Patterico's Pontifications

2/8/2008

ExxonMobil Takes on Hugo Chavez (and Pays Record Taxes, too)

Filed under: International — DRJ @ 12:59 pm



[Guest post by DRJ]

In January 2007, Venezuela’s Hugo Chavez announced plans to nationalize the majority interests owned by Chevron, ExxonMobil, ConocoPhillips, Statoil and BP in Venezuela’s lucrative eastern Orinoco Belt unless the companies agreed to substantial reductions in their ownership interests. Nationalization of the interests of ExxonMobil and ConocoPhillips was completed last summer.

In September 2007, ExxonMobil filed an arbitration claim with the International Centre for Settlement of Investment Disputes (ICSID) for compensation for the expropriation of its Venezuelan heavy-oil projects.

During the past two months, ExxonMobil has obtained court orders in the UK, the Netherlands, the Netherlands Antilles and the US that freezes up to $12 Billion in Venezuelan assets to satisfy ExxonMobil’s claim should it win its arbitration claim.

ExxonMobil has a reputation for being hard-nosed:

“If you look at Exxon’s decision, it is really driven by their belief that over the long run, the regulatory environment and fiscal terms in Venezuela can only get worse, not better,” said Alex Gorbansky, managing director of the Frontier Strategy Group. “So, arbitration gives them essentially the best possible expected outcome on their investment.”

“Exxon has historically taken a more hard-nosed approach,” he said.”

Freezing this amount of assets may be a problem for Chavez and Venezuela.

By the way, ExxonMobil is not only hard-nosed in its business dealings but it also pays record taxes. Here’s an analysis from University of Michigan economics Professor Mark J. Perry:

“Conclusion: In other words, just one corporation (Exxon Mobil) pays as much in taxes ($27 billion) annually as the entire bottom 50% of individual taxpayers, which is 65,000,000 people! Further, the tax rate for the bottom 50% is only 3% of adjusted gross income ($27.4 billion / $922 billion), and the tax rate for Exxon was 41% in 2006 ($67.4 billion in taxable income, $27.9 billion in taxes).”

Does all this make ExxonMobil a good citizen? It does in my book.

UPDATE: Hugo Chavez is mad at ExxonMobil and “Mr. Danger.”

— DRJ

39 Responses to “ExxonMobil Takes on Hugo Chavez (and Pays Record Taxes, too)”

  1. Well since Blackwater is probably going to be looking for work soon maybe Exxon should hire them and go denationalize their property. While they are at it they could establish the tax haven state of Orinoco.

    Just a dream but a pleasant one.

    chad (719bfa)

  2. I’ll say it’s hard nosed. I had a Mobil credit card stolen in 2006 and the thief ran up 1500 dollars in charges on it (The card had a $1000 credit limit) while we were out of the country. The charges were typical of a stolen card (Up to 10 charges a day) and the Chevron card which was stolen at the same time was locked by the company after $100 in charges because of the pattern. When I got back and realized the theft, I wrote to the company just as required on the agreement to protest the charges. Especially those above the credit limit. No response. I wrote another letter. No response. Finally, about 6 months later, I started getting dunning calls from a collection agency so I gave up and paid the balance. Exxon/Mobil and Chavez deserve each other. Both crooks.

    Mike K (6d4fc3)

  3. According to this link, your maximum liability for a stolen credit card is $50. And once you report the card stolen, you are responsible for no further charges.

    Steverino (e00589)

  4. Mike K,

    I’m sure that was very upsetting. I don’t blame you for being mad.

    You’re a doctor, right? If so, you’re the second doctor I’ve heard of that had someone run up charges on their gas card and who elected to solve the problem by paying the bill.

    DRJ (8b9d41)

  5. I applaud the fact that Exxon/Mobile are sticking it to Hugo. I hope they win and collect.

    As for their record tax payment – BFD. Corporations do not pay taxes. Corporations collect taxes as part of the price of their goods and pass it through to Uncle Sam.

    Stephen Macklin (f552f7)

  6. Stephen Macklin,

    I’m not a tax expert but I think corporations do pay taxes including excise taxes and state and federal corporate income taxes. They also pay local property taxes, and state sales and severance taxes. Maybe you are confusing corporations like ExxonMobil with LLCs, partnerships and sole proprietorships where the profits and taxes are passed through to the owners.

