Monday, April 9, 2012

“A Vendetta Against Big Oil?”

Sydney M. Williams

Thought of the Day
“A Vendetta Against Big Oil?”
April 9, 2012

Big business is often deserving of the criticism it receives. Too often, managements view shareholders as pesky, but necessary, nuisances. A little more than a year ago (January 10, 2011) I wrote a piece, “CEO Salaries, Shareholder Returns and the Future of Our Nation”, in which I lamented the fixation of government, corporate management and traders on the short term; the hedonistic attitude of managements, as they consider public companies to be private banks, and the negative consequences for shareholders, the unsung victims of today’s capital markets.

However, having written that, the Administration’s attack on the oil, gas and coal industries is deserving of censure. It is not only deceptive, but should Mr. Obama’s actions prove successful (environmentally and tax-wise), they will cause the price of everything from fuel to food to clothing to rise. The beneficiaries might be a few wealthy environmentalists and favored “green” energy companies; the losers will be the American people.

All politicians twist words and phrases to suit their purposes. But this President has gone to extra lengths. When Mr. Obama said that the Affordable Care Act was passed by a “strong majority”, he knew he was fibbing. When he said that a Supreme Court decision overturning any part of that bill would be “unprecedented” and “extraordinary”, he knew he was telling a whopper. A lie is defined as making a statement that one knows to be false, with the intent to deceive. When Mr. Obama states that “America only has two percent of the world’s oil,” as he did in Miami on February 23rd, mainstream media reported it as true; others used euphemisms – he was “stretching” or “exaggerating” the truth, or he was “fabricating” a story. C.S. Lewis once wrote that when writing, authors should “always prefer the plain direct word to the long, vague one.” The President was lying. His Energy Information Administration has stated that proven reserves is an inappropriate means of measuring total resource availability.

For example, the U.S. Geological Survey estimates that unconventional U.S. oil shale resources hold 2.6 trillion barrels of oil, of which one trillion barrels are recoverable, given today’s prices and technology. One trillion barrels is four times Saudi Arabia’s proven reserves. Additionally it is estimated that Recoverable Reserves in Alaska total 35 billion barrels and another 29 billion exist offshore. Construction of the Keystone XL Pipeline (for which Mr. Obama refuses to allow construction) would permit access to Alberta’s tar sands, estimated to be one trillion barrels. At the current rate of consumption in the U.S. – seven billion barrels per annum – that suggests a life expectancy of more than 150 years. For more than forty years, since the first Arab oil embargo, every President has invested in alternative energy projects – including the despised Bush II. The difference about this President is his arrogant disregard to today’s realities and needs, and his inclination to cast blame for any woes on someone else.

The President speaks of domestic oil production being up since he took office three years ago, which it is. But, according to the Congressional Research Service, 96 percent of the increase in domestic oil production since 2007 has occurred on nonfederal lands where the federal government plays little or no role. The federal government owns or completely controls almost 2.5 billion acres of land and offshore zones. According to Mr. Bob Abbey of the Bureau of Land Management, oil production is actually down 14 percent on federal property and down 17 percent offshore from a year ago. Mr. Obama is deliberately “bending the truth” in a deliberate attempt to deceive the American public. C.S. Lewis, however, would just say the President is lying.

At his speech in Miami, on February 23rd, the President used the weight of his office, his exceptional rhetorical skills and the hyperbole for which he is well known, to go on the offence against rising gas prices. He accused Republicans of having a single plan, with three parts – drill, drill, drill – and the oil companies of gouging taxpayer, while earning “excessive” or “windfall” profits. There are many ways to measure the profitability of companies. One method is net profit margins. On that basis, the major oil companies rank 114th, just below generic drugs and catalogue & mail order houses, with net margins of 6.2 percent – hardly gouging! While Exxon-Mobil is the most profitable U.S. company in terms of sheer numbers, neither it nor any other oil company rank in the top 50 in terms of profitability, as measured by return on shareholder equity, according to CNN Money.

Regardless, the President is determined to punish the industry. He has proposed eliminating special tax breaks for the domestic fossil fuel industry. Among those proposals are: Repeal percentage depletion for oil and natural gas wells ($12.6 billion); Repeal expensing of intangible drilling costs for oil and gas ($12.9 billion); Increase amortization period for geological and geophysical amortization period for independent producers to seven years ($1.4 billion.) To put these numbers in perspective, according to the Energy Information Administration, the oil industry in 2009 – the latest year for which numbers are available – paid $35.9 billion in corporate income taxes. When the President gets on his high horse and claims that the oil companies (like the wealthy) are not paying their “fair share”, keep in mind that the Tax Foundation estimates that between 1981 and 2008 oil companies sent more money to Washington and State Capitals than they earned in profits for shareholders. As well, when Mr. Obama talks about the “subsidies” that oil companies receive, these are not cash handouts like those that go “green” companies, like Solyndra, which costs taxpayers half a billion dollars in actual cost outlays. The subsidies are deductions from taxes that cover costs of doing business deductions generally available to most industries.

We expect our politicians to exaggerate when in campaign mode, a condition of Mr. Obama for the last three years. But, we also deserve a frank and honest discussion, something the President finds elusive. Joseph Goebbels, Hitler’s master propagandist famously observed, “If you repeat a lie often enough, it becomes the truth.” Indicative of the success of the President’s strategy was the latest IBD/TIPP poll regarding responsibility for rising gasoline prices: 28% blame price-gauging oil companies, 18% blame “speculators” on Wall Street; just 13% placed the blame on a “lack of domestic production.” While the President finds the poll vindication of his strategy, achievement of that goal does not justify it.

“Big oil” makes a convenient target. The industry and its components are large, and largely foreign to those of us living on one of the two coats; its products are ones that most everybody uses every day; the price of its most visible product (gasoline) has been rising recently; and we rely on imports for about half our needs. Energy Secretary Steven Chu’s unwitting comment of three years ago – “We have to figure out how to boost the price of gasoline to the level’s in Europe” – has proven to be an inconvenient embarrassment of policy decisions that the President cannot walk away from; so he has resorted to blaming the big oil companies, in a deliberate attempt to deceive the American people.

Mr. Obama is not the only public official to stretch the truth – in fact, finding an honest person in Washington would create full time employment for a bunch of Diogenes – but he is the President, and we the people deserve better. And, if we begin referring to these politicians as the liars they are, rather than using socially acceptable euphemisms, the sooner the public might demand honesty and civility.

As I mentioned at the start, I am not a big fan of many large public companies for the reasons I mentioned and I worry about collusion between big government and big business. But I am less a fan of politicians who demonize an industry for personal gain, with little regard to the consequences of the people. Has the President been committing a vendetta against big oil? It is hard to argue otherwise.

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