Media that empowers working people – that's how we build a More Perfect Union.

Don't Miss a Video!

Access our exclusive reporting and rapid response actions directly in your inbox, so you don’t miss a beat in the fight for working people nationwide.

Be a part of a community backing up independent journalism with action.

Ideas

Have a story to tell or idea to share?
Email [email protected]
© 2021 More Perfect Union Action

Together we can build power for working people.

We’re asking questions that really matter, and telling the stories of people who really need to be seen and heard.

You can support our work by donating today.

Amount

Make It Monthly

Don't Miss a Video!

Access our exclusive reporting and rapid response actions directly in your inbox, so you don’t miss a beat in the fight for working people nationwide.

Be a part of a community backing up independent journalism with action.

Oil Companies Are Delivering Record Returns For Wall Street. That Could Be Good News For Climate Change.

We just spent the year in a market-based transition from fossil fuels.

Oil

ExxonMobil and Chevron delivered record-shattering profits last quarter, returns that financial news outlet Bloomberg described as ”almost comically huge.” Exxon, the world’s largest non-state energy company, posted $18.5 billion in profit, while Chevron, the nation’s second largest energy company, delivered $11.6 billion.

Even more notable is what oil companies are doing with their profits. Surprisingly, it may be very good news for climate change.

Broadly speaking, executives can use company profits in two ways. They can redistribute the profits to shareholders or reinvest the profits back into the business. In 2014, Chevron and Exxon reinvested over $68 billion through capital expenditures (CapEx). CapEx includes building new oil wells and repairing outdated refineries–both things that increase fossil fuel consumption. 

This year America’s two oil giants are on pace to invest around $20 billion in CapEx—a decline of over 67% in less than a decade. Instead, management is focused on transferring as much profit as possible to shareholders. In Q2, rather than invest in future oil capacity, Chevron and Exxon showered investors with $6.7 billion in dividend payments and made promises of $30 billion worth of stock repurchases in the next few years. Right now the companies have already spent more on dividends than they did for all of 2014.  

This development should be viewed as what it is: a market-based transition to clean energy. 

Unlike the Green New Deal, which called for a “10-year mobilization” to transition the economy to renewable energy through a series of democratically-determined infrastructure investments, a market-based transition happens largely overnight and is divorced from accountability. Decisions on the future of America’s long term energy network are made by Wall Street and oil and gas executives. 

The consequences were felt this summer. U.S. oil refineries operated above 90% capacity, but a lack of industry CapEx decreased the system’s overall capacity by about a million barrels a day compared to what it was pre-pandemic. Combined with Russia’s invasion of Ukraine, American oil companies couldn’t refine enough oil to meet demand. Gasoline rose to over $6 a gallon. Rising energy costs account for roughly half of the country’s inflation. Meanwhile, the industry booked record profits.

The Inflation Reduction Act, which President Biden signed into law this week, attempts to mitigate some of the worst impulses of a market-based transition. It provides subsidies to make clean energy cheaper, while making it more expensive to extract oil from federal lands. If fossil fuel extraction is less profitable, the theory goes, investment in it will go down.

Energy firms may be willing partners in this trend. In 2014 major oil companies invested about $4 back into their businesses through CapEx for every $1 they paid out in dividends. Today they invest just $1.67 for every dollar spent on dividends. Chevron and Exxon invest even less–under one dollar for every dollar of dividends. Contrary to what American oil executives say, the lack of investment isn’t caused by Joe Biden or Democratic posturing. It’s a transition nearly a decade in the making. In Trump’s first year of office, Exxon invested less than 50% of what it did during the Obama presidency.

Proponents of the oil and gas industry seem to confirm the market transition in their public comments. “I personally don’t believe there will be a new petroleum refinery ever built in this country again,” Chevron’s CEO Michael Wirth told investors at a conference in June. Why invest billions of dollars over ten years when more and more consumers and governments are demanding a transition? Instead, executives are opting to transfer millions to shareholders.

In a later interview, Wirth suggested that high oil prices are here to stay. An analyst paraphrased his view during the Q2 earnings call: “Any weakness in oil prices is going to be fleeting because of the under investment.”

American oil and gas infrastructure is deteriorating, and the oil and gas companies have shown little interest in maintaining it.

  • A CapEx / Depreciation ratio can be used to evaluate if a company is making enough long term investments in its infrastructure. Roughly speaking, a ratio less than one means a company’s physical assets are depreciating quicker than management is replacing them. 
  • In 2021, according to data from NYU, the ratio for the 46 public firms that make up the integrated oil and gas industry dropped below 1 to .85, the first time in recent memory. Integrated companies handle upstream (discovery and production) and downstream (refinery, transportation, marketing) aspects of energy.
  • Exxon’s CapEx / Depreciation ratio has been below the 1 threshold for 4 of the last 6 years. Chevron was below for 5 of the last 6 years, including bottoming out at .46 in 2021.
  • Oil and gas companies have embraced automation and layoffs, resulting in lower operating costs across the sector. The industry has shed almost 50,000 workers since 2014

American oil and gas companies are not making meaningful investments in clean energy.