    DRJ (517d26)

  7. PUT A TYRANT IN YOUR TANK

    krazy kagu (6cb3c5)

  8. I think what Stephen Macklin is saying is that corporations never eat the cost of taxes. The taxes they pay are simply passed along to their customers through increased costs of goods and services. So in effect, each one of their customers pay increased taxes with the corporation simply being the collection agency for these taxes.

    See the problem is that Democrats look at corporations as a source of revenue but never mention that the company will simply pass the extra taxes on to you. So people vote for increased corporate taxes, then b***h because gas costs $3.50 a gallon.

    Jay Curtis (8f6541)

  9. If so, you’re the second doctor I’ve heard of that had someone run up charges on their gas card and who elected to solve the problem by paying the bill.

    Doctors always pay out when they get scammed. There are a few reasons:

    First, they have tons of money and very little time. It’s worth it to throw away money if it saves them a little time.

    Second, they think they’re so much smarter than the rest of us. They don’t want to admit that they got taken.

    There are lots of scam artists who prey on doctors particularly because they know they can get away with it. Doctors are always investing in phony businesses and that sort of thing.

    Daryl Herbert (4ecd4c)

  10. It frustrates me to no end that in modern American mythology, “big corporations” have taken over the role that used to be occupied by greedy dragons and trolls.

    Populist politicians, who tend to be (but aren’t exclusively) Democrats, anthropomorphise them as if they are living, breathing personalities, endowed with wicked souls and evil purposes.

    The fact that you reported about ExxonMobil’s current corporate taxes would amaze a great many people, who are convinced that under the BusHitler regime, big corporate tax breaks, especially for energy companies, have been the secret payoffs for Administration betrayals of the American public.

    The notion that corporations are actually owned by their shareholders — who, in turn, comprise tens of millions of individual Americans (i.e., “We the People”), often through investment vehicles like their pension funds — is completely lost.

    And even after those huge tax payments, corporate income — whether paid out through dividends, or reflected in share prices realized upon stock sales — will end up being taxed yet again.

    One should not be able to get a high school diploma without having a firm grasp of these basic economic facts.

    And if you want a good reason to be concerned about energy prices and their effect upon the world, be concerned about the billions going into the pockets of Saudi princes or Chavez’ corrupt henchmen — not ExxonMobil.

    Beldar (3df1f4)

  11. Jay Curtis #8,

    I’m curious why you believe ExxonMobil has the power to simply pass along all its costs to consumers. ExxonMobil is a big corporation but that doesn’t mean it has no competition. Most oil companies are state-sponsored and subsidized. In fact, as of 2006, ExxonMobil was only the 17th largest oil company in the world (in reserves).

    DRJ (517d26)

  12. I understand the theory about corporations not paying taxes because their customers do and laugh at it for a variety of reasons. It wasn’t my company’s customers making quarterly payments to the IRS or arranging for office space in my building so their auditors could look for additional taxes. It wasn’t the name of my customers on deficiency notices from the IRS auditors after they examined my books looking for more taxes, it was mine. If a company’s cost structure got out of whack after raising prices to pass on tax increases to customers so that it in fact did not make money and did not owe taxes, did it owe its customers a refund of the additional money it collected from them to offeset a tax increase under this theory? The real world doesn’t have the perfect flexibility the theory implies. It’s nice to think it does, but it does not.

    daleyrocks (906622)

  13. “Does all this make ExxonMobil a good citizen? It does in my book.”

    Not at all! I’m sorta simple and they were selling fuel at $2 or less and doing fine, now it’s $3 plus and they are doing even better.

    I can for sure say, that I need that $30 bucks a tank much more than either Exxon or the govt!

    I do hope they hammer that commie phuk in SA, but not at my personal expense, even though it’s shared with the rest of us.

    TC (1cf350)

  14. I’m curious why you believe ExxonMobil has the power to simply pass along all its costs to consumers – DJR

    I understand the theory about corporations not paying taxes because their customers do and laugh at it for a variety of reasons.-daleyrocks

    I’m curious, where do you think corporations get the money to pay these taxes? Taxes are a cost of doing business. If you are not selling your product at price that will cover your costs and earn a profit, you will not long be in business, you will be laughing all the way to bankruptcy.

    Stephen Macklin (f552f7)

  15. Stephen – If you are collecting the money from your customers but not earning enough to pay taxes, don’t you morally owe them a refund under this way of looking at tax theory? Aren’t the customers going to be asking for some money back because you justified the price increases you got from them on tax increases, but now you’re not paying taxes. To me that’s ridiculous.

