BIG OIL - Alaska Oil and Gas Association
straight talk Alaska Oil and Gas Association Do you own an oil company? In a 2011 update on a study of oil and natural gas company ownership, the Sonecon consulting firm found that nearly 50 percent of all corporate shares are held by public and private pension and retirement funds, including 401(k)s, and IRAs. Individual investors own 20 percent, while financial institutions and asset management companies own 27 percent. That’s 97 percent. Fewer than 3 percent is owned by corporate executives and board members.
August 2012
In This Issue: Do you own an oil company?............................ 1 Which industries make the most profits? The answer may surprise you........................... 2 The truth about ‘Big Oil’ and taxes................... 3 The choice is yours: More or Less? ................. 4 Our Permanent Fund Dividend checks rely on Big Oil, too!.......................................... 4 Alaska’s state budget depends on oil............... 5
Who Owns
“BIG OIL” Pension Funds 31.2% Individual Investors 21.1% Mutual Funds 20.6%
ALASK A OIL & GAS
It’s my future, too.
IRAs 17.7% Other Institutional Investors 6.6% Oil Company Executives 2.8%
In thinking about “Big Oil,” remember that most Americans do well when oil companies do well. This means that when oil companies do well financially, it is very likely that you do, too, either through better returns on your pension or IRA or on other investments like mutual funds and CDs. It is clear that healthy oil and natural gas industry earnings are a benefit to millions of Americans’ retirement security. And that’s not the only way in which strong earnings benefit Americans: The oil and natural gas industry contributes billions of dollars to the U.S. economy through federal and state revenues, jobs and capital projects. This is especially true in Alaska, where contributions from the oil and gas industry make up about 92 percent of the state’s revenues. Bottom line: We all depend on a thriving oil and gas industry in our state.
AOGA straight talk | www.aoga.org
More jobs, strong economy, better return on your retirement investments – when the oil industry does well, Americans profit. -1-
Alaska Oil and Gas Association Which industries make the most profits? The answer may surprise you. It’s not the oil and gas industry. Computer manufacturers, pharmaceutical companies, clothing stores and car makers all realize far more profit than “Big Oil.”
It’s unlikely you will hear accusations of “obscene profits” levied at Apple, Johnson & Johnson and the GAP. That’s because the oil and gas industry is characterized by long lead times, huge capital requirements and returns realized only decades later in the face of very real investment risks.
AOGA straight talk | www.aoga.org
Not many people understand this fact, however, in part because reports usually focus on only half the story – the profits that are earned. Profits reflect the size of an industry, but they’re not necessarily a good reflection of financial performance. Profit margins, or earnings per dollar of sales (measured as net income divided by sales), provide one useful way to compare financial performance among industries of all sizes. The latest published data for the fourth quarter of 2011 shows the oil and natural gas industry earned 6.2 cents for every dollar of sales in comparison with all manufacturing, which earned 8.3 cents for every dollar of sales.
-2-
Alaska Oil and Gas Association The truth about ‘Big Oil’ and taxes Myth: Oil and gas companies receive generous tax breaks. Fact: O il and gas companies pay among the highest effective tax rates in the U.S. U.S. oil and natural gas companies pay considerably more in taxes than the average manufacturing company. In 2011, the industry’s income tax expenses (as a share of net income before income taxes) averaged 40.6 percent, compared to 25.1 percent for other Standard and Poor’s Industrial companies. Operations in the U.S. generate state income tax obligations or payments, which are in addition to federal taxes. This is why the industry has an effective tax rate above the federal statutory rate of 35 percent.
Reality check: Oil and natural gas earnings are typically in line with the average of other major U.S. manufacturing industries. Other industries may also have greater flexibility on where they locate their physical capital or other operations to meet their customer needs. As a result, they may be able to establish activities in locations with lower effective tax rates. Oil and gas companies, however, are obligated to do business where resources are located, making them susceptible to higher tax rates.
AOGA straight talk | www.aoga.org
-3-
The choice is yours: More or Less? Higher taxes on the industry hurt all of us.
Eventually, higher taxes will force oil producers to look elsewhere for investments that promise better returns. As Alaskans, we should want those jobs and opportunities to remain in our state.
It is popular for elected officials to call for higher taxes on the oil and gas industry. This is especially true in Alaska, where the current tax on oil is at record high levels. Not surprisingly, new investment in Alaska has not increased with rising prices, and the pipeline’s throughput continues to decline at an alarming rate.
We can either continue with the status quo of decline or put our collective energy behind Alaska’s future prosperity.
