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How can oil companies claim that increased gas prices are only the result of higher crude oil prices and government taxes when they continue to have record profits year after year?
Answer:
While gas prices have fluctuated, oil and natural gas earnings have remained in line with the average of other major U.S. manufacturing industries. This fact is not well understood, 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.
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What role does the U.S. tax code play in oil and natural gas industry investment in America?
Answer:
Risk is an integral part of exploring for oil and natural gas. There's no guarantee that drillers will find commercially viable amounts of energy. Before companies begin drilling, they must invest large sums of money to lease areas for development (onshore and offshore) get the needed permits, procure the rig, hire workers and assemble the necessary equipment. Sometimes they find energy, sometimes they drill a dry hole.
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What do oil companies do with their earnings?
Answer:
Earnings – what’s left after payrolls and other operating expenses are paid for – basically go two places. Of every dollar earned, 56 cents goes to shareholders and 44 cents goes to government in the form of income taxes. Shareholders include Americans with mutual funds, individual investments, pension funds and IRAs. Taxes at the national and state level help meet a number of public needs, including funding for roads, schools, parks and more.
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Why should I care if taxes on “Big Oil” are raised?
Answer:
Because chances are pretty good you own a piece of an oil and natural gas company. Research shows nearly 50 percent of all corporate shares in these companies 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 – totaling 97 percent. Less than 3 percent of the shares are owned by corporate officers and board members.
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How much do oil companies make on each dollar of sales, and how does that compare with other business and industries?
Answer:
Because integrated oil and natural gas companies are large, their earnings are large. What’s not often reported is that oil and gas company earnings actually are well in line with the U.S. manufacturing industry, averaging about 7 cents for every dollar of sales. The latest published data for the first quarter of 2012 shows the oil and natural gas industry earned 7.5 cents on the dollar in comparison with all U.S. manufacturing, which earned 8.9 cents for every dollar of sales. When looking at net profit margins, the U.S. oil and natural gas industry ranks 114 out of 215 industries.
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Doesn’t the oil and natural gas industry receive special subsidies?
Answer:
No. The oil and natural gas industry does not receive targeted taxpayer subsidies or credits. It uses business tax deductions, like the one for intangible drilling costs, which are the same deductions used by other businesses and industries.
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Oil company profits are very high; are they paying their fair share in taxes?
Answer:
The fact is, the oil and natural gas industry’s income tax expenses as a percentage of net income (before income taxes) averaged 40.6 percent in 2011, compared to 25.1 percent for other S&P Industrial companies. U.S. oil and natural gas companies pay approximately $86 million to the U.S. Treasury in rents, royalties and income tax payments every single day.
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How much does the oil and natural gas industry contribute to our gross domestic product (GDP)?
Answer:
The oil and natural gas industry’s impact on the U.S. economy is significant, supporting nearly 9.2 million American jobs and providing $1.1 trillion in U.S. economic activity—or 7.7 percent of America’s total gross domestic product (GDP) through spending and investments supporting U.S. manufacturing, transportation, technology and accounting services, among others. The shale revolution alone contributed more than $76 billion to U.S. GDP in 2010, and research shows this could triple to $231 billion in 2035.
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Why do oil companies repurchase stocks?
Answer:
The oil and natural gas industry is a capital intensive industry and devotes the largest share of its earnings to adding new property and equipment to its upstream and downstream operations. It also repurchases stock as a means of further adding value for its shareholders. As with many other industries and companies, it is the responsibility of company officials to build value for shareholders through stock repurchases and paying dividends.
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How much do oil companies pay to shareholders and who are these shareholders?
Answer:
Analysis of public data, independent research and corporate annual reports found that the oil and natural gas industry paid out approximately $35 billion in dividends distributed to American shareholders in 2010 alone.
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