When Did Critics Stop Caring About Oil Profits?
By Robert L. Bradley Jr.
Attacks on oil-company profits were once standard fare among anti-fossil-fuel activists. As Daniel Weiss of the Center for American Progress complained two years ago, "Big Oil is swimming in an endless river of profits."
But if higher quarter-over-quarter, or year-over-year, profits, were cause for such disapproval, why isn't the Left celebrating the recent earnings declines among energy companies? Major oil firms Exxon and Chevron just issued their most dismal quarterly reports this decade.
Specifically, Exxon's second quarter revenue fell by a third, while its production profits dropped 74 percent. Within the past year, Chevron's second quarter net income plummeted from $5.67 billion to $571 million. The oil division of Europe's largest energy firm, Royal Dutch Shell, made almost no money in the final quarter of last year.
As energy expert Fadel Gheit said, "Second-quarter earnings were…a disappointment for Exxon and a disaster for Chevron."
Most Americans won't shed any tears over these disappointing earnings reports -- nor should they. Paying less to heat homes and fill gas tanks is a good thing.
Lower prices reflect a spectacular increase in oil and gas supply, thanks to new technology. The United States is now producing 9.3 billion barrels of crude oil per day -- levels not seen since 1978. Oil prices have fallen from last year's peak of more than $100 a barrel to less than $50 a barrel today -- a six-year low.
Increased natural-gas production has dramatically reduced prices. According to the Energy Information Agency, the United States produced 21.6 trillion cubic feet of natural gas in 2009. Last year, that number shot up to 27.3 trillion cubic feet, a 26 percent rise.
But if high, growing oil-industry profits are some sort of atrocity, as green activists tirelessly preach, shouldn't environmentalists be popping some organic bubbly?
Instead, there is deafening silence except to say that very large companies still make a large profit over the course of any year. That says little. Major integrated oil and gas companies have a return on equity and net profit margin of around 6.4 percent and 2.9 percent, respectively. That places them in the bottom quartile of U.S. industries.
The silence of the activist community is evidence that their anti-profit fixation was (and is) little more than a rhetorical gambit. The recent earnings plunge demonstrates how little control oil firms have over their own bottom lines.
Yet that hasn't stopped some activists from blaming the oil and natural gas sector for low profits. For example, two of California's public pension funds lost more than $5 billion last year due to declining fossil fuel investments. Activists have lamented the shortfalls -- and in the same breath, call for divestment.
Profit hypocrisy is code for an animus for the oil and gas industry itself. Yet the fossil-fuel industry generates millions of jobs and hundreds of billions of dollars annually in wages and economic activity -- and without consumer or taxpayer sacrifice.
Oil-industry earnings might have made for good rhetoric back when profits were larger. But they were never a legitimate target for environmentalist outrage. The fact that green activists have quietly abandoned their anti-profit rallying cry is proof that they knew this all along.
Still, don't hold your breath. If quarter-over-quarter, year-over-year profits resume in 2016 or beyond, the same tired complaints will emerge. Environmentalists, alas, can recycle too much.
Robert L. Bradley Jr. is the founder and CEO of the Institute for Energy Research and author, most recently, of Edison to Enron: Energy Markets and Political Strategies. He blogs at MasterResource.
