Fox Nitwits

This morning I damn near threw the coffee table into my plasma screen!

The hosts on Fox News Saturday morning show were interviewing some nitwit congressman from the New York area who once again made the outrageous comment that allowing oil companies to drill offshore and/or in ANWAR is unnecessary because these very same oil companies are not taking full advantage of the oil leases they currently have – this cat actually said that the reason they don’t drill these leases is to prop up the price and soak the consumer. The congressman then suggested that legislation should be introduced and passed that forced oil companies to drill on all of these leased lands OR ELSE THEY WOULD LOSE THEIR LEASE AND IT WOULD BE GIVEN TO SOME OTHER COMPANY WHO WOULD AGREE TO DRILL. None of the hosts had a clue as to the facts, and consequently were incapable of asking any hard questions of this so-called representative of the people…

The following information MUST get out.. here are some facts everyone needs to understand, internalize, and then stick in the face of any other nitwits who spew such falsities.

1. The biggest single component of retail gasoline prices is the cost of the raw material used to produce gasoline – crude oil.

2. Components of gasoline price (at the pump):

A. Crude oil -70%.
B. Refining and retailing -17 %
C. Taxes – 13%

3. Who owns “big oil?” Well, since you asked…you do! IRA’s (14%), Pension Funds (27%), Mutual Funds (30%), and Individual Investors (23%) account for roughly 94% of the ownership of “big oil.” When politicians such as Barack Hussein Obama talk about a “windfall profits tax” he is talking about taxing you! According to Energy Information Administration (publicly available data on the top 27 energy companies tracked by the EIA), the total income tax paid by these companies almost doubled between 2004 and 2006 – they paid in over $90.4 billion dollars in 2006! Folks, the reality is that these companies simply pass those costs onto end users at the pump (see item C in #2 above… and add to that the internal tax component slapped on at the corporate level). Imposing additional taxes on the U.S. oil and natural gas industry will not help to increase supplies of energy for American consumers but will serve only to discourage investment. Instituting new taxes or repealing tax provisions designed to encourage investment in the United States will only reduce new domestic oil production and refinery investments, threaten American jobs, and make it less economic to produce domestic energy resources. The end result would be obvious – a greater dependence on imported crude oil and gasoline.

5. Relative to sales, the net income of oil and natural gas companies is somewhere in the neighborhood of 7.4%. This is by no means out of the ordinary for industrial companies. In fact, they are basically in the middle of the pack. Pharmaceutical and Medicine runs about 26%, manufacturing companies in general run around 7.6%.

6. Oil companies invest literally billions of dollars for the right to explore on federal lands. If the company does not produce within the time frame of the lease agreement, the agreement is over and it reverts back to the federal government – this is a lease, not a sale. Oil companies have a huge (billion $) incentive to recapture their investment through production. To suggest they purposefully do not produce is utterly a lie and is totally false.

7. Oil companies actively develop leased lands, but not all leased areas contain oil or natural gas in sufficient quantities to make it economically feasible to extract. The timeline and cost to evaluate, explore, permit, lift and extract is long and complex.

8. The mere fact a lease exists does not necessarily mean there is oil or natural gas there – energy companies have to get the leases first, and then go about seismic sensing to determine if further exploration is even warranted. Bottom line, there are huge risks and challenges in searching and extracting.

9. Due to environmental and other studies, permits required, the installation of production equipment (on shore and off), neighboring landowner disputes and litigation, and other regulatory hoops the process of producing on potentially productive leased lands can be delayed significantly.

10. 85% of the continental outer shelf and almost 70% of onshore federal lands are off-limits or face significant restrictions to development – the amount of oil contained in these areas is UNKNOWN because they cannot be subjected to modern inventory studies.

11. Oil and gas companies move as quickly as they can to develop production on any leases with economic feasibility. But the real fact of the matter is that they must also pay rent to the government while they conduct development and exploration efforts, a process that takes time. Reducing the time companies have to develop a lease or increasing the costs imposed by government will not increase supply for American consumers. Nor will denying access to areas of oil and natural gas potential like the Atlantic and Pacific Outer Continental Shelf and ANWAR.

12. Every additional barrel of oil or cubic foot of natural gas that can be economically produced will help to either lower or, at worst, maintain the price of products derived from crude oil and natural gas. It is utter myth and misrepresentation to state that drilling and extracting more of any natural resource cannot affect its price.

13. Oil and gas companies are the ones taking all the risks! They pay out billions of dollars to obtain leases, they pay more to hold those leases, and then invest huge sums to determine feasibility and inventory potential. By levying more constraints and costs upon these companies you will only discourage the very activity we need the most to help alleviate our supply constraints.

14. Lastly….for now…. while it is true that we have not build a new refinery here in the U.S. in the last 30 years this does not mean we have not expanded and to one degree or another modernized the facilities we have. Moreover, the economics of making gasoline (only one of a myriad of products made from crude oil) favor refining as close as possible to the point of lifting. So, it makes more sense, financially, to lift and refine then ship. If we had more domestic production of crude we would, by necessity, invest far more in refining capacity as well.

American Petroleum Institute

Oil and Gas Primer

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