DECREASE TAXES
Investment & PFD Contributions MORE The PFD grows when revenues from oil and gas royalties increase.
$
Government Revenue (2020) LESS
Oil & gas accounts for 90 percent of the State of Alaska’s revenues.
Jobs (2020)
Jobs (2020)
MORE One-third of Alaska jobs are tied to oil & gas.
LESS
Source: ISER
Energy Production (2020) MORE The pipeline is two-thirds empty. Lower taxes will spur production.
States with favorable tax climates have more high-paying jobs than they can fill.
Energy Production (2020) LESS Alaska could play a bigger role in making the U.S. energy independent. RAISE TAXES
MORE OR LESS?
Source: Wood Mackenzie Energy Consulting, http://www.api.org/Newsroom/upload/API-US_Supply_Economic_Forecast.pdf; and http://www.api.org/policy/tax/recentstudiesandresearch/upload/SOAE_Wood_Mackenzie_Access_vs_Taxes.pdf.
Our Permanent Fund Dividend checks rely on Big Oil, too! The annual oil royalty check received by most Alaskans every October is a beloved tradition. The Permanent Fund Dividend (PFD) has helped families pay for everything from college educations to home remodels to everyday basics like heating oil and fuel. Did you know that more than 20 percent of the Permanent Fund is invested in oil and gas companies? That means when these companies make money, Alaskans benefit from a good investment. Fostering a healthy, high-performing Permanent Fund is another reason why Alaskans have good reason to celebrate oil and gas companies’ solid financial performance.
ALASKA PERMANENT FUND Top 50 Stock Holdings
Technology Consumer Goods Health Care
Oil & Gas 20.34%
Finance TelCom
Source: Alaska Permanent Fund Corporation
AOGA straight talk | www.aoga.org
-4-
Alaska’s state budget depends on oil Alaska is one of seven states without a personal income tax, one of five states without a state sales tax and the only state with neither. Alaska has three main sources of revenue – oil, federal funding and investment earnings – although the first two provide most of the state’s government services. It is because of the royalties charged to oil companies that Alaskans enjoy a perk unique in the United States: no state income tax, and a yearly payment from the government. The state’s budget is also unique in the extent to which it relies on oil revenue for funding. State officials recently launched a comprehensive website explaining Alaska’s budget and how oil contributes to our economy. www.alaskabudget.com is a valuable resource for learning more about Alaska’s current economic situation, as well as its future.
$170 Billion collected from oil companies since 1959. Source: Alaska Department of Revenue
The role of oil & gas in Alaska’s economy J ob s fo r a la s k a n s On e -t h i r d t i e d to O i l & G a s
Petroleum sector
All basic sectors 122,000 34%
110,000 31%
125,000 35%
$8.2 Billion 89%
Federal Government
W h at p e rc e n t o f G e n e r a l F u n d c o m e s f ro m oi l re ve n u e
Source: ISER: Goldsmith
Source: Alaska Department of Revenue
AOGA straight talk | www.aoga.org
-5-
August 2012
Alaska Oil and Gas Association The Alaska Oil & Gas Association (AOGA) is a business trade association that represents the majority of oil and gas exploration, production, transportation, refining and marketing activities in Alaska. Our mission is to foster the long-term viability of the oil and gas industry in Alaska. Learn more about the issues facing the largest economic driver in the Alaska economy at www.aoga.org. Sign up for our newsletters and follow us on Facebook and Twitter for the latest information on the oil and gas industry in Alaska. Contact information: 907-272-1481 or [email protected] Facebook: AlaskaOilAndGas Twitter: @AOGA
L to R: External Affairs Manager Sarah Erkmann, Regulatory and Legal Affairs Manager Kate Williams, Executive Director Kara Moriarty and Tamara Sheffield of Support Services.
