Big Money to Big Oil

How ExxonMobil and the Oil Industry Benefit from the 2005 Energy Bill
Released by: CALPIRG Education Fund

Executive Summary

As the oil industry continues to collect record profits from high oil and gasoline prices, President George Bush is poised to sign into law an energy bill that allows the oil companies to pay even less in taxes and less in royalties for publicly-owned resources. Meanwhile, the new energy law will exempt the oil industry from several environmental laws, allowing even the most profitable companies to pollute our waterways and drinking water. Finally, on several issues that affect the oil and gas industry, the new energy law will wrest decision-making power away from state and local governments, giving it instead to more industry-friendly federal agencies. ExxonMobil, the world’s largest private oil company, could benefit handsomely from this flawed energy plan.

The energy bill that passed the House on July 28, 2005 and the Senate on July 29, 2005 includes at least $4 billion in subsidies and tax breaks for the oil industry, which is reaping enormous windfalls at a time of rising oil and gasoline prices. Between April and June 2005, BP recorded profits of $5 billion and ConocoPhillips $3.1 billion. ExxonMobil’s second quarter profits of almost $8 billion gave the company more than $15 billion in profits in the first half of 2005 alone. This adds to the company’s record-breaking profit of $24 billion in 2004.

Rather than moving America toward a cleaner energy future, the new energy law is a boon to Big Oil. ExxonMobil, as the largest and most profitable private oil company in the world, stands to benefit from this energy policy in several ways.
Trampling on States’ Rights

• The new energy law preempts state authority in the siting and construction of liquefied natural gas (LNG) facilities, which pose legitimate safety concerns best addressed by states and local communities. The law also weakens states’ rights under the Clean Water Act and the Clean Air Act in the permitting of LNG facilities and natural gas pipelines. ExxonMobil and Qatar Petroleum have plans to deliver 15.6 million tons a year of LNG from Qatar to the U.S. As such, ExxonMobil is working to build onshore LNG receiving terminals near Corpus Christi and Port Arthur, Texas and potentially more. The new energy law will make it easier for ExxonMobil to win approval for these and future LNG facilities even if the states or local communities object.

• The new energy law calls for conducting a “seismic inventory” of oil and gas in the Outer Continental Shelf along America’s coasts, including areas that are currently off-limits to energy development. This could pave the way for offshore drilling in protected areas, such as Florida’s Gulf coast. The energy policy also limits states’ ability to influence and participate in decisions about federal projects that affect their coasts. ExxonMobil could reap the benefits of easier access to coastal waters. Aera Energy, a joint venture of ExxonMobil and Shell, owns more than half of the 36 undeveloped leases along California’s southern coast. Moreover, ExxonMobil already is one of the largest drillers in the Gulf of Mexico.

Fleecing Taxpayers and the Federal Treasury

• The new energy law also will allow the oil industry to avoid paying its fair share of taxes and royalties for publicly-owned resources. It offers the oil industry, including ExxonMobil, $1.7 billion in new tax breaks and untold millions in additional “royalty relief” programs to make oil and gas development cheaper and more profitable. Although the Bush administration embraced the final energy bill, Energy Secretary Samuel Bodman berated the bill’s tax breaks and royalty exemptions to oil and gas companies “that don’t need incentives with oil and gas prices being what they are today.”

• The new energy law will suspend the payment of royalties for publicly-owned oil and gas from offshore leases in the deeper waters of the Gulf of Mexico. In addition, the law authorizes up to $1.5 billion in new subsidies to the oil industry for ultra-deepwater oil drilling and exploration. ExxonMobil is an industry leader in deepwater development and estimates that deepwater oil and gas will account for more than 20 percent of the company’s production by 2010.

• The new energy law will allow the oil industry to forgo royalty payments to the federal treasury for oil drilled in areas off Alaska’s coastline. It also offers royalty exemptions for natural gas production on the Outer Continental Shelf and for on-shore federal lands in Alaska. According to the State of Alaska, ExxonMobil currently has an interest in 187,000 acres on- and off-shore.

Polluting America’s Water

• Several provisions of the new energy policy will weaken the Clean Water Act and Safe Drinking Water Act, allowing ExxonMobil and other oil companies to pollute America’s waterways and drinking water with impunity.

• The new energy law allows the producers and distributors of MTBE, a toxic gasoline additive, to remove new MTBE claims from state court to federal court. This could unfairly deprive injured parties of their right to have claims heard in state courts and could derail legal claims. ExxonMobil is one of the country’s top MTBE producers and also owns service stations across the country implicated in MTBE contamination of groundwater.

Even though ExxonMobil stands to benefit a great deal from this energy policy, the company has the power to direct the oil industry and American decision-makers toward a new energy future. As the largest independent energy company in the world, ExxonMobil’s decisions can affect the rest of the industry over the long term. The “Exxpose Exxon” coalition, comprised of a dozen of the nation’s largest environmental and public interest groups, calls on ExxonMobil to use its leadership position to craft a new energy strategy that goes beyond drilling to the last drop.



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