Factchecking the Oil Companies' Defense of Taxpayer Subsidies
(Note: This blog was originally posted by Senator Wyden on Huffington Post.)
Just one week ago the American people heard executives from the top five oil companies stand-up and explain why - despite record profits - they need the federal government to give them a break on their taxes.
We're talking about the billions of dollars in tax incentives and assistance that oil companies get for drilling in the United States. These incentives were put in place decades ago when the oil industry was just getting started and the government stepped in to ensure that Americans would have a domestic supply of oil. Back then, drilling for oil was much more of a guessing game and drilling and exploration costs were a major cost of doing business. In order to ensure that our country would have gasoline, the federal government helped cover those costs.
That hasn't been the case for awhile. In fact, in 2005, representatives of the country's major oil companies told me that they no longer needed tax incentives to keep drilling in the U.S. because oil was selling for $55 a barrel and that price gave them more than enough financial incentive to keep drilling. Well, if the oil companies thought that $55 a barrel oil was enough to keep them drilling in 2005, it would seem safe to assume that with oil hovering around $100 a barrel today, they would no longer be asking for their tax incentives to keep drilling. That wasn't the case at last week's hearing.
So what's changed since 2005? Why are some of the largest and most profitable companies in the world still telling Congress that they still need government assistance? Let's break it down.
Claim #1: Oil is getting harder and harder to find.
The truth about oil supplies:
If anything, U.S. oil supplies and prices are less tied to the global market now, and new oil supplies are easier to find, than they were in 2005. The location and technology for getting oil and gas, especially from on-shore shale formations, have not only dramatically increased U.S. oil and gas reserves, but the technology is now so well established that U.S. oil and gas production is rising rapidly as a result.
According to a recent analysis by the U.S. Energy Information Administration, oil production from the Barnett shale formation in Texas - literally in the backyards of the headquarters of these same companies--has tripled since 2005. In fact, total U.S. oil production has increased over 10% since hitting its low point in 2008 and EIA projects that because of increased production in oil shale and in the Gulf of Mexico and other sources that it will continue to grow.
On top of that, the CEO of Exxon Mobil said on CNBC in March 2011, "I am not aware of anyone who is having difficulty securing supplies of oil...there is no shortage of supply in the market."
Claim #2: Oil companies face global competition.
The truth about global competition:
U.S. oil prices are also less tied to global markets and competition now than they were in 2005, because of increased U.S. production and increased Canadian tar sands production flooding into the U.S. market. This should be of no surprise to the five major oil companies who testified last week, because every single one of them has made major investments in Canadian tar sands projects.
Claim #3: The loss of tax breaks will drive up the price at the pump.
The truth about the price at the pump:
Recalling that hearing in 2005, I also asked the CEOs about ending these tax breaks on their companies and several of them said it wouldn't affect them or would only minimally affect them. Exxon Mobil CEO Lee Raymond said "As for my company, it doesn't make any difference." Chevron CEO David O'Reilly said ending these tax breaks would have "minimal impact on our company." And, BP's US CEO Ross Pillari agreed, saying "it's a minimal impact on us."
So if taking away the tax breaks won't have much of an impact on the oil companies, why would it have much of an impact on price?
The American people should not be held hostage to the false claims that without the billions in taxpayer subsidies they currently receive, they will produce less oil and that will raise the price at the pump. It's time for the oil companies to own up to what they said in 2005: they did not need taxpayer subsidies then, and they do not need subsidies now.