  • According to Bloomberg, investment by oil and gas producers in clean energy totaled $12.7 billion in 2020. European companies led the charge, with the “bulk” of those investments coming from Shell, Total, Repsol and Galp.
  • Relative to dividend payments, American energy giants’ investments in environmental mitigation and clean energy are declining. In 2013, Exxon and Chevron spent 55 and 36 cents on environmental expenditures for every $1 they paid in dividends. In 2021, the ratio dropped to just 31 and 19 cents.
  • Last year Exxon made headlines when an activist investor pushed the company to quadruple its annual spending on low-carbon energy to $3 billion a year. Despite the significant increase, it was almost $18 billion less than the company spent on dividends and stock repurchases in the last 12 months.

The Inflation Reduction Act will temper the negative impacts of a market based transition and lower costs for consumers

  • The law provides $369 billion to combat climate change through a mixture of direct spending and tax incentives.
  • It provides tax credits for consumer purchases and industrial production of renewable energy. 
  • Analysts predict it will reduce net emissions by 31%-44% below 2005 levels, while delivering cost savings. The average residential electricity bill is expected to decline by between $730 and $1,135.
  • It mandates auctioning millions of federal acres for oil and gas development. If recent history is a guide, the auctions may end up being immaterial to America’s fossil fuel use. If enacted, the royalty rate companies must pay the government would increase 33-50%. According to an oil industry interest group, “That would make investing in these tracts less attractive.”
  • The fossil fuel auctions are tied to renewable energy projects. The arrangement may needlessly complicate and delay viable renewable investments, as new fossil fuel infrastructure projects become a riskier bet for oil and gas companies. 

The transition from fossil fuels is happening. It’s just a question of how painful it will be for average people. This year answered the question of what a market transition looks like: It hurts. War, limited alternatives, and decreased capacity combined to generate less emissions than before the pandemic at record prices for consumers. The prices translated to “comically huge” profits for oil and gas companies.

Without any government intervention, that’s the clean energy transition we’re headed for. 

Related Stories

YouTube Thumbnail
Burn The Forest To Save It, Firefighters Argue
Read More
YouTube Thumbnail
Chevron Workers Strike for Increased Wages and Safety
Read More

The Latest

YouTube Thumbnail
Elon Musk’s Firing Spree Continues: Twitter Janitors Terminated Via Text
Read More
YouTube Thumbnail
Four Lies Big Oil Is Feeding You To Keep Gas Prices High
Read More
Wall Street Banks Huge Profits Off Surging Credit Card Debt
Read More
YouTube Thumbnail
How Workers Took On A Manufacturing Giant—and Won
Read More
YouTube Thumbnail
Playing with Players’ Lives: How the NFL Hid a Crisis Killing Athletes
Read More
Kyrsten Sinema
Sinema’s Private Equity Donations Keep Flowing After Saving Tax Loophole
Read More
YouTube Thumbnail
Moderna To Raise Prices Over 400% For Vaccine That Taxpayers Helped Create
Read More
YouTube Thumbnail
How The Supreme Court Could Soon Destroy The Right To Strike
Read More
YouTube Thumbnail
Cities Are Canceling Medical Debt Thanks to Democrats’ American Rescue Plan
Read More
Bed, Bath & Beyond
Bed, Bath & Beyond’s Ex-CEO Got Rich Bankrupting the Retailer, Now Workers Stand to Lose
Read More
Rep. Virginia Foxx
Millionaire Stock Trader To Lead House Labor Committee For GOP
Read More
YouTube Thumbnail
The Fight For $20 Comes To New York
Read More
YouTube Thumbnail
Inside A Trader Joe’s Union Contract Bargaining Session
Read More
YouTube Thumbnail
How This Billionaire Couple Stole California’s Water Supply
Read More
YouTube Thumbnail
La Colombe Coffee Workers Are Unionizing
Read More
Kevin McCarthy Vowed To Take On Congressional Stock Trading. Now He’s Gone Silent.
Read More
Schumer Freezes Antitrust Bills After Big Tech Lobbyists Bundled Millions
Read More
YouTube Thumbnail
How Joe Biden Could Stop Shady Union-Busting Practices
Read More
Rail Workers Oust Union President Who Backed Labor Deal
Read More
Before Her Party Switch, Sinema Was Flooded With Donations From Wall Street, Private Equity
Read More