Oil giants face backlash for handing record profits to investors
Big Oil’s record profits are a big hit on Wall Street, but the corridors of power from Washington to London are increasingly provocative as politicians lash out against executives for turning investors into windfall profits.
The controversy this week was not so much the huge dollar amount earned but what the world’s biggest energy companies chose to do with them. According to data compiled by Bloomberg, Exxon Mobil Corp., Chevron Corp., Shell plc and Total Energy SE are handing out nearly $100 billion annually to shareholders in the form of buybacks and dividends, reinvesting just $80 billion in their core businesses this year. .
In response to Exxon’s dividend hike, President Joe Biden tweeted Friday: “Can’t believe I have to say this, but benefiting shareholders is not the same as slashing prices for American families.”
Biden attacked Exxon again Friday evening at a Democratic fundraiser in Philadelphia, saying the company’s earnings are “the highest in its 152-year history, while the rest of America is struggling.”
“Those extra profits are going back to their shareholders and their executives, who deserve and need it, instead of going to lower prices at the pump and relief to the American people,” he said.
“I’ll keep playing the harp on this,” Biden vowed. “They’re talking about me – they haven’t seen anything yet. Really. It pisses me off.”
Representative Ro Khanna, a California Democrat, called energy gains “obscene” and introduced legislation to restrict fuel exports, a move he said would drive down prices at the pump. Senate Majority Leader Chuck Schumer called Earnings “unconscious.”
The Russian invasion halted shipments of natural gas to much of Europe and sanctions on the country’s oil exports triggered a global scramble for energy supplies, bidding up prices in the process. With gasoline prices and household utility bills squeezing consumers and soaring inflation, politicians are demanding that major oil companies reinvest more profits into drilling and refining to ease tensions.
Oil officials, for their part, under pressure from emissions and years of poor returns, are in no mood to back down.
Chevron chief executive Mike Wirth said on Bloomberg TV, “Tough times, as we saw just two years ago, where we suffered huge losses.” “You move to the second half of the cycle and you have a good income. Good times don’t last like hard times don’t. We have to invest through those cycles.”
Wirth rejected the idea that the current profit is an unexpected one and warned politicians against implementing any “short-sighted” policies that would stifle investment.
“Usually if you want less than something, you get taxed on it,” he said.
Earlier this year, the UK passed a windfall profit tax on domestic oil and gas producers including BP plc and Shell to recoup some of their extraordinary earnings, and there may be more measures on the way. Prime Minister Rishi Sunak says all options are on the table as he attempts to fill a £35 billion ($40.7 million) budget shortfall.
Earlier this year, the European Union also gave the green signal to countries to implement a windfall levy. An analysis by Boston Consulting Group found that the measure could raise up to 150 billion euros ($149 million) over the next year.
“There is just a huge gap in the country’s finances and this is a way to fill it,” said Anders Porsborg-Smith, managing director of BCG. “And it’s rarely unpopular to tax supernatural gains.”
California Governor Gavin Newsom, who is also a Democrat, said it was time to “crack the oil price-raising strategy and put our profits back in our pockets,” adding that “gas prices are so high. Shouldn’t be.” But analysts say California’s strict clean-fuel standard is a major reason why the state pays more for gasoline than any other in the US.
Unexpected taxes may be popular but whether they are effective is another matter. Despite making record-setting profits this year, Shell has so far not had to pay any unexpected taxes in the UK due to increased investment in the North Sea. More importantly, the industry says such taxes put investments by oil majors at risk at a time when they are needed most.
Exxon and Chevron are rapidly increasing oil and gas production in the Permian Basin, and both reported strong refining throughput in the third quarter, but there is a limit to how much they can do to drive prices down in the short term. . Major projects take years to plan and develop. According to Exxon CEO Darren Woods, poor policy is one factor behind today’s energy crisis.
“Unfortunately, the markets we are in today are a function of many policies, and some of the narrative that floats in the past,” he said. “Our focus is really making sure that people understand what the potential consequences of some of these policies are.”