Our member companies: Alyeska Pipeline Service Company; Apache Corporation; BP Exploration (Alaska) Inc.; Chevron; eni petroleum; ExxonMobil Production Company; Flint Hills Resources, Alaska; Hilcorp Alaska, LLC; Marathon Oil Company; Petro Star Inc.; Pioneer Natural Resources Alaska, Inc.; Repsol; Shell Exploration & Production Company; Statoil; Tesoro Alaska Company; and XTO Energy, Inc. -6-
AOGA straight talk | www.aoga.org
straight talk
www.aoga.org
PRSRT STD U.S. Postage
PAID 121 W. Fireweed Lane, Suite 207 Anchorage, AK 99503-2035 ph. 907.272.1481
AOGA Staff Kara Moriarty, Executive Director Kate Williams, Regulatory and Legal Affairs Manager Sarah Erkmann, External Affairs Manager Tamara Sheffield, Support Services
PERMIT NO. 69 ANCHORAGE, AK
August 2012
In This Issue: Do you own an oil company?............................ 1 Which industries make the most profits? The answer may surprise you........................... 2 The truth about ‘Big Oil’ and taxes................... 3 The choice is yours: More or Less? ................. 4 Our Permanent Fund Dividend checks rely on Big Oil, too!.......................................... 4 Alaska’s state budget depends on oil............... 5
Who Owns
“BIG OIL” Pension Funds 31.2% Individual Investors 21.1% Mutual Funds 20.6%
ALASK A OIL & GAS
It’s my future, too.
IRAs 17.7% Other Institutional Investors 6.6% Oil Company Executives 2.8%
In thinking about “Big Oil,” remember that most Americans do well when oil companies do well. This means that when oil companies do well financially, it is very likely that you do, too, either through better returns on your pension or IRA or on other investments like mutual funds and CDs. It is clear that healthy oil and natural gas industry earnings are a benefit to millions of Americans’ retirement security. And that’s not the only way in which strong earnings benefit Americans: The oil and natural gas industry contributes billions of dollars to the U.S. economy through federal and state revenues, jobs and capital projects. This is especially true in Alaska, where contributions from the oil and gas industry make up about 92 percent of the state’s revenues. Bottom line: We all depend on a thriving oil and gas industry in our state.
AOGA straight talk | www.aoga.org
More jobs, strong economy, better return on your retirement investments – when the oil industry does well, Americans profit. -1-
Alaska Oil and Gas Association Which industries make the most profits? The answer may surprise you. It’s not the oil and gas industry. Computer manufacturers, pharmaceutical companies, clothing stores and car makers all realize far more profit than “Big Oil.”
It’s unlikely you will hear accusations of “obscene profits” levied at Apple, Johnson & Johnson and the GAP. That’s because the oil and gas industry is characterized by long lead times, huge capital requirements and returns realized only decades later in the face of very real investment risks.
AOGA straight talk | www.aoga.org
Not many people understand this fact, however, in part because reports usually focus on only half the story – the profits that are earned. Profits reflect the size of an industry, but they’re not necessarily a good reflection of financial performance. Profit margins, or earnings per dollar of sales (measured as net income divided by sales), provide one useful way to compare financial performance among industries of all sizes. The latest published data for the fourth quarter of 2011 shows the oil and natural gas industry earned 6.2 cents for every dollar of sales in comparison with all manufacturing, which earned 8.3 cents for every dollar of sales.
-2-
Alaska Oil and Gas Association The truth about ‘Big Oil’ and taxes Myth: Oil and gas companies receive generous tax breaks. Fact: O il and gas companies pay among the highest effective tax rates in the U.S. U.S. oil and natural gas companies pay considerably more in taxes than the average manufacturing company. In 2011, the industry’s income tax expenses (as a share of net income before income taxes) averaged 40.6 percent, compared to 25.1 percent for other Standard and Poor’s Industrial companies. Operations in the U.S. generate state income tax obligations or payments, which are in addition to federal taxes. This is why the industry has an effective tax rate above the federal statutory rate of 35 percent.
Reality check: Oil and natural gas earnings are typically in line with the average of other major U.S. manufacturing industries. Other industries may also have greater flexibility on where they locate their physical capital or other operations to meet their customer needs. As a result, they may be able to establish activities in locations with lower effective tax rates. Oil and gas companies, however, are obligated to do business where resources are located, making them susceptible to higher tax rates.
AOGA straight talk | www.aoga.org
-3-
The choice is yours: More or Less? Higher taxes on the industry hurt all of us.
Eventually, higher taxes will force oil producers to look elsewhere for investments that promise better returns. As Alaskans, we should want those jobs and opportunities to remain in our state.
It is popular for elected officials to call for higher taxes on the oil and gas industry. This is especially true in Alaska, where the current tax on oil is at record high levels. Not surprisingly, new investment in Alaska has not increased with rising prices, and the pipeline’s throughput continues to decline at an alarming rate.
We can either continue with the status quo of decline or put our collective energy behind Alaska’s future prosperity.
DECREASE TAXES
Investment & PFD Contributions MORE The PFD grows when revenues from oil and gas royalties increase.
$
Government Revenue (2020) LESS
Oil & gas accounts for 90 percent of the State of Alaska’s revenues.
