Earnings, Investment and Economic Stimulus

Mark Green
Posted February 11, 2013

Let’s talk oil and natural gas company earnings. Today, three charts that illustrate some of the things we’ve been saying for some time:

• Earnings equal return on investment, which is great news for millions of Americans – the true owners of these companies. (More here from Ken P. Cohen’s Perspectives blog.)
• Oil and natural gas companies are investing in America in a way unsurpassed by other industries.
• America’s oil and natural gas companies pay their fair share – and more – in taxes.

We’ll go in reverse order with the charts. In No. 1, it’s not hard to see which companies on the list of the top earners are paying the highest effective tax rate – they’re the tallest trees in the forest:

Now, No. 2 – tax rates by industry over a five-year period:

The takeaway is that the oil and natural gas industry’s average rate (2006-2011) was more than 44 percent – more than double that of pharmaceuticals, insurance and conglomerates – and 20 percent higher than No. 2 on the chart, health care providers. This is revenue generated for the federal government by energy development activity – by the work of finding and producing more oil and natural gas for America.

And there’s more to be generated. With access to more U.S. oil and natural gas reserves, industry could supply an additional $127 billion in revenue to the federal government by 2020 and more than $800 billion by 2030 – way more than could be generated by the tax increases some in Washington are proposing.

Now, the last chart. It’s very important. Annual average capital expenditures shows who’s doubling down on America through investments in physical assets – such as facilities, equipment and operations. For our industry, that means investments in producing the energy America needs:

What we see here is that the oil and natural gas industry’s average global capital investment – nearly $135 billion between 2006 and 2011, is almost equal to the combined capital spending of the automobile, insurance, media, retail and utilities industries. This is economic stimulus that didn’t require legislation from Congress. It represents real people, real jobs, real spending that boosts our economy.

Again, with the right policies, America’s oil and natural gas companies are ready to do more. With more access to the country’s vast energy reserves, a commonsense approach to regulation and by creating a climate that encourages investment – instead of discouraging it with punitive tax increases and new layers of unnecessary regulation – they can.