Category Archives: Oil Industry

GOP Tax Law Bails Out Fracking Companies Buried in Debt

Repost from DeSmogBlog
[Editor: See also the Pacific Standard report, Inside The Tax Bill’s $25 Billion Oil Company Bonanza.  – RS]

GOP Tax Law Bails Out Fracking Companies Buried in Debt

By Justin Mikulka • Thursday, April 26, 2018 – 08:44

A Scrabble board spells out 'Bankruptcy' overlaid on an unconventional oil and gas rigEOG Resources is one of the top companies in the fracking industry, and thanks to the new tax bill passed by Republicans and President Donald Trump at the end of last year, EOG had an exceptionally strong year compared to 2016.

In 2017, the company reported a net income of $2.6 billion. The previous year? A loss of $1.1 billion. That financial turnaround seems very impressive until you realize that $2.2 billion, or about 85 percent, of its 2017 income was the result of the new tax law. Without that gift from the GOP and Trump, EOG would have lost approximately $700 million between those two years. Instead they are $1.5 billion ahead of the game.

With numbers like these, it is easy to see how the Tax Cuts and Jobs Act of 2017 was a much-needed lifeline for the money-losing fracking industryEOG is routinely touted as one of the best shale oil and gas companies. Yet the company still lost $700 million in the past two years. Or at least it would have if not for the tax bill.

This is the same company that an analyst at the investment advice website Seeking Alpha says is “generally considered one of the best unconventional upstream oil and gas players in the business, and its financials back it up.” If those are the best financials in your industry, your industry has a big problem.

An interesting side note is that EOG stands for Enron Oil and Gas, which was spun off as its own company from Enron — the company notorious for one of the great energy Ponzi schemes of the 20th century. Today, an Enron spinoff company is being held up as the most fiscally sound in the shale oil industry.

And Seeking Alpha is now pushing EOG as a good investment and wondering when “the equities market will wake up and smell this opportunity” despite EOG still being over $6 billion in debt. Without the tax overhaul it would be much harder to make this argument.

There is one prominent person in the shale industry warning against rosy forecasts for shale oil, and that is Mark Papa, head of independent oil company Centennial Resource Development. Papa’s last job? CEO of EOG Resources.

Continental Resources is another of the shale companies being heralded as a good investment in 2018. Continental is run by Harold Hamm who was an advisor to the Trump campaign and has taken the title of “Shale King” that once belonged to Aubrey McClendon. Hamm’s net worth is estimated at over $13 billion.

Thanks to the new tax law, Continental took home an extra $700 million because its effective tax rate for 2017 was negative 406 percent.


Continental Resources 2017 Annual 10-K Filing

And Continental needed that money (although Hamm certainly doesn’t). In 2007 Continental had $165 million in debt and paid $13 million a year in interest on that debt. In 2016 its debt had ballooned to $6.5 billion and the annual interest payments rose to $321 million. The GOP tax law essentially pays off two years of Continental’s interest payments, allowing this failing business model to continue because Continental has not been generating enough income to pay even the annual interest on its debt.

While the company he leads is drowning in $6.5 billion of debt, Harold Hamm is personally worth twice that amount. He’ll be fine. He was easily able to afford one of the most expensive divorce settlements ever.

These are just two examples of shale companies receiving an immediate financial lifeline from the GOP tax bill. These companies also will benefit from lowered tax rates in future years. However, this one-time handout simply masks the reality that the shale revolution looks a lot like a Ponzi scheme enriching CEOs and Wall Street financiers by producing oil and gas with borrowed money that is unlikely to be paid back in the future.

And Hamm and the Wall Street financiers have no incentive to do anything differently. Sure bankrupt energy companies destroy worker pensions, wipe out investors equity, layoff thousands of workers — but if we use the coal industry as an example — CEOs will still get bonuses after driving their companies into bankruptcy.

Tax Bill Especially Beneficial to Oil Companies

The benefits of the new tax bill are certainly not unique to oil and gas companies. Utility companies did even better and the big Wall Street banks who are financing the cash-burning shale industry also are awash in new profits thanks to the GOPtax overhaul.

However, due to the nature of how oil and gas companies book profits and losses — and the epic money-losing streak the shale industry created over the past few years — these companies benefited more than most.

To be clear — this bill which was signed at the end of 2017 was applied to the deferred tax liabilities that were already on the books — thus erasing a large chunk of the liabilities for these companies that had built up while the industry kept borrowing to drill more and ultimately lose more money. Simply a bailout of reckless financial behavior by any other name.

And it wasn’t just the companies primarily working in shale that benefited. ExxonMobil raked in a $6 billion benefit from the new tax law, which even CNN Money referred to as a “gift.”

Industry Will Use Bailout to Borrow and Drill More 

In discussing the trade deficit President Trump recently tweeted the following:

Coming from a man whose career includes multiple bankruptcies, this shouldn’t be surprising. The shale oil industry definitely has a kindred spirit in the White House.

