Biden Energy Guru Renews Call For Big Oil To Reinvest Profits—Or Else

Exxon Mobil’s profitability pales compared to Apple
AAPL
and Microsoft— where’s the call for windfall taxes on them?

Amos Hochstein, the Biden Admistration’s energy advisor, warned America’s oil companies again this week that if they don’t reinvest their massive profits this year into expanding oil production that they would face a White House push to impose a windfall profits tax. “Those kind of profits need to be reinvested,” he said, not returned to the owners of the company.

Maybe he knew what was coming. The following day Exxon MobilXOM
, in a strategy update for investors, revealed its intention to buy back $50 billion worth of shares by the end of 2024—roughly $25 billion in each of the next two years. That’s up from a previous $15 billion.

Such largesse will provide support for Exxon shares, which are up 300% from pandemic lows, when, you’ll recall, the price of oil temporarily fell to zero and Exxon slashed shareholder distributions.

Don’t expect Exxon and the other oil giants to suddenly change strategy because Hochstein (49, a former lobbyist and staffer for President Obama and John Kerry) tells them to. This is the guy who has been threatening the industry with confiscatory taxes for months. Take him seriously. A couple of weeks ago he said, “Eventually we’re going to be phasing out the use of oil.” There’s zero chance of a windfall oil tax passing Congress for the remainder of Biden’s term.

But political and public pressure does influence corporate strategy. Exxon has dramatically expanded its low-carbon investments. It’s 15-year algae-to-oil research venture doesn’t get the hype it used to (and is rumored to be on the chopping block)—but there’s plenty more. Along the Gulf Coast of Texas Exxon aims to invest billions to build carbon capture and sequestration systems to concentrate and capture 100 million tons a year of emissions from refineries and chemical plants. And in the Permian basin oilfields, Exxon has announced its intention to achieve net-zero carbon emissions by 2030, likely by erecting massive solar farms in eastern New Mexico to replace power generated by burning natural gas.

Those initiatives and a $3 billion “blue” hydrogen project at its Baytown, Texas, refinery would be helped by investment tax credits enshrined in the Inflation Reduction Act. Meanwhile, in Alberta, Canada, a renewable diesel plant will start up in 2024 and produce 7 million barrels per year of fuel from agricultural feedstocks, reducing annual emissions by some 3 million tons of carbon dioxide.

A company spokesman didn’t respond to a request for comment, but if Biden were to figure out how to nationalize Exxon’s profits, it’s far more likely that it would make ends meet by cutting low-carbon investments rather than pull back on its most profitable oil and gas ventures in the Permian, offshore Guyana and expansions of LNG export capacity to keep Europe supplied with natural gas.

It is thanks in part to Exxon’s tens of billions invested in the western reaches of the Permian basin that New Mexico next month is set to overtake the entire nation of Mexico in crude oil production volumes, at 1.7 million bpd. That’s double the rate from just four years ago, with more to come, as U.S. producers are on track next year to surpass the previous record 12.8 million barrels per day set in 2019.

Downstream megaprojects include an expansion of refining operations in Beaumont, Baton Rouge, Singapore and China, which will help increase the supply and decrease the cost of fuels and feedstocks. All told, the company is investing $25 billion in capital projects this year. But according to the Biden Administration’s Hochstein, that’s just not enough.

Exxon can afford all of it, for now. Analysts see Exxon producing $47 billion in free cash flow this year; net income will be more than $50 billion. That sure sounds like a lot, but considering that total sales of 3.7 million barrels per day will generate revenues surpassing $400 billion, Exxon’s net margin is on the order of 13%.

If that’s too profitable for Hochstein, then he needs to take a look around. Apple Computer had a record year, generating net income of $100 billion on $394 billion in sales, for a 25% net margin. Last year Apple bought back $89 billion in stock and distributed $14.8 billion in dividends.

MicrosoftMSFT
had net income of $73 billion on $198 billion in revenue, for a net margin of 37%. It’s sitting on more than $100 billion in cash, bought back $33 billion in stock last year and paid $18 billion in dividends.

Where’s the call for windfall profit taxes on them? Better yet, how about instead of demonizing America’s biggest economic engines for being profitable, we celebrate them?