Congressional leaders introduced legislation on Thursday that would tax windfall profits from large oil corporations at a rate of 50 percent. Direct money can be used to refund tax revenues to customers with annual earnings less than $75,000.
The bill, in its current form, has the potential to create both obstacles and opportunities along the energy value chain.
Those corporations whose production or importation exceeds 300kb/d would be subject to taxation. Barrels produced in or imported into the United States are subject to a fifty percent speed limit.
It is important to note that the windfall tax is a “high line” tax, which is determined based on the difference between the typical value of Brent oil from 2015-2019 and the current value of the commodity.
The tax will reduce profits for large integrated firms such as Exxon (NYSE:XOM) and Chevron (NYSE:CVX), as well as many large-cap shale names such as Pioneer (NYSE:PXD), Devon (NYSE:DVN), Marathon (NYSE:MRO), and ConocoPhillips (NYSE:COP) (NYSE:COP).
The plan has the potential to reverse a trend in the direction of consolidation within the firm, as smaller properties would become significantly less valuable once they were integrated into a larger enterprise.
The United States imports around 6 million barrels per day (mb/d) of heavy oil primarily for use in the production of diesel and jet fuel while exporting extra mild oil grades from the shale area. Refineries make money by exploiting the small price difference between the value of finished goods such as gasoline and the value of crude oil.
Valero (NYSE:VLO), for example, earned $4.71 per barrel processed during the autumn of this year. The imposition of a top-line tax on rates that are multiples of income would have a negative impact on monetary outcomes as well as refinery operations.
The response from the business community is perhaps the most important factor for policymakers, firms, and consumers.
It is because US oil corporations spent all of their profits (and then some more) to invest in the oil patch and develop manufacturing that the oil markets were oversupplied and costs were low from 2015 to 2019.
The bill aims to provide consumers with an additional $120 in stimulus each year. If the imposition of a windfall tax reduces the willingness of businesses to take a position, consumers all over the world may be forced to pay the consequences of persistently high oil prices.