The Spring Season Comes To Big Oil, Can Excess Profit Taxes Be Far Behind?

BP (BP) and Shell produced out-sized profits for the first quarter. BP earnings rose to $7.62 billion from $4.66 billion. Over at Shell the numbers were up to $9.08 billion from $7.28 billion.

According to MarketWatch "BP sold its oil and gas for 52% more than it did in the year-earlier period, while Shell received 66% more." Fair enough. The companies took advantage of the market and the rising price of crude.

Now Wall St. can prepare for numbers from the US companies, especially Exxon (XOM) and Conoco (COP). Exxon’s shares are above $92, very near their 52-week high. The market obviously thinks that the oil firm’s numbers will look like those of it European rivals.

Over the recent course of the history of the industry very high profits almost always cause a call for an excess profits taxes. Whether the net income is excess when the price of the underlying commodity is moving up is a stretch case, but that has never stopped Congress.

The reasons behind the taxes might be reasonable and compelling. The money could be used in the place of Federal and state taxes levied upon consumers as they buy gas. The cash is supposed to go to the rebuilding of roads and bridges. Right now it is more likely to be seen as a way to offset government deficits. Either way, Big Oil pays a tax and the consumer pays less for gas.

The populist point of view is that making money is bad, especially too much money. Oil companies reason that there is no such thing as "too much". They are in business to make money for shareholders. There are no excess profits levies on video games or amusement parks. The fact that oil and gas are necessary and not discretionary should not be taken into account.

Whichever point of view is right, big buckets of money get targeted by the likes of Washington as a way to solve problems which otherwise cannot be addressed.

The call for excess profits from oil companies is just around the next corner.

Douglas A. McIntyre