What happens when you give free money to gamblers on an epic losing streak? In the shale industry, they double down.

ExxonMobil has promised to use the billions it gained from the tax bill to … drill and frack more shale oil. Which is likely to result in further discounts of Permian Shale oil, which will lower the price of oil and put more pressure on the heavily leveraged shale companies.

While the mainstream media is pushing the industry message that shale companies now are focused on profits instead of just production volume, record U.S. oil production and predictions for even greater increases would appear to reveal the lie in that promise. Just as most sharks must swim to stay alive, shale companies must drill to preserve CEO bonuses, which are often tied to oil production, not profits. So, they drill. Even when that means losing money on nearly every barrel of oil they pump.

A graphic from the Wall Street Journal reveals just how much money the shale industry has been losing compared to traditional oil — all while CEOs such as Harold Hamm were amassing billions in personal wealth. The shale oil industry generated free cash flow pumping oil for one brief period in the last seven years. Hamm has done a bit better personally during that time frame.

Shortly after President Trump signed the new tax bill, he took another vacation to Mar-a-Lago where he reportedly told those in attendance: “You all just got a lot richer.”

A rare moment of honesty from the President. And while he wasn’t speaking specifically to shale oil CEOs — it’s safe to say they got the message loud and clear.


Follow the DeSmog investigative series: Finances of Fracking: Shale Industry Drills More Debt Than Profit

    INSIDE THE TAX BILL’S $25 BILLION OIL COMPANY BONANZA

    Repost from Pacific Standard
    [Editor: Valero Energy’s windfall of DIRECT ONE-TIME 2017 TAX SAVINGS from the Trump tax law was $1.9 BILLION, according to Valero’s 4th quarter 2017 SEC filing .  See chart below. See also Valero’s Feb 2018 press release and Valero’s detailed SEC 2017 Year End Fiscal Report.  – RS]

    A Pacific Standard analysis shows the oil and gas industry is among the tax bill’s greatest financial beneficiaries.

    By Antonia Juhasz, Mar 27, 2018
    President Donald Trump pitches his Tax Cuts and Jobs Act at the Andeavor oil refinery in North Dakota in September of 2017.
    President Donald Trump pitches his Tax Cuts and Jobs Act at the Andeavor oil refinery in North Dakota on September 6th, 2017. (Photo: WhiteHouse.gov)

    Last month, during a retreat in West Virginia, congressional Republicans set out their 2018 party goals. Their primary objective is to hold onto their majorities in the House of Representatives and the Senate, and the key mechanism for doing so is to ride the coattails of the Tax Cuts and Jobs Act. “The tax bill is part of a bigger theme that we’re going to call The Great American comeback,” said Representative Steve Stivers (R-Ohio), chairman of the National Republican Congressional Committee. “If we stay focused on selling the tax reform package, I think we’re going to hold the House and things are going to be OK for us.”

    More than 50 percent of the tax bill’s benefits will go to the wealthiest 5 percent of Americans, and more than 25 percent to the wealthiest 1 percent, according to the Institute on Taxation and Economic Policy. As Businessweek put it, “President Donald Trump and Republicans sold their $1.5 trillion tax cut as a boon for workers, but it’s becoming clear just two months after the bill passed that the truly big winners will be corporations and their shareholders.”

    Pacific Standard‘s original analysis finds that it is the oil and gas industry, including companies that backed the presidency of Trump and whose former executives and current boosters now populate it, that are among the tax bill’s largest and most long-lasting financial beneficiaries.

    Just 17 American oil and gas companies reported a combined total of $25 billion in direct one-time benefits from the 2017 Tax Cuts and Jobs Act. Many of the companies will also receive millions of dollars in income tax refunds this year. Looking forward, the Tax Act then reduces all corporate annual tax bills by a minimum of 40 percent every year in perpetuity, while adding new benefits that function as government subsidies for the oil and gas industry. The companies’ activities in the United States are made less expensive, thereby encouraging a further expansion of oil and gas operations.

    Pacific Standard reviewed the Annual 10K and Fourth Quarter Reports filed with the U.S. Securities and Exchange Commission for 2017 by 17 U.S. oil companies, looking at the largest companies in production, refining, and pipelines that also clearly specified the impacts of the Tax Act in their results. Private companies, such as Koch Industries, which undoubtedly benefit from the legislation, could not be included because they are not required to make these financial reports publicly available.

