When the top U.S. oil companies announced huge
increases in profits this week, many consumer advocates cried foul. At a
time when American motorists are paying record-level prices for gasoline,
some in the U.S. Congress think the oil company profits should be
scrutinized closely. The U.S. senate Finance Committee is seeking tax
return information on top U.S. oil companies from the Internal Revenue
Service and some politicians are calling for a windfall profit tax
.
Of course, oil companies oppose such a move, citing similar or even
higher profit increases in other industries, such as pharmaceuticals, that
have not caused an uproar.
Oil industry analysts, however, say a windfall
profits tax might be counterproductive
. Bob Tippee, editor of Houston-based Oil and Gas
Journal, says large oil company profits could benefit consumers in the
end.
"Consumers are not going to cheer oil industry profits when gasoline
prices are high, everybody knows that," he said. "But in fact, those
profits will go into the development of future supply that consumers
need."
While some of the money earned by oil companies is
paid to shareholders through dividends, much of it is reinvested into
exploration, acquisition and production.
At its annual meeting here in Houston
Wednesday, the directors of the Chevron corporation announced a
15.5-percent increase in the dividend, but also outlined plans for
increased spending in development. Company executives say production can
be expected to increase by three percent a year over the next five years
as a result of new discoveries and ongoing development projects.
Bob Tippee says U.S. oil companies would spend more on development if
they could go everywhere oil is to be found.
"There are two general problems, one is in the United States, we make
the east and west coasts virtually off limits for exploration," he said.
"Companies cannot drill in the Arctic National Wildlife Refuge coastal
plain of Alaska. So, there are political limits in the United States and
then, outside the United States, more and more exploration acreage is
controlled by national oil companies.
Tippee says the high prices for crude oil in recent years has spurred
many state-owned companies to develop more fields and boosted profits for
U.S.-based oil services companies that often participate in such projects.
"We are already seeing some projects to increase supplies, especially
in Saudi Arabia, Abu Dhabi, Kuwait, the big producers are aggressively
developing new capacity which will come on stream in the next few years,"
he added.
Tippee says the increased supply, coupled with an expected slowdown in
demand, will eventually move the price of oil lower. He says the important
question is whether the demand reduction comes as a result of a worldwide
recession set off by high oil prices or from a more moderate economic
slowdown. |