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API Blogger Conference Call: ExxonMobil Earnings and Taxes – 5.9.2011

API Blogger Conference Call: ExxonMobil Earnings and Taxes – 5.9.2011

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Published by Energy Tomorrow
On May 9, 2011 API co-hosted a blogger conference call with ExxonMobil yesterday to discuss the company’s first quarter earnings and energy tax policies. Ken Cohen, ExxonMobil’s vice president of public and government affairs, and Jaime Spellings, ExxonMobil’s general tax counsel, broke down the company’s profits and spoke to misperceptions about the current tax code.
On May 9, 2011 API co-hosted a blogger conference call with ExxonMobil yesterday to discuss the company’s first quarter earnings and energy tax policies. Ken Cohen, ExxonMobil’s vice president of public and government affairs, and Jaime Spellings, ExxonMobil’s general tax counsel, broke down the company’s profits and spoke to misperceptions about the current tax code.

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Published by: Energy Tomorrow on May 10, 2011
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API
BLOGGER CONFERENCE CALLMODERATOR:
Jane Van Ryan, API
SPEAKERS:
Ken Cohen,Vice President of Public and Governmental Affairs,ExxonMobilJaime Spellings,Vice President and General Tax Counsel,ExxonMobilJohn Felmy,Chief Economist, APIStephen Comstock,Tax Policy Manager, API
 MONDAY, MAY 9, 2011
Transcript byFederal News ServiceWashington, D.C.
 
 Bloggers on the call included Bear from The Absurd Report, Ben Domenech from Heartland, Bob McCarty from Bob McCarty Writes, Bruce McQuain from Questions &Observations, Byron King from Agora Financial, Carter Wood from NAM: Shopfloor.org, JazzShaw from Hot Air, Jim Hoeft from Bearing Drift, Joy McCann from Little Miss Attila, Lee Doren from Competitive Enterprise Institute, Lew Waters from Right in a Left World, Mark Perry from Carpe Diem, Meghan Gordon from Platts: The Barrel, and Merv Benson fromPrairie Pundit, Pejman Yousefzadeh from The New Ledger, and Steve Kijak from Rideside VA.
(Music intro.)00:02 ANNOUNCER: You’re listening to Energy Conversations with API, brought toyou by the people of America’s oil and natural gas industry.00:14 JANE VAN RYAN: (In progress) – get more people on line, but that’s fine. Andthere may be some more [bloggers]that will join us in progress. So why don’t we get started?Ken, I understand that you would like to start with a brief opening statement.00:24 KEN COHEN: Good morning, Jane. And thank – and everyone, thank you for joining us this morning. What Jaime and I would like to do is to spend some time with you thismorning addressing a subject that appears to be at the top of the agenda, certainly, in Washingtonright now, and that is the tax policy, tax treatment for our industry, and specifically tax treatmentfor the largest companies in our industry.And we seem to be back in the situation that occurs when we have very high earningsquarters, and I think as everyone on the call knows, that in our industry we are in a cyclicalbusiness; our earnings – we experience periods of very high earnings, and then periods of low,which tend to follow things in commodity markets that follow – earnings are pretty much tied tothe price of crude oil globally.Our earnings are the result of our operations in over a hundred different countries; 75percent roughly of our income is generated from operations outside the United States, and thatcertainly was the case in the first quarter of this year.So with that, why don’t we just get right to your questions?01:53 MS. VAN RYAN: Terrific. And please remember to identify yourselves beforeyou ask a question. Who’d like to go first?01:59 BYRON KING: This is Byron King with Agora Financial. Thank you for hostingthe call. One question that I’ve had from people when I talk about this is, what is the impact of the weak dollar on earnings? Does a weak dollar, caused by the Federal Reserve, of course,somehow inflate your earnings in terms of overseas operations?02:20 MR. COHEN: Well, you know, the biggest impact of a weak dollar is what it doesto the price of crude oil. Most commodities, and crude oil being no exception, are priced in U.S.dollars. So what that means right now with the dollar at historically low levels is that with the
 
value of the dollar as low as it is now, the price of the commodity is high. And so this getsplayed out in terms of what we pay for crude oil.I don’t think many people are aware that our – just take the United States: Our equitycrude production in the U.S. is about 425 (thousand) to 428,000 barrels a day. Our U.S. refiningthroughput is about 1.7 billion barrels a day, which means that on a given day, we are out in themarket buying crude oil to run through our refineries. And we’re paying market prices for thatproduction that we’re purchasing.So yes, when the dollar is low, that means the absolute numbers, our costs – because thecommodity, the basic commodity crude oil is more expensive to us, our costs are going up.03:49 MS. VAN RYAN: Do you have a follow-up, Byron?03:51 MR. KING: No. I’ll let somebody else talk. Thanks.03:52 MS. VAN RYAN: OK, very good.03:57 MARK PERRY: Mark Perry – I’ve got a question. Could you address the issue of whether or not the oil companies and gas companies get any kind of special tax breaks orsubsidies, and also whether they are also subject to kind of special taxes that other industries orcompanies are not exposed to?04:18 JAIME SPELLINGS: Well, that’s a great question. That’s the one we werehoping to spend a lot of time talking about today. So let me start with – the overall picture is thatthe oil companies, and the big oil companies in particular, are subject to less-favorable treatmentthan other similarly situated industries. And that’s where you got to start from.Now, if you look at what the Obama administration talks about, is oil company subsidies.Let’s take them one at a time. There’s $4 billion that he continues to talk – $4 billion annually of tax breaks for the oil industry that he talks about. The very first one is something called themanufacturing deduction. It’s in code section 199; it came in in 2004 or ’05. And the oilcompanies get that at a lower rate than any other industrial activity.If you look at the structure of 199, it has a general provision that applies to allmanufacturing, including farming, mining, fishing, video game development, Hollywood movieproduction. And so it has a very general provision. And inside that general provision, oil andgas obviously qualifies as an extraction activity.There is a provision much later in the details of Section 199 that for oil and gas only –this is the only activity that’s singled out in Section 199 – it actually reduces the value of themanufacturing deduction by a third. So if everyone else gets a 9-percent manufacturingdeduction, we get a 6-percent manufacturing deduction.And one of the proposals that’s currently being talked about on the Hill – this was thepress release from Senator Baucus – would take away the 199 deduction entirely for just five

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