Opinion

The truth about America’s oil & gas companies — Part I

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Brian Johnson
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      Brian Johnson

      Brian Johnson serves as a Director of Federal Relations at the American Petroleum Institute. With years of experience in energy tax policy and government relations, his efforts focus on analyzing the impact of tax policy proposals on the energy industry and informing federal policymakers about the effect of these changes.

      As an energy tax expert, Johnson has testified before Congress, participated in numerous newspaper, radio and television interviews, and his commentary has been featured on CNN, Fox News, Fox Business News, BBC, C-SPAN and more.

      Johnson holds a Masters in Public Administration with a focus on Public Policy Analysis from The George Washington University; a Specialization in European Political Economy and International Trade from the Institut Catholique des Hautes Etudes Commerciales (ICHEC) in Brussels, Belgium; and a Bachelor of Arts in Political Science with Minors in International Affairs and English.

      As an energy tax expert, Johnson has testified before Congress, participated in numerous newspaper, radio and television interviews, and his commentary has been featured on BBC, CNN, C-SPAN, Fox News, Fox Business News and more.

      Johnson holds a Masters in Public Administration with a focus on Public Policy Analysis from The George Washington University; a Specialization in European Political Economy and International Trade from the Institut Catholique des Hautes Etudes Commerciales (ICHEC) in Brussels, Belgium; and a Bachelor of Arts in Political Science with Minors in International Affairs and English.

In a recent interview, Sen. Bernard Sanders (I-VT) alleged that while America’s oil and natural gas companies make “huge profits,” they “pay nothing in taxes.” Nothing could be further from the truth.

A recent 60 Minutes segment and other commentary have examined how U.S. industries use the tax code to export jobs and hold profits overseas. They point to the low effective income tax rates incurred by these companies as proof. While some industries may engage in this behavior, America’s oil and natural gas industry is not one of them.

Make no mistake, U.S. oil and gas companies are large, complex organizations — they have to be in order to succeed in global energy markets, where their competition can be state-controlled energy companies. Their earnings are matched by their significant investments.

Their earnings, however, are in line with those of other major U.S. manufacturing industries, as measured against their sales. The latest available data for 2010 earnings shows the oil and natural gas industry earned 5.7 cents for every dollar of sales. This is below the earnings of all U.S. manufacturing, which earned an average of 8.5 cents for every dollar of sales. Many would not expect an industry as large as the U.S. oil and natural gas industry, which supports 9.2 million U.S. jobs and contributes to 7.5 percent of gross domestic product (GDP), to have lower earnings per dollar of sales than the average manufacturing industry, but that’s the reality.

Further, U.S. oil and natural gas companies pay considerably more in taxes than the average manufacturing company. According to data found in the Standard & Poor’s Compustat North American Database, the industry’s 2009 net income tax expenses — essentially their effective marginal income tax rate — averaged 41 percent, compared to 26 percent for the S&P Industrial companies. The Energy Information Administration (EIA) concludes that, as an additional part of their tax obligation, the major energy-producing companies paid or incurred over $280 billion of income tax expenses between 2006 and 2008.

The U.S. oil and natural gas industry also pays the federal government significant rents, royalties and lease payments for production access — totaling more than $100 billion since 2000. In fact, U.S. oil and natural gas companies pay more than $86 million to the federal government in both income taxes and production fees every single day. In addition, since 2000, the industry has invested almost $1.7 trillion in U.S. capital projects to advance all forms of energy, including alternatives, while reducing the industry’s environmental footprint.

Oil and natural gas companies must constantly find new opportunities to produce more oil and natural gas. Given administration policies limiting new domestic opportunities, these resource-driven companies are forced to explore abroad. However, unlike other industries that may look to open factories in low-tax countries, oil and natural gas companies must invest where the resources are. For example, while it would be great to produce in Ireland and enjoy a 12 percent corporate income tax rate, Ireland holds very small oil or gas reserves. Resource-rich countries understand this and often impose higher income taxes on oil and gas operations.