What Oil Company Earnings Really Mean

Mark Green
Posted July 23, 2010

In the wake of the Gulf oil spill, some in Washington have called for billions in new taxes on America's oil and natural gas companies. These calls may increase as companies begin announcing second-quarter earnings next week.

Earnings reports will likely focus on only half the story--profits earned. But what do the numbers really mean?

There's no doubt that strong earnings are good news--it means higher economic growth, because our industry contributes $1 trillion to the U.S. economy.

And when oil and natural gas earnings are up, who benefits?

• Millions of American workers. The industry supports more than 9 million jobs. That's a lot of jobs, especially given the current high unemployment rate.

• Millions of people who own stock in our companies. These include people with IRAs and 401k plans, retirees and people with pensions, such as teachers, firefighters and police officers. Most are middle-class Americans who benefit from the strong performance of U.S. energy companies.

• The federal government and local communities. Royalties, rental payments and other fees are a major source of funding for the federal government. They also help state and local governments fund community needs, including roads, schools and parks.

Our companies already pay out nearly half of their earnings in taxes--in fact, the oil and natural gas industry has a 48 percent tax rate, compared to 28 percent for the rest of the S&P Industrials. And recent polls show that Americans across the country oppose new taxes on oil and natural gas companies.

Misguided policies that call for higher taxes hurt more than just oil companies--they could severely limit the industry's ability to deliver the benefits that our economy, communities and millions of American workers and families sorely need.

Editors note: Jack Gerard sent this message yesterday to individuals signed up to receive Energy Tomorrow e-mail communications. Click here to sign up for Energy Tomorrow updates and stay informed about important energy issues.

For more information on proposed energy taxes, watch API Tax Policy Manager Stephen Comstock in the video below explain why it makes no sense for Congress to raise energy taxes.