    Over the course of a cycle, there may be years a business does not make money. In general, over the long run it will not stay in business if those loss years outnumber the profitable ones. Thanks for stating the obvious.

    If I’m calculating after tax returns on capital in different business units I’m taking changes in tax rates into account in my calculations. The business unit managers are presumably taking into account any revenue increases relating to pricing in their top line projections. Depending on your pretax margin, the portion you may wish to attribute to tax increases may or may not be significant. Some industries appear to have more elastic pricing than others.

    daleyrocks (906622)

  16. “Second, they think they’re so much smarter than the rest of us. They don’t want to admit that they got taken.

    There are lots of scam artists who prey on doctors particularly because they know they can get away with it. Doctors are always investing in phony businesses and that sort of thing.

    Comment by Daryl Herbert ”

    Next time I’ll sic you on the collection agency. I have been thinking of suing Exxon in Small Claims Court for the $1500 but paying the bill seemed the only way to keep my credit clean. No doubt you know a better way and I’d ask you to share it.

    Mike K (86bddb)

  17. If you are collecting the money from your customers but not earning enough to pay taxes, don’t you morally owe them a refund under this way of looking at tax theory?

    If you’re not earning enough to pay taxes, that means you’re operating at a loss: in other words, you’re not collecting enough to cover your costs. So you don’t owe your customers any money.

    If you know of a way for a company to collect money other than through its customers, let me know. It’d be so much easier to pay taxes and other costs of doing business if you didn’t have to get the money from your customers. Then you could give away your product, and everyone would be happy!

    Steverino (3cbef4)

  18. Oh, even if a corporation isn’t earning enough money to pay taxes on profits, it still has to pay payroll taxes, unemployment, licensing fees, property tax, etc. The money from that comes from where? You got it, its customers.

    Steverino (3cbef4)

  19. I just cant believe that capitalism will win. I’m sure those court orders will be vacated in Europe once they realize they are against a good socialist like Hugo Chavez. Doesn’t matter if ExxonMobil is legally right, socialism trumps all else! well, except for all out communism

    chas (fb7ad4)

  20. Venezuela’s top oil company official Rafael Ramirez claims ExxonMobil is engaging in “judicial terrorism” in order to destabilize the Venezuelan government. Venezuelan TV commentators claim ExxonMobil is acting on behalf of President Bush.

    Finally, the other oil companies with interests in Venezuela have either agreed to reduced interests or are in negotiations with the Chavez government. (EDIT: ConocoPhillips did not agree to a reduction but is negotiating with the Chavez government.) Apparently ExxonMobil is the only one that is aggressively pursuing other remedies.

    DRJ (517d26)

  21. Stephen Macklin,

    Not all corporations pay tax at the same rate. Here is a list of the US corporations that pay the least tax, and you can see that their effective tax rates vary considerably. Under your analysis, that makes no difference since taxes are passed through to consumers and it’s no “BFD.” But it is a big deal.

    DRJ (517d26)

  22. DJR – I don’t recall making any assertion about the fairness of corporate tax rates, but you are correct it makes no difference. The source of the money that pays the taxes is the same.

    In fact the post quotes information that Exxon/mobile paid in taxes the same amount as the bottom 65,000,000 taxpayers. The irony being that a fair portion of the check that E/M wrote to the IRS was covered by those 65,000,000 people.

    Stephen Macklin (f552f7)

  23. DRJ, I’m a novice…

    If E/M is not using consumer money to pay their taxes, where is the money coming from?

    reff (99666d)

  24. What most of us lose sight of in talking about Big Oil, is that (for the most part) they “own” no oil. They might have contractual agreements for reserves, but rarely do they own they oil they pump. They either have to buy it, or pay a stiff royalty for it.
    When gas was hovering around a buck, the Saudi’s (OPEC) were selling oil at $12/bbl. Now, with $3/gl gas, the WORLD price for oil is around $90/bbl. Yes, EM has record revenues, but their operating costs are pretty high too. Plus, out of all of that money, they have to pay to maintain, upgrade, and expand their refining and exploration capabilities.
    If you think being an oil company is a license to print money, move your 401-K/etc into the oil industry, and reap those dividends. But, you might first want to check their return on gross, and their return on equity first. Bottom line, the banking industry – courtesy of low interest rates – returned a greater profit margin the last five years than did Big Oil. Wal-Mart is also a better investment.

