Exxon vs. America

Exxon made $36 billion in profits in 2023, and even so, is currently engaged in an effort to get a $1.8 billion tax refund. As Law360 reported (paywall), this week Exxon’s lawyers are using a technical legal agreement to claim they want a refund of $1.8 billion from America. However, the basis of their argument is even more interesting. They claim that their agreement to produce natural gas in Qatar was not a lease but a partnership with Qatar — the country who is most likely the biggest threat to America’s LNG business. Essentially they are asking for a tax refund for their business with a country that is a direct competitor with the U.S. And they are doing it at the same time they are in the middle of a lawsuit accusing them of a $20 billion fraud. 

Why would Exxon want to produce natural gas in Qatar? Qatar can produce LNG for a much lower cost than in the U.S. and very likely will be the reason many U.S. LNG assets are big money losers in the future. Exxon understands this as its been clear for a while. 

Source: Twitter

So, Exxon made $36 billion in profits last year and now it wants to take back $1.8 billion from the American public by arguing it is actually a partner of one of America’s direct competitors. Of course, this should surprise no one as Exxon has made it clear that it isn’t a U.S. company and doesn’t care what is good for America. 

Lee Raymond was CEO of ExxonMobil until 2005 at which point he left with a $400 million parting gift.  He once stated that, “I’m not a U.S. company and I don’t make decisions based on what’s good for the U.S.”  Believe him. 

This sentiment and Exxon’s current track record of trying to avoid environmental liabilities and tax bills due to the American public make it pretty clear how things will play out if nothing changes. All of these actions are part of a consistent pattern with the oil industry of privatizing profits while accepting huge public subsidies and then walking away from the asset retirement obligations (clean up costs) and sticking the public with the bill (socializing the losses). 

In addition to wanting to take money from the American public in the case argued this week, Exxon’s lawyers want to do it in secret by arguing that all the documents in the case must remain sealed, which lawyers for the government are challenging, according to Law 360.  

"ExxonMobil seems to assume that, if it can force sealing issues at short notice at trial, it will get the secrecy it wants, when it wants, and how it wants — all in an effort to deprive the public of its right of access.”

But to truly appreciate how Exxon does not care about the American public, one must hear the justification by Exxon for why it argued that it wanted a closed courtroom for the case. According to Law360, Exxon’s lawyers argued that if some of the information was made public it could damage Exxon’s relationship with Qatar. 

"Troublingly, ExxonMobil seems to assume it can, at its whim, interrupt the United States' examinations to request courtroom closure when approaching a topic ExxonMobil prefers to keep secret.”

In summary, Exxon is suing the American government to try to get back $1.8 billion in taxes over a deal it made to produce natural gas with Qatar but doesn’t want to share the evidence it has with the American public because it might hurt Qatar’s feelings. 

Remember what Exxon CEO Lee Raymond said “I’m not a U.S. company and I don’t make decisions based on what’s good for the U.S.”  Exxon clearly still does not care about its relationship to America, while arguing in court it is concerned about its relationship with Qatar. 

Lesson of the Scorpion and the Frog

So why does it matter that Exxon does not work in America’s best interest? One big reason is that they — along with the rest of the industry — owe America a lot of money to clean up the mess they have made here. And based on their past behavior, they don't seem to plan to pay it. As they say, when someone shows you who they are, believe them. It’s always good to remember the fable of the scorpion and the frog. 

A scorpion wants to cross a river but cannot swim, so it asks a frog to carry it across. The frog hesitates, afraid that the scorpion might sting it, but the scorpion promises not to, pointing out that it would drown if it killed the frog in the middle of the river. The frog considers this argument sensible and agrees to transport the scorpion. Midway across the river, the scorpion stings the frog anyway, dooming them both. The dying frog asks the scorpion why it stung despite knowing the consequence, to which the scorpion replies: "I am sorry, but I couldn't resist the urge. It's my character.

