This briefing examines the leading US energy companies in the context of the current energy crisis. Building on an earlier briefing focused on the UK, its purpose is to find out the extent to which leading US energy companies have profited amid the recent market turmoil in order to better understand the context in which a windfall tax could be imposed in the United States. In particular, the briefing highlights some of the lessons that US policymakers might learn from the debates that have emerged in the UK regarding the windfall tax.
Focusing on the five largest US oil and gas companies by market shares, ConocoPhillips, Chevron, Devon Energy, Exxon Mobil and Hess (referred to here as the “Big Five”), the main findings of the report can be summarized as follows:
There has been a remarkable upswing in the profitability of the Big Five from 2020 and 2021, and estimates suggest further increases in their profits in 2022, anywhere from 33 percent to 57 percent compared with 2021.
The Big Five have enjoyed consistently high profit margins since the 1990s, and estimates suggest these profit margins will increase further in 2022. The profit margins of ConocoPhillips and Devon Energy in 2022 are estimated to rise above 30 percent.
The domestic (i.e. US) taxes paid by the Big Five have not only been lower than the S&P 500 average since 2015, they have in fact been negative. In effect, this means that the tax credits and rebates received by the Big Five from the US federal, state and local governments exceed their tax liabilities, leading to a transfer of $1.95 billion from the US federal and state governments to the Big Five. Meanwhile the foreign taxes paid by the Big Five are significantly higher than the S&P 500 average.
The Big Five have paid out over $200 billion to shareholders in dividends and stock buybacks since 2015. Over this same period, the average shareholder payouts of the Big Five totalled $40 billion, significantly higher than the S&P 500 average of $15 billion.
Since 2015, the Big Five have paid out 2.68 times more to shareholders in dividends and stock buybacks than they have to the US and foreign governments in taxes.
The US supermajors Exxon Mobil and Chevron lag very far behind their European counterparts BP and Shell in low carbon investment. Estimates suggest that in 2021 low-carbon capital expenditures made up 16 and 9.5 percent respectively of the total capital expenditures of BP and Shell. In the same year, for Chevron and Exxon Mobil low carbon capital expenditures made up 2 percent and 0.16 percent respectively of their total capital expenditures. In fact, Exxon Mobil spent more than double in 2020 on executive pay than it did on low carbon capital expenditures in the past year. The highlight is mine. dL
Share ownership and pension entitlements are heavily concentrated in favour of the wealthiest ten percent of US households, raising doubts about merits of arguments that oppose the windfall tax on grounds that it will mostly harm ordinary households that own energy company shares as part of their pension and other investment plans.
Overall, the findings in this briefing provide compelling evidence on the need for a windfall tax in the United States.
The Financial Performance of the Big Five
This briefing examines the financial performance of the five largest US oil and gas companies by market shares: ConocoPhillips, Chevron, Devon Energy, Exxon Mobil, Hess (referred to here as the “Big Five”). The reason for focusing on these five companies becomes clear when looking at Table 1, which shows their share of the percentage of overall revenues generated from oil drilling and gas extraction in the US. Given that there are over 65,000 companiesoperating in the US oil drilling and gas extraction, a 20 percent market share for the top 5 companies is considerable.
Table 2 shows the pre-tax profits of the Big Five for 2020 and 2021, as well as a profit estimate for 2022 from Thomson Reuters Eikon. In 2020, when energy prices plummeted as a result of the Covid-19 pandemic, the bottom lines of the Big Five were severely hit, and on average they incurred a loss of $1.4 billion. But with a recovery in energy prices in 2021 came a dramatic reversal of fortune for the Big Five as their average pre-tax profits climbed to $14 billion. As the table indicates, the pre-tax profits of the Big Five are expected to increase even further in 2022. Expressed as a percentage change from 2021 to 2022, this would represent an increase in profits of anywhere from 33 percent (Exxon Mobil) to 56.9 percent (Hess).
As a complement to Table 2, Figure 1 plots the pre-tax profit margins (pre-tax profits as a percentage of total revenues) of the Big Five. Since the 1990s, the Big Five have been consistently profitable, enjoying healthy profit margins ranging from 8.6 percent in the 1990s to 14.2 percent in the 2000s. Thomson Reuters Eikon estimates that the profit margins of the Big Five will surge to 16.4 percent in 2022, and will reach a truly eye-watering 31.9 percent for Conoco Philllips and 32.6 percent for Devon Energy.
Taken together these data indicate that the energy crisis has indeed been a major windfall for the Big Five. The large US oil and gas companies managed to turn a significant profit in 2021 amidst the turmoil of the energy crisis. Any effort to forecast company profitability for 2022 needs to be approached with caution. But with no end to the energy crisis in sight, and with oil prices continuing to soar in response to Russia’s invasion of Ukraine, there is a strong likelihood that 2022 will serve as a further, massive windfall for the Big Five.
