gas discoveries that are announced today often result from investments begun by companies as far back as a decade or more ago. Planning and investment cannot be turned on and off like a spigot, without entailing huge, potentially non-recoverable costs and delaying urgently needed projects.

Because the industry must plan and operate under these long lead times, it is hypersensitive
to minimizing risk over the course of its investments. It is crucial for an industry that must manage such huge risks that government provide an energy policy and tax framework that
encourages investment, rather than discourage.

To meet the continued, growing demand for oil and natural gas, our industry has continued to
invest heavily. New investment in 2006 reached more than $176 billion—more than a 30 percent
increase over 2005. Investment in 2007 grew another 4 percent to $183 billion.

Today’s earnings are reinvested for tomorrow’s energy needs. The energy Americans consume
today comes from industry investments made years or even decades ago.

The U.S. oil and natural gas industry invested more than $1.25 trillion in a range of long-term energy initiatives between 1992 and 2006.

What consumers are paying for at the gasoline pump

The biggest single component of retail gasoline prices is the cost of the raw material used to produce gasoline—crude oil. For example in 2007, crude oil alone makes up 58 percent of pump
prices. Refining made the crude oil into gasoline accounted for 17 percent of the retail price.

Retailing added another 10 percent to the retail price of gasoline. Taxes accounted for 15 percent of the price of gasoline.

Part III Tomorrow

Part I can be seen here…

oil companies, Big Oil, oil and natural gas, energy stocks, income taxes, tax rate, energy, U.S. oil and natural gas industry, crude oil   

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