GUESTWORK | Robert L. Bradley, Jr.
The world’s largest energy companies just released their fourth-quarter earnings.
Though slightly less than the previous quarter’s gains, the figures were, nonetheless, headline-grabbing. Chevron generated $5.1 billion. Shell earned $6.5 billion. ExxonMobil, the leading U.S. oil company, earned a whopping $9.4 billion.
On cue, left-leaning pundits and activists rose to condemn the industry for excess. How dare oil companies earn so much while so many people are hurting!
These accusations are hardly accurate. Historically, when compared to other industries, big oil doesn’t actually pocket that much. In 2010, for every dollar of sales, the oil and gas industry earned just six cents. Across America’s manufacturing sector, the average profit earned was eight cents from every dollar. Among pharmaceutical companies and technology firms, profit margins are typically around 20 percent.
But more fundamentally, profits represent progress. Despite what the Occupy Wall Street crowd would have you believe, the benefits from oil revenues aren’t confined to a ruling elite. They flow to millions of everyday Americans. And when the oil industry grows, so does the overall economy.
What exactly do profits represent? Think about an everyday transaction for an oil company. A customer gives the company money in exchange for gasoline and maybe some items inside the store. Why? Because these are valuable to the buyer. Fuel enables drivers to get to work and school.
Drivers aren’t purchasing fuel because they’ve been coerced. They don’t have to buy from a government monopoly. Customers are genuinely gaining from the transaction (they value fuel more than money at that moment) and choosing the company because of price, convenience, and/or quality.
So, in an open economy, profits mean a firm has transformed resources into more valuable goods and services. Profits demonstrate value creation, better known as economic growth.
While a tiny portion of those profits go to executive bonuses, a big chunk goes toward research and development for a better future.
Already, the oil and natural gas industry supports 9.2 million American jobs. It accounts for 8 percent of GDP and is responsible for a stunning 78 percent of domestic energy production. This influx of new cash – profits – will fund new projects, which in turn will expand domestic energy production and create new jobs.
Strong profits also mean greater tax revenues. Currently, the average oil producer pays 41 percent of its net income to federal taxes – a percentage that’s much higher than virtually every other industry. All told, the oil and gas industry pays about $100 million, per day, to the U.S. Treasury!
continued on page 7
