Rational vs. Irrational on Energy

There was a refreshing interview recently on Neil Cavuto’s Fox News business program. Cauvto was talking split-screen with Rex Tillerson, the CEO of ExxonMobil. And after America has been inundated for years with misinformation, disinformation and downright lies about energy, it was enlightening to hear straight talk from a man like Tillerson who is actually producing energy every day of the year.


On the other hand, the very day before the Tillerson interview Obama Treasury secretary Timothy Geithner told Congress that US energy companies like ExxonMobil are contributing to so-called ‘global warming’ and should not receive further tax breaks from the government.


“We don’t believe it makes sense to significantly subsidize the production and use of sources of energy that are dramatically going to add to our climate change. We don’t think that’s good economic policy and we think changing those incentives is good for the country,” Geithner told the Senate finance committee during a budget hearing.


There are many things to think about in the comments of these two men. First consider Geithner. A recent CNN poll showed 83%(!) with no confidence in him and this is no surprise. Geithner obviously is in over his head. And his personal reputation as a tax scofflaw undermines his credibility. Obama’s decision to stick with him in these turbulent times is wrong and dangerous.


Yet at the same time that Geithner is proving every day that he does not have a clue about basic finance and is under withering attack for his scatter-shot bank bailout plans, he is pontificating before the US Senate about so-called ‘global warming’ – a mere theory that is not even supported by a preponderance of evidence.


This is the indispensable guy we needed at the Treasury?


Second, Geithner’s view of how oil companies are taxed is wrong. Oil companies receive no ‘subsidies’ or ‘tax breaks’ from the government. Oil companies create large amounts of wealth and large numbers of good jobs and pay huge amounts of taxes TO the government. But to a theoretical socialist, anything less than 100% government confiscation of all oil company profits is considered a “subsidy” or a “tax break”.


Now here is ExxonMobil’s Rex Tillerson talking about the economy under Obama, and all the bailouts, which are real bailouts and real direct cash subsidies:


“I believe in risk reward that when people take risk they should have the opportunity to reap the rewards….  (And if they fail) they have to move on and try something else or let others come and try.”


Tillerson is talking about the risk which is at the heart of the oil industry and at the heart of all capitalist economic growth. And there is no other industry in the world that is engaged in more risk than the oil industry. They risk huge amounts of capital looking for elusive oil deposits, and then reap the rewards when they are successful.


Now Geithner is proposing that we further penalize the oil companies over a completely unsupported theory at a time when the economy is teetering and banks and car companies are going under. This is ridiculous. The oil companies are actually making profits today despite being in the riskiest business on earth!


Yet the banks and car companies are going under not because they are out in the wilds exploring, or drilling in the rough oceans and coming up with dry holes, but because their executives – most of them liberals these days, like Robert Rubin at Citigroup – made guesses on investments sitting in their air-conditioned offices in New York City. Or their boards were forced by the Democrat-instigated Community Reinvestment Act to lend money to poor people with no hope of getting it back. Or Democrat union bigwigs in the auto industry sat around their conference tables and decided to demand ever more pay and benefits for their workers, driving Ford, GM and Chrysler to the edge of insolvency.


So while Geithner is behind the move to subsidize banks and car companies, he is suggesting that we penalize oil companies that are succeeding. 


In other words, let’s penalize success and subsidize failure.


Geithner is supporting the Obama plan to levy an excise tax on oil and natural gas produced in the Gulf of Mexico, which is expected to raise $5.3 billion in revenue from 2011 to 2019. The tax would only affect companies that are operating under a law that allows them to avoid paying royalties on the energy supplies they access. Companies already paying royalties would get a tax credit.


So in other words, oil companies that started operating under one set of laws now may see the laws changed. But in a high-risk business like oil, changing the rules like this is the fastest way to drive companies out of business. Oil producers in particular need a steady economic climate in which to operate.


Geithner also is proposing  a $4 per acre annual fee on energy leases in the Gulf that are called nonproducing. The fee is expected to generate $1.2 billion from 2010 to 2019.


In his Cavuto interview, Tillerson said that the risk-prone oil industry has gone through many ups and some severe downs and that “we’ve never gone back to the government when we’ve been through those conditions before. No one in our industry has, if you go back to the last very large price correction we experienced in the early 1980s. Our industry lost over 400,000 jobs during that price correction. To my recollection no one in our industry went back to the government.”


But if the Obama administration and the ‘green’ movement have anything to say about the oil industry, they will push a viable industry to the brink of insolvency with more taxes and more regulations while bailing out the car companies whose problems are due for the most part to simple union greed.


This is classic socialism – penalize successful, risk-prone capitalist enterprises and bail out companies that have made stupid decisions, often at the behest of the government, as the banks have.


Finally Tillerson said that he had visited the White House to talk to Obama administration officials and that the meetings were cordial.


“I have had meetings with the president and had meetings with members of his cabinet…  I think they’ve been fairly constructive meetings….”


Fortunately Tillerson is a man of risk and reward. And he knows that despite constructive meetings, that the Obama administration and its environmentalist friends are going to throw curve balls every day at the oil industry, and that he had best be prepared. As a manager of big risk, Tillerson certainly has in his vest pocket a plan of action for the inevitable assault on his company that is coming soon out of Washington. After all, in the oil business you have to be prepared for just about anything.


Please visit my website at www.nikitas3.com for more. You can print out for free my book, Right Is Right, which explains why only conservatism can maintain our freedom and prosperity.