If a company like Exxon is willing to mislead the public about the impacts of climate change despite knowing the consequences, we should understand their character. This is what they do. 

If the American public is going to get the money it is owed by Exxon and the rest of the oil and gas industry for the many outstanding environmental liabilities, it needs a plan that takes into account the character of the industry. They are showing us who they are every day. We need to believe them and respond accordingly.

In Australia, Exxon is currently trying to walk away from cleanup responsibilities for its offshore oil industry by claiming it just wants to help the fish by leaving its mess behind. It’s the type of thing scorpions say. 

In January, the Government Accountability Office released an analysis that detailed how the U.S. oil industry is already set up to walk away from its offshore liabilities in the U.S. 

Moreover, Interior's Bureau of Ocean Energy Management (BOEM) does not effectively assure that operators have the financial and technical capacity to meet decommissioning obligations in advance of potential delays, bankruptcies, or other defaults. Specifically, BOEM held about $3.5 billion in supplemental bonds to cover between $40 billion and $70 billion in total estimated decommissioning costs as of June 2023.

This past week we also learned that major oil companies are trying to walk away from their responsibilities to clean up offshore oil platforms in the U.S. and stick the public with the bill. From E&E News: 

Interior could soon find itself on the hook for the millions of dollars required to safely remove the two California platforms. That’s because the companies that once owned a stake in Hogan and Houchin — ConocoPhillips, Occidental Petroleum and Devon Energy — are appealing an order to take the platforms down, testing a federal regulation that requires former owners to ensure cleanup.

See that? They are "testing" a federal regulation that requires former owners to pay for cleanup. Again, it’s in their character. They will only pay if forced.

This week the new media organization Hunterbrook published a piece that highlights how the industry currently works. Exxon recently sold some California offshore assets to a new company called Sable. Where did Sable get the money to buy old offshore assets with big environmental liabilities?  Who would be foolish enough to loan money for that lost cause especially when its CEO's last company went bankrupt? Would you believe, Exxon? As reported, “Sable bought the three offshore platforms, the processing facility, and offshore and onshore pipelines from Exxon for $988 million, supported by a $625 million loan from Exxon.” It’s worth reading the whole thing to grasp the absurdity of what is allowed. This article includes a quote with one other very important point. Exxon was approved to acquire those assets originally despite concerns, because it is believed Exxon was good for the money. 

 “When Exxon filed the transfer of ownership we did raise concerns but the County approved the transfer based on Exxon’s financial resources.” (emphasis added)

And then they flipped the assets to a company which used Exxon money for the purchase. This is what the industry does. The big oil companies aren’t required to set aside the money for the eventual cleanup of their oil and gas operations because they are supposed to be “good for the money.” Then those assets end up flipped to shell companies that often go bankrupt and the public is left with the cleanup bill. 

If Exxon and the other big companies are good for the money based on their financial resources, it's time for the American public to say, “Show me the money!” No more IOUs. We know how that ends. 

The fable of the scorpion and the frog apparently originates in Russia. However, there is an earlier Persian version of the fable with a twist. Instead of a frog it is a turtle. When the scorpion does what it does and stings the turtle, its character is revealed but the turtle is protected by its shell and then drowns the scorpion after it reveals its true character.

The American public has a fast closing window of opportunity to get the funds owed to it by the oil and gas industry. It’s clear the industry will not pay the money willingly. So the American public should demand policies that protect it from the character of the oil and gas industry. The industry will do what it does. The evidence is everywhere. At CERAweek in Houston last month the head of Saudi Aramco stated that the global transition to clean energy “is visibly failing on most fronts” and the audience which was full of the best and brightest in the oil industry …. applauded. 

The American public is currently setting itself up to be like the frog if it keeps taking IOUs from multinational corporations in the oil industry. If we were smart like the turtle, we would implement policies that protect us from the character of the oil industry — and get the money up front. 

Source: Wiki