Biden is threatening a windfall tax on energy companies, after he slammed them for 'war profiteering'
- US President Joe Biden called on energy companies to boost production or pay a windfall tax.
- Oil majors have reported bumper Q3 earnings as Russia's war on Ukraine disrupts markets.
US President Joe Biden hit out at energy companies for posting bumper profits this year amid the Ukraine war, calling on them to increase production to help bring down gas prices at the pump — or pay a windfall tax.
"The oil industry has not met its commitment to invest in America and support the American people," he said Monday, according to a White House transcript. He said energy companies will have to boost output and refining capacity or face the consequences.
The Biden administration has focused on gas prices and energy giants' profits in the buildup to crucial midterm elections on November 8. Even before oil and gas companies reported bumper third-quarter earnings, the president slammed Exxon for making "more money than God".
Biden said energy companies are entitled to a fair return for work or innovation, but the profits this time are "so high, it's hard to believe."
"Oil companies' record profits today are not because they're doing something new or innovative. Their profits are a windfall of war — the windfall from the brutal conflict that's ravaging Ukraine and hurting tens of millions of people around the globe," the US leader said.
Oil majors ExxonMobil, Chevron, Shell, and TotalEnergies are on track to give $100 billion in profits to shareholders in the form of buybacks and dividends this year, according to data compiled by Bloomberg.
Oil prices began recovering from the end of 2020, as demand rebounded on the easing of pandemic restrictions. They rose even more after Russia invaded Ukraine on February 24, thanks to supply disruption and sanctions against major exporter Russia.
Benchmark US crude oil futures are about 16% higher this year so far, while international benchmark Brent crude oil futures are up about 22% in the same period.
While Biden's urging for more production, nearly 60% of energy companies executives said in a March Dallas Fed survey that they were holding back growth due to shareholder pressure to maintain capital discipline. Arguments have been made that a windfall profit tax may curb production instead.
"A windfall profit tax might make for good soundbites, but as policy, it's bad for consumers. It's likely to disincentivize fuel production and make matters worse for drivers," Chet Thompson, the President and CEO of the American Fuel and Petrochemical Manufacturers association said in a Monday statement.
Biden particularly pointed to oil giants Shell and ExxonMobil as recipients of bumper profits. UK-based Shell reported $9.5 billion in third-quarter profit last week — the company's second-highest quarterly profit ever, while ExxonMobil reported a record-high profit of $20 billion last week. The chiefs of both companies addressed the possibility of a windfall tax recently.
Ben van Beurden, the CEO of UK-based Shell, seems to agree with the view that energy companies should pay higher taxes. He said at an industry event in October that government intervention is needed so that the poorest in the society can be shielded from energy market volatility that could "damage a significant part of society," Reuters reported.
Darren Woods, the CEO of Texas-based ExxonMobil said at the company's earning call on Friday that it is likely to pay $15 billion of its profits back to shareholders — 40% of whom are individuals — by the end of 2022. Woods added Shell did not cut dividend — "even by a penny" — when the company chalked up $20 billion in losses over 2020.
"In fact, knowing how much our dividend is relied on by so many families, and with confidence in the future cash flows of this business – we've increased our annual dividend for 40 consecutive years," said ExxonMobil CEO Darren Woods at the company's earning call on Friday, according to an official copy of his prepared remarks.
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