Wednesday, September 28, 2005

Energy Windfall

Energy Windfall

At the same time as hurricane tragedies unfold before Americans' eyes, profits in the oil and gas business are far exceeding previous records, and the party in power in Washington wants nothing but more of the same. The scientific consensus is that another "elephant-size" fossil fuel find isn't in the cards, so company after company reports bulging coffers. (As a securities analyst following oil and gas companies, I track their balance sheets, quarter by quarter.) Funneling these windfalls back to the shareholders who have borne the risk all these years is not unreasonable -- but only to a point, when so many have been made homeless. Plenty of companies have policies to share their profits for charitable purposes, but oil company leaders wouldn't show up when the Democratic Policy Committee asked to meet with them. They need to be encouraged to take more responsibility, and we all need to take responsibility for reducing energy dependence by supporting conservation measures and investment in renewable energy sources.


Blogger Richard Wolfe said...

People seem to think that profits are "a very complicated issue" and that they "require many hours and much study to address", much less levy a tax on them.

And yet my job is to estimate oil company profits quarter by quarter through 2005 and 2006 and year by year in a long-term forecast, updating my estimates constantly as hurricanes blow and markets swing from bull to bear. It's pretty transparent to me: all right there in front of me in financial statements maintained according to GAAP and available by clicking on

The question now and back in the 1973 and 1979 crunches pertains to what's formally known as "net income available to common shareholders." The rationale for taxing it (the so-called Windfall Profits Tax), and mind you, only taxing a fraction of it, rests on a combination of the hardship resulting from the price spike (remember, it's not just gasoline: people are going to have to find the money to heat their houses this winter and the NYMEX is now pricing January natural gas around $14 per thousand cubic feet, roughly 200% higher than this time last year), as well as funding alternative energy sources and conservation programs, instead of just more of the same old SUV mentality.

It doesn't have to be a tax. We've all seen how some corporations have made a business asset of setting aside a portion of their profits for the public good. Our own email exchange of a few weeks ago pertaining to Golden West Financial and Costco touched on the wealthy and powerful making either positive or selfish choices. Chesapeake Energy, one of my companies, founded with $50,000 in 1989 by two self-effacing Oklahomans (also rather pious and also heavy Bush contributors) and now worth $12 billion (up from $4B this time last year), announced after Katrina that it contributed $1 million for the company and $1 million each from the two founders (who still own about 10% of the company) to the Red Cross. Chesapeake's "net income available to common shareholders" for the quarter ended June 30, 2005 was $179 million vs. $86 million in the same quarter of 2004, and I estimate the figure for the third quarter will reach $200 million, the fourth quarter $225 million ... of which $3 million for Katrina victims?

October 12, 2005 8:42 PM  
Blogger Richard Wolfe said...

On the subject of sharing the energy windfall, we have a tempest in a teapot brewing here in Maine, stirred up by Hugo Chavez. Our local paper has it just about right, "Congress this fall decided it was appropriate to extend tax cuts for the well-off but cut heating aid for the poor." Read the paper's full editorial, it's a beaut:

My contribution: to note that, contrary to our Republican legislator's comment about doing business with a "dictator," Chavez has been democratically elected -- twice.

January 12, 2006 9:33 AM  

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