I won't lapse into political one-sidedness here regarding our current energy picture. But I will note that the CEOs of five big integrated oil companies who appeared before the Senate Finance Committee late last week were effectively pressed by the Democratic members, while the Republican side was far less combative.
The hearing held few surprises for the leaders of ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), ConocoPhillips (NYSE: COP), Royal Dutch Shell (NYSE: RDS-B), and BP (NYSE: BP). But amid that political grandstanding, a piece from former Democratic Congressman Harold Ford, Jr. for The Wall Street Journal's Opinion page last week becomes more than a little encouraging.
Not limited to one administration
In his op-ed, Ford takes our current president to task for policy prescriptions that could be counterproductive if our ultimate goals are a "commitment to cutting our reliance on foreign oil, finding reliable sources of clean energy, and keeping energy prices low."
That said, earlier administrations hardly escape unscathed for their failure to move beyond merely paying lip service to the same objectives. As Ford notes, President George H.W. Bush "took aggressive steps to keep off-limits vast supplies of oil and gas along the coasts of California and Florida. Since then, the buildup of restrictions, limitations, and bans on drilling (onshore and off) have cost the U.S. economy billions of dollars while increasing our dependence on foreign sources of energy."
He might also have pointed out that the restrictions imposed by the elder Bush in 1990 weren't challenged by the second President Bush until the last year of his second term. Yet both father and son spent time in the energy business, and presumably should have known better.
Next up for castigation in Ford's article is the delaying of the deepwater drilling permitting process since the tragedy aboard Transocean's (NYSE: RIG) Deepwater Horizon rig in April 2010. "In the year since the ... spill," Ford writes, "the Obama administration has put in place what is effectively a permanent moratorium on deepwater drilling." Ford then adds that the administraton "stretched out the approval process for some Gulf-region drilling permits to more than nine months, lengths that former President Bill Clinton has called 'ridiculous'."
Deductions or subsidies?
One of the essential reasons that ExxonMobil CEO Rex Tillerson,Chevron's John Watson, and others appeared before the Senators last week was to facilitate a discussion of the tax deductions they receive. Opponents of the industry typically refer to them as "subsidies."
The key issue under discussion was the section 199 deduction. Essentially, this particular section allows taxpayers a deduction for broadly defined activities that fall into the categories of manufacturing or production. The deduction is generally limited to the lower half of the taxpayer's W2 wages or taxable income.
Under the president's latest budget, the 199 deduction would be eliminated for oil companies, but would be left intact for other forms of manufacturing. This proposed elimination elicits a reasonable question from former Congressman Ford: "Why, when gas prices are climbing, would any elected official call for new taxes on energy?" He further notes that "...characterizing legitimate tax credits as 'subsidies' or 'loopholes' only distracts from substantive treatment of these issues."
Another energy issue that has received considerable attention during the past month involves President Obama's journey to Brazil to encourage the powers that be in that country and in Petrobras (NYSE: PBR) to develop its offshore resources, so that we can ultimately purchase and import their oil. This performance makes little sense in the face of even the Journal's claim that the president is making "efforts to decrease oil imports." In any event, Ford did not include this issue in his otherwise superbly rendered piece.
Three steps to smarter energy policy
The Congressman's article does end with three ideas that he believes our country should undertake as we endeavor to strengthen our energy circumstances. He proposes reviewing existing policy to strip out regulations that needlessly complicate domestic energy production, argues for developing more domestic sources of both conventional and alternative energy, and wants us to "stop demonizing Big Oil to score political points."
I concur with Congressman Ford's suggestions, although I'm convinced that the third is perhaps the most crucial. Indeed, several years ago I suggested to my Foolish friends that an energy-based Manhattan project would constitute an optimum way to solve our energy difficulties. Such an approach would clearly require representation from Big Oil, the major services companies, academics specializing in energy and its production, and the U.S. government.
I mentioned Big Oil first for several reasons, including its geographic spread. Given the group's key position in defining and correcting our energy needs, I urge Fools to watch ExxonMobil and its peers closely. Adding that important name to your watchlist is an excellent starting point.