    Another Drew (8018ee)

  25. Stephen Macklin,

    I don’t think ExxonMobil decided to pay taxes at a 41% rate because it wants to stick it to the less affluent.

    Reff,

    I don’t know the numbers but it may be that a significant amount of the tax payments represent taxes that have been passed through from consumers because of the high tax burden on oil and gas products. However, gasoline sales are not the only source of revenue oil companies have and not every year is filled with profits.

    Oil and gas exploration, production, transportation, and refining is a speculative and expensive business. When times are good, they can be very good but there are also bad times. Oil companies often have to rely on stockholder investment, borrowings, and sale of assets.

    ExxonMobil doesn’t have many bad years because of its size, diversification, and conservative management but that’s not true of all oil companies, especially independents. It’s a boom-and-bust industry.

    DRJ (517d26)

  26. DRJ – Who said anything about E/M sticking it to the less affluent? I merely pointed out the rather obvious fact that the lower 50% of taxpayers to whom E/M was compared contributed, through their purchase of petroleum products, to the taxes that E/M paid.

    I offered no judgement of either E/M or the lower half of all taxpayers.

    Personally I celebrate E/M’s success. And I don’t even own stock. I just don’t like the way the government attempts to hide taxes by taxing corporate income. People love it when they say that they are going to raise taxes on corporations, because they don’t understand that it is just raising the tax on them.

    Stephen Macklin (f552f7)

  27. Then we agree. Thanks for bearing with me while we got to that point.

    DRJ (517d26)

  28. DRJ…

    But, that doesn’t tell me where other funds come from to pay their tax bill. “Other sources of revenue” is still consumer income. If they take from their stockholders, that is still money from “customers” that is taken to pay any tax bill.

    I’m still a novice when it comes to economics. But, I still don’t see any source of income for a business that pays taxes except from those who do business with the company….in other words, customers….

    reff (99666d)

  29. DRJ…

    Which leads me to believe this: a business will have to do what it must to make the income needed to pay the tax bill. And, all of that income will come from customers, in one form or another.

    reff (99666d)

  30. Reff,

    Stockholder investment refers to money available from sale of stock. Some oil companies offer publicly traded stock so you and I can buy stock in those companies, and when we do that we aren’t consumers in the usual meaning of the word. We are investors, and we can make money from that investment or we can lose it all. (Think Enron.)

    Many oil and gas companies are based on private investment because the stock is not publicly traded. In those cases, it’s like Romney or Clinton self-funding their campaigns because the money used to fund those oil companies comes from the wallets of the people running the company.

    Finally, both publicly-funded and privately-funded oil companies borrow from banks and other institutions, just the way any business borrows money when cash flow isn’t sufficient or if they want to expand their business but don’t have the funds to do so. This is especially true in the oil industry because it costs so much to drill wells, build refineries and pipelines, and buy oil tankers and equipment.

    DRJ (517d26)

  31. E/M should avail themselves of all legal opportunities to recoup their seized assets.
    As for your discussion of the tax that E/M paid: duh, consumers buy their products and with the proceeds E/M pays taxes. This puts them in the same category as all businesses in the US. They paid alot of tax with the money we used to buy their products, what’s the beef?

    James (ee9e19)

  32. DRJ…

    Ok, so if a company uses stockholder funding to pay it’s taxes, then I can see your point. The investors are not customers in the traditional sense, but, they are customers in the sense that they are purchasing something in return for something. The stock is purchased for the potential fo a return in excess of funds. If the company has to use this to pay their tax bill, they are using the investor/customer money, so, they are not using any other funds to pay the bill, right?

    Next, whether or not they are publically or privated trades, or publically or privately invested, the same basic logic applies, right?

    Borrowing: if a bank/lending institution loans funds to a company to pay their tax bill, the money must be paid back, either from the same funding sources we discussed above, or from profit, right?

    Simple person’s logic: all money that the company uses is customer money. It may come to the money in different ways, and it may not be based solely on “charging a consumer” for purchasing the product, but, it could be from “charging the consumer” for purchasing the stock, or investing, or paying a loan…

    Right???

    reff (99666d)

  33. Reff,

    In the big picture, all money comes from that big pool of money that is our money supply … so in that sense you can say all money comes from consumers. But exploration for oil and natural gas is not that easy.