    $25 BILLION IN OIL COMPANY TAX SAVINGS

    Screen Shot 2018-03-25 at 6.19.30 PM
    (Chart: Antonia Juhasz/Pacific Standard)  …CLICK TO ENLARGE

    Continue reading INSIDE THE TAX BILL’S $25 BILLION OIL COMPANY BONANZA

      Big Oil aims to buy democracy in WA State

      Repost from Sightline Institute 
      This article is part of the series Look Who’s Taking Oil & Coal Money 

      BIG OIL AIMS TO BUY DEMOCRACY IN WASHINGTON

      Local Northwest elections targeted with huge fossil fuel spending.
      By Eric de Place, October 25, 2017 6:30 am
      Bow of oil tanker by Roy Luck used under CC BY 2.0

      With no statewide races or federal level races, 2017 is supposed to be an “off” year election. But for the fossil fuel industry and their allies it’s proving to be a spending bonanza. Coal, oil, and railroad shippers have dumped a jaw-dropping $1.5 million into three relatively small caliber Washington races: a Vancouver port commission seat, a state senate race in suburban King County, and a Spokane city ballot initiative.

      Coal, oil, and railroad shippers have dumped a jaw-dropping $1.5 million into three relatively small caliber Washington races.

      The big media story this election has been at the Port of Vancouver, where the oil company Tesoro aims to build a 360,000 barrel-per-day oil train facility called Vancouver Energy. Two of the three port commissioners back the project, but the outcome of the election could change that. Candidate Don Orange is likely to join current port commissioner Eric LaBrant in opposing Tesoro’s plans, and they could end the project by declining to renew the company’s lease.

      Running against Orange is Kris Greene with heavy backing from the company he would be responsible for permitting. So far, the project’s backer has contributed a staggering $370,000 to Greene, far and away the largest corporate donation in the history of Vancouver’s port and the largest direct donation to any candidate in all of Washington in 2017. This princely sum comes on top of a $162,000 independent expenditure from Enterprise WA Jobs, a political action committee (PAC). The biggest donors to the PAC this year are none other than Tesoro to the tune of $200,000 and BNSF with $215,000, the two companies who profit from the terminal’s operations.

      Reports from the Columbian newspaper have also revealed a shocking degree of coordination between Greene and his oil business sponsors. In effect, Tesoro has operated Greene’s campaign, doing everything from writing his press releases to speaking for the campaign to hiring DC-based communications firms with connections to some of the worst anti-environmental campaigns in the nation. (Tesoro is no stranger to big spending for right-wing spending in Washington, but 2017 marks a new level of aggression for the Texas oil company.) In September, Greene’s former campaign manager Robert Sabo even quit because of Tesoro’s outside influence on the campaign. He told the Columbian in an article earlier this month “Big Oil is completely dictating where every penny is going.”

      Meanwhile, a state senate race on the eastside of Lake Washington is setting new spending records. The match in the 45th district pits Republican Jinyoung Englund against Democrat Manka Dhingra in a contest that could have major implications for the state legislature. If Dhingra wins, the Senate will flip to the Democrats, giving them majorities in both houses along with control of the governor’s office. Democratic control would likely take action on long-stalled environmental priorities like oil transportation safety requirements, funding for toxic waste cleaning up and prevention, or statewide clean energy investments.

      A trio of right-wing PACs are spending big to support Republican Englund with a combined $820,000. The same Enterprise WA Jobs PAC playing in the Vancouver race is also spending big in the 45th. Beyond the hundreds of thousands from Tesoro and BNSF, the PAC has another $100,000 from Chevron and $25,000 from Koch Industries (the fossil fuel company of Koch Brothers notoriety). Meanwhile, the Citizens for Progress Enterprise WA PAC is registering another $350,000 from Texas oil company Phillips 66. And the Leadership Council PAC shows yet more oil and railroad money: $25,000 more from Tesoro, $20,000 from BNSF, and $10,000 from Union Pacific.

      Backing Democrat Dhingra are the New Directions PAC and the Working Families PAC, with funding from State Democratic Campaign Committee, The Leadership Council, state unions, the Washington Conservation Voters, and big national names like Michael Bloomberg and Tom Steyer.

      In Spokane, a citizen’s ballot initiative, Proposition 2, proposes to levy fees on coal and oil trains that pass through the city. It has garnered predictable opposition from fossil fuel companies, as well as the railroads that ship their products. So far, the industry’s PAC has $180,454 worth of contributions, including an eyebrow-raising October contribution of $39,500 from Lighthouse Resources, the struggling company behind a Longview coal terminal development that was effectively killed by state permitting agencies in September. Lighthouse had previously given $25,000 to the PAC, an amount that was matched by Cloud Peak, a company that exports modest volumes of coal via a terminal in British Columbia, as well as Tesoro, and the railroads BNSF and Union Pacific.

      The Northwest is proving to be the graveyard of ambitions for coal, oil, and gas schemes as a region-wide groundswell of opposition has fought back project after project. Now, stymied at every turn, the fossil fuel industry is deploying what may be its most dangerous weapon: piles of cash and a willingness to overwhelm democratic institutions, even at a local level. If the “off” year elections of 2017 prove successful for Big Oil, there is every reason to think the industry will play hardball in the big ticket races of 2018.