The COVID-19 pandemic has infected the entire economy, leading to a recession of historic proportions. Congress, the Federal Reserve, and the administration created multiple programs to provide emergency support and reduce collapses of otherwise healthy businesses. The oil and gas industry has sought to participate and capitalize on these programs, like every other sector. However, the oil and gas industry faced an existential crisis long before the COVID-19 pandemic, despite a long history of subsidies and taxpayer giveaways.
For more than a century, the oil and gas industry received substantial federal support in the form of preferential tax treatment, below market rates for federal minerals, access to sensitive lands and waters, and low royalty rates. These taxpayer-financed market advantages helped make the industry the darling of Wall Street for decades. But financial markets are forward-looking, and competition is leaving oil and gas behind. Piling on more subsidies to bail out the industry is a waste of tax dollars. To illustrate general trends in the industry and the effect of subsidies, Taxpayers for Common Sense analyzed the annual financial filings of 20 of the largest U.S. exploration and production companies over the last five years. The filings demonstrate producers’ financial decline in recent years despite generous support from federal taxpayers.
- The Federal Reserve infused companies in the oil and gas sector with more than $1 billion in financing through its COVID-19 relief bond and loan buying programs.
- The 2017 Tax Act provided a windfall to the oil and gas industry that had been deferring taxes with bespoke tax breaks for decades. Twenty of the top U.S. oil and gas producers reported $15.5 billion in book gains because of the bill.
- The boost to the industry was largely due to remeasurement of deferred tax liabilities. The Tax Act erased more than 30 percent of the net deferred tax liabilities on the books of top producers.
- The deficit-financed subsidies were not enough to reverse the sector’s structural decline. During the five years from 2015 through 2019, this group of companies reported massive losses — with total U.S. pretax income of negative $120.6 billion, or an average combined loss of $24.1 billion per year.
- When companies did report U.S. profits, their accumulated losses and tax advantages made their current tax rates negative. In 2018, the group posted nearly $30 billion in U.S. earnings before tax, but incurred negative $171 million in current-year taxes on those earnings.
- ExxonMobil reported $4.4 billion in pre-tax domestic earnings over the last three years, more than any other producer, yet reported total federal taxes of negative $8 billion. Largely due to the Tax Act, the company ran up relatively low tax bills in the present and gained the ability overall to reduce its taxes later by $8 billion.
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