January 2012

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America’s Oil and Natural Gas Industry

Putting Earningsinto Perspective

Facts for Addressing Energy Policy

Putting Earnings into Perspective|January 2012

The oil and natural gas industry is one of the world’slargest and most capital-intensive industries. It has to beto effectively compete for global energy resources. Theindustry’s earnings make possible the huge investmentsnecessary to help ensure America’s energy security.The earnings allow companies to reinvest in the facilities,infrastructure and new technologies that keep Americagoing strong well into the future while generating returnsthat meet shareholder expectations. API has assembledthis primer to help consumers and policymakers betterunderstand how the earnings of the oil and natural gasindustry compare with other industries, who benefits,and where the money is going.

Who Owns “Big Oil”?Page 1Earnings by IndustryPage 2Earnings: Keeping America Going StrongPage 3A Global Business Has Global CompetitionPage 4Capital Spending for U.S. ProjectsPage 5Investments to Reduce EmissionsPage 6Adding Value for ShareholdersPage 7Taxes Paid by the Oil and Natural Gas IndustryPage 8Profits Alone: An Incomplete PicturePage 9Effective Tax Rates Among IndustriesPage 10Economic Consequences of Higher TaxesPage 11

Table of Contents

Putting Earnings into Perspective|January 2012Page 1

If you’re wondering who owns “Big Oil,”chances are good the answer is “you.”If you have a mutual fund account, and52 million U.S. households do, there’s agood chance it invests in oil and naturalgas stocks. If you have an IRA or personalretirement account, and 49 million U.S.households do, there’s a good chanceit invests in energy stocks. If you havea pension plan, and 61 million U.S.households do, odds are it invests in oiland natural gas.Contrary to popular belief, and whatsome politicians might say, America’s oilcompanies aren’t owned just by a smallgroup of insiders. Only 2.8 percent ofindustry shares are owned by corporatemanagement. The rest is owned by tensof millions of Americans, many of themmiddle class.A strong oil and natural gas industry is avital part of the retirement security formillions of Americans. State pensionfund investments in oil and natural gas

When politicians talk abouttaxing “Big Oil” or takingtheir “record profits,” theyshould think about whothey really would behurting.

companies are providing strong returns forteachers, firefighters, police officers, andother public pension retirees, according toa Sonecon study.

Returns on oil andnatural gas assets in the top two statefunds in 17 states, which include almosthalf of all the people covered by state andlocal pension plans in the U.S., averaged42 cents for each dollar investedcompared to just 6 cents for other assetsin these funds from 2005 through 2009.The oil and natural gas industry is a majorcontributor to the health of these funds,many of which face huge future payoutobligations. Investments in the industryaccounted for 4.6 percent of the averagefund’s total assets while producing 15.7percent of total returns.

Source:

Who Owns America’s Oil and Natural Gas Companies,

SONECON, October 2011.

Who Owns “Big Oil?”

(Holdings of Oil Stocks, 2011)

20.6%

Asset ManagementCompanies(Including MutualFunds)

31.2%

PensionFunds

21.1%

IndividualInvestors

17.7%

IRAs

6.6%

Other Institutional Investors

2.8%

Corporate Management of Oil Companies

1Robert J. Shapiro and Nam D. Pham, “The FinancialContribution of Oil and Natural Gas Company Investmentsto Major Public Pension Plans in Seventeen States, FiscalYears 2005-2009,” SONECON, June 2011.