    Let’s take a simple example: I want to drill an oil and gas well. I could ask you to give me money now, even though I don’t have any gasoline to sell, based solely on the promise that someday I’ll give you gasoline in exchange for your payment. But it doesn’t work like that. Instead, I have to borrow or come up with several million dollars out of my own pocket or get funds from public or private investors. Then I drill a well and *hopefully* it is a producer, although the odds of that are not good. Then I have to complete my well and bring it into production, a process that can cost a significant amount as well, and send the product to a refinery.

    Only at that point will I get paid for my product and I won’t get paid much if the product isn’t of good enough quality to sell or refine, if I’m too far from a pipeline or tanks, or if the market is depressed. I won’t get paid at all if the well is dry or lost due to a blow-out or other problem. If I don’t get paid, I can’t pay my investors back so their investment is lost. I may not be able to pay my suppliers and workers, either, if they provided their services and supplies on credit.

    DRJ (517d26)

  34. I understand all that, and the risks involved…but the initial discussion was based upon the customers paying the tax bill in the form of higher costs as passed on to them by the company….in your example, if no oil is found, the investment is lost, but taxes are still paid when necessary. However, if the oil is found, and eventually becomes profitable, then the investors reap through their shares, or their stock gains, and the taxes to be paid will be taken from the customers through the profits, even through the possibility of borrowing to pay the taxes against the future profits, preventing the investors from having to pay immediately or in excess, while passing the costs on to the consumers in the form of higher prices for the product, as much as the market will bare….

    Which leads us back to the initial question: If E/M pays taxes, where does the money come from?

    It comes from the consumer in the form of higher prices for the products that E/M develops/produces…

    Right???

    reff (99666d)

  35. Oh, and in the case of E/M, right now, the costs of those ventures into the search for new sources of oil is also included in the cost of doing business, right?

    Which means that those funds also, at least in part, come from customers paying a higher cost for the products, right???

    reff (99666d)

  36. Yes, ExxonMobil pays taxes out of revenue from the sale of its products and assets.

    DRJ (517d26)

  37. Steverino – You’re just not thinking like a good capitalist here.

    “If you’re not earning enough to pay taxes, that means you’re operating at a loss: in other words, you’re not collecting enough to cover your costs. So you don’t owe your customers any money.”

    You could be operating at breakeven instead of a loss Steverino, yet you’ve raised prices in anticipation of paying higher taxes to the government. You collected the money from you customers but now don’t owe it and justified your price increases to your customers eith your higher tax rates. Now you look freaking silly because you aren’t paying taxes and you gouged your customers.

    “If you know of a way for a company to collect money other than through its customers, let me know. It’d be so much easier to pay taxes and other costs of doing business if you didn’t have to get the money from your customers. Then you could give away your product, and everyone would be happy!”

    Steverino, have you ever heard of investors and development stage companies or perhaps the internet bubble. Many companies loss money for yeats and years before generating sigmificant revenues or profits and have their operations funded by investors. DRJ even makes reference to this phenomenon in her comments. Heck, you can even google it if you don’t believe me.

    Most companies will try to pass on cost increases to customers because it’s the rational thing to do, but the ability to do it and the conscious planning for it it will vary by company and industry.

    daleyrocks (906622)

  38. DRJ, thanks for the discussion….I’m really a novice at economics….but, I really do understand where you are coming from….

    And, thanks to all for this….

    reff (99666d)

  39. DJR #11

    Stephen Macklin said exactly what I wanted to say but better in his post in #26.

    As for why I think EM has the ability to pass it’s costs on to it’s customers, if they did not calculate the taxes into their costs of doing business and did not find a way to sell their products at a high enough price to still make a profit, they would soon be out of business. Just like any other business.

    As long as the rates that the company can sell at are not regulated by the government, the company has at least a small measure of control over the prices they charge. If the commodity price is too low, the company can choose to produce less, limiting their loses, possibly creating the perception of a “shortage” and therefore increased price from the speculators and traders. Since there are many oil companies, several are likely to make a similar decision based on similar circumstances. This is why oil companies are often believed to be conspiring to fix prices.

    You don’t have to be a monopoly in order to pass your costs along to the customer. I charge for my mileage so I recover the increased costs of gas and oil when traveling for my customers. And we all know that there are any number of computer consultants that I have to compete with.

    I just wish that I had purchased stock in several of the energy companies a couple of years ago when shares were much more affordable. 😎

    Jay Curtis (8f6541)


Powered by WordPress.

Page loaded in: 0.1035 secs.