Jobs (2020)
Jobs (2020)
MORE One-third of Alaska jobs are tied to oil & gas.
LESS
Source: ISER
Energy Production (2020) MORE The pipeline is two-thirds empty. Lower taxes will spur production.
States with favorable tax climates have more high-paying jobs than they can fill.
Energy Production (2020) LESS Alaska could play a bigger role in making the U.S. energy independent. RAISE TAXES
MORE OR LESS?
Source: Wood Mackenzie Energy Consulting, http://www.api.org/Newsroom/upload/API-US_Supply_Economic_Forecast.pdf; and http://www.api.org/policy/tax/recentstudiesandresearch/upload/SOAE_Wood_Mackenzie_Access_vs_Taxes.pdf.
Our Permanent Fund Dividend checks rely on Big Oil, too! The annual oil royalty check received by most Alaskans every October is a beloved tradition. The Permanent Fund Dividend (PFD) has helped families pay for everything from college educations to home remodels to everyday basics like heating oil and fuel. Did you know that more than 20 percent of the Permanent Fund is invested in oil and gas companies? That means when these companies make money, Alaskans benefit from a good investment. Fostering a healthy, high-performing Permanent Fund is another reason why Alaskans have good reason to celebrate oil and gas companies’ solid financial performance.
ALASKA PERMANENT FUND Top 50 Stock Holdings
Technology Consumer Goods Health Care
Oil & Gas 20.34%
Finance TelCom
Source: Alaska Permanent Fund Corporation
AOGA straight talk | www.aoga.org
-4-
Alaska’s state budget depends on oil Alaska is one of seven states without a personal income tax, one of five states without a state sales tax and the only state with neither. Alaska has three main sources of revenue – oil, federal funding and investment earnings – although the first two provide most of the state’s government services. It is because of the royalties charged to oil companies that Alaskans enjoy a perk unique in the United States: no state income tax, and a yearly payment from the government. The state’s budget is also unique in the extent to which it relies on oil revenue for funding. State officials recently launched a comprehensive website explaining Alaska’s budget and how oil contributes to our economy. www.alaskabudget.com is a valuable resource for learning more about Alaska’s current economic situation, as well as its future.
$170 Billion collected from oil companies since 1959. Source: Alaska Department of Revenue
The role of oil & gas in Alaska’s economy J ob s fo r a la s k a n s On e -t h i r d t i e d to O i l & G a s
Petroleum sector
All basic sectors 122,000 34%
110,000 31%
125,000 35%
$8.2 Billion 89%
Federal Government
W h at p e rc e n t o f G e n e r a l F u n d c o m e s f ro m oi l re ve n u e
Source: ISER: Goldsmith
Source: Alaska Department of Revenue
AOGA straight talk | www.aoga.org
-5-
August 2012
Alaska Oil and Gas Association The Alaska Oil & Gas Association (AOGA) is a business trade association that represents the majority of oil and gas exploration, production, transportation, refining and marketing activities in Alaska. Our mission is to foster the long-term viability of the oil and gas industry in Alaska. Learn more about the issues facing the largest economic driver in the Alaska economy at www.aoga.org. Sign up for our newsletters and follow us on Facebook and Twitter for the latest information on the oil and gas industry in Alaska. Contact information: 907-272-1481 or [email protected] Facebook: AlaskaOilAndGas Twitter: @AOGA
L to R: External Affairs Manager Sarah Erkmann, Regulatory and Legal Affairs Manager Kate Williams, Executive Director Kara Moriarty and Tamara Sheffield of Support Services.
Our member companies: Alyeska Pipeline Service Company; Apache Corporation; BP Exploration (Alaska) Inc.; Chevron; eni petroleum; ExxonMobil Production Company; Flint Hills Resources, Alaska; Hilcorp Alaska, LLC; Marathon Oil Company; Petro Star Inc.; Pioneer Natural Resources Alaska, Inc.; Repsol; Shell Exploration & Production Company; Statoil; Tesoro Alaska Company; and XTO Energy, Inc. -6-
AOGA straight talk | www.aoga.org
straight talk
www.aoga.org
PRSRT STD U.S. Postage
PAID 121 W. Fireweed Lane, Suite 207 Anchorage, AK 99503-2035 ph. 907.272.1481
AOGA Staff Kara Moriarty, Executive Director Kate Williams, Regulatory and Legal Affairs Manager Sarah Erkmann, External Affairs Manager Tamara Sheffield, Support Services
PERMIT NO. 69 ANCHORAGE, AK
