# Hillary Clinton's Oil Company Windfall Profits Plan **URL:** \ **Category:** Great Debates\ **Created:** [February 22, 2008, 11:05pm UTC](https://boards.straightdope.com/t/hillary-clintons-oil-company-windfall-profits-plan/438789 "2008-02-22T23:05:26Z")\ **Posts on this page:** 14\ **Page:** 3
**Author:** ![RTFirefly](https://avatars.discourse-cdn.com/v4/letter/r/c77e96/32.png) [@RTFirefly](https://boards.straightdope.com/u/RTFirefly)\ **Post date:** [February 27, 2008, 10:01pm UTC](https://boards.straightdope.com/t/hillary-clintons-oil-company-windfall-profits-plan/438789/41 "2008-02-27T22:01:27Z")
[QUOTE=flickster] Here’s just a few examples: [$7 Billion expansion at Motiva](http://www.bolivarchamber.org/News/tabid/86/ctl/ArticleView/mid/848/articleId/137/Default.aspx) [$2 Billion expansion at Total SA](http://news.moneycentral.msn.com/ticker/article.aspx?Feed=AP&Date=20080213&ID=8187943&Symbol=TOT) [$3 Billion expansion at BP](http://www.bpissuenews.com/go/doc/1550/165362/) [$3 Billion expansion at Marathon Oil](http://www.marathongme.com/go/doc/1418/153255/) [/quote] IOW, you’ve got nothin’ that says the oil companies haven’t been shutting down dozens of refineries in recent years. [Of course you don’t](http://www.consumerwatchdog.org/energy/nw/?postId=4685), because they have in fact been doing exactly that, as this 2005 story illustrates: > [@](#): > > ARKANSAS CITY, Kan. – The dormant complex here at the edge of Kansas is a weathered still-life of a bygone era. > > Remnants of rusty pipes and storage tanks hint at the oil refinery that once hummed here on the banks of the Arkansas River. > > Property that could produce enough gasoline to satisfy half the state’s thirst for the fuel is now overrun with prairie grass. Abandoned buildings sit with plywood-shuttered windows. > > It’s a fate few here thought possible. Even nine years after the refinery closed, some former employees still can’t believe what happened to the economic lifeblood of the community since 1918. They still ponder how a deal to sell the refinery fell apart. > > So does Malcolm Turner. He led a group that wanted to buy the refinery. They offered the owner, Total Petroleum Ltd., $37 million and thought they had a deal. But Turner said Total backed out at the last minute – offering scant explanation. > > Seeking answers, Turner hopped on a flight from Dallas to Total’s North American headquarters in Denver. Over a round of golf with Total executives, the discussion finally got to the question: Why would Total walk away from $37 million and prefer to sell a perfectly good refinery for scrap? > > “They finally said by closing the refinery it would tighten up the market,” Turner recalls. “They thought they would benefit.” > > At the time, Total told employees the sale fell through and the company was closing the refinery for business reasons. The company has declined repeated requests for more comment on its decision-making process. > > Turner, a decades-long veteran in the oil industry, was dumbfounded that the company shut the plant. But similar stories have been quietly playing out across the country – wiping out thousands of good-paying jobs, devastating communities and, ultimately, squeezing consumers at the gas pump. > > Drawing from dozens of interviews and previously undisclosed government documents, The Kansas City Star has discovered a largely untold story of a rapidly consolidating industry that has clamped down on refining capacity to drive up profits. And more of the big picture: > [@](#): > > Over the past 25 years, 176 refineries have closed in the United States – including refineries in Sugar Creek and Kansas City, Kan. A new U.S. refinery hasn’t been built since 1976. Even with upgrades and expansions at the remaining refineries, domestic capacity is down 9 percent since 1981, while demand for gasoline has increased 38 percent > > Today this country, which once had far more refining capacity than it needed, can no longer depend on its own refineries for all its fuel needs – even when they run virtually at full speed. Imported gasoline now accounts for 10 percent of supply, and that number is expected to grow. > > The industry’s refining margins, the difference between crude oil and wholesale gas prices, have doubled and tripled at times to nearly 60 cents per gallon. Refinery and marketing profits, according to the U.S. Department of Energy, were up 292 percent for the last quarter of 2004 when compared with the same period the previous year. > [@flickster](#): > > As for engineering costs, due to the demand for experienced design engineers their pay rates have increased from the mid $30’s up to $90/hr for those with experience on certain CAD systems. Again, triple of what? What’s your base? I mean, that’s great for the engineers, but is this significant or trivial compared to oil industry profits? If I tripled my prescription drug expenses from 2006 to 2007, but I only spend $35 on prescription drugs in 2006, it’s a BFD, y’know? If you’ve got nothin’, feel free to say so. There’s no rule that says you have to dig up irrelevant horseshit to defend an indefensible position. ---
**Author:** ![LonghornDave](https://avatars.discourse-cdn.com/v4/letter/l/a87d85/32.png) [@LonghornDave](https://boards.straightdope.com/u/LonghornDave)\ **Post date:** [February 27, 2008, 10:25pm UTC](https://boards.straightdope.com/t/hillary-clintons-oil-company-windfall-profits-plan/438789/42 "2008-02-27T22:25:08Z")
[QUOTE=Voyager] For both of you - I don’t understand how profit margins and risk are related. Rate of return on investment, as in your example, and risk certainly are. Is Microsoft at significantly more risk than your neighborhood grocery? Their profit margins are very different. [/QUOTE] Rate of return on investments will be highly correlated with profit margins. They are essentially both measurements of the same thing. A company with a high net profit margin usually also has high gross profit margins, operating profit margins, return on equity, return on assets, and return on investments in comparisons with their peers. Also, again let me add the caveat that I don’t think any comparison between financial ratios among companies in different industries is meaningful. You can draw no meaningful conclusions by comparing the financial ratios of Microsoft and a neighborhood grocery. We’re specificly talking about profit margins in this example, but other ratios are equally meaningless. A grocery store may have an inventory turnover much shorter than Microsoft, but that doesn’t mean they are more efficient. It could simply be the nature of the differing businesses. ---
**Author:** ![flickster](https://avatars.discourse-cdn.com/v4/letter/f/7bcc69/32.png) [@flickster](https://boards.straightdope.com/u/flickster)\ **Post date:** [February 27, 2008, 11:43pm UTC](https://boards.straightdope.com/t/hillary-clintons-oil-company-windfall-profits-plan/438789/43 "2008-02-27T23:43:43Z")
[QUOTE=RTFirefly] If you’ve got nothin’, feel free to say so. There’s no rule that says you have to dig up irrelevant horseshit to defend an indefensible position. [/QUOTE] In my original message I stated that the oil companies were investing billions in facility expansions. I provided links to examples of just some of those projects in my follow-up. You feel that billions spent on expansion projects is irrelevant??? As for closing of old facilities over the past 25 years did it ever occur to you that much of that was made possible by increased efficiencies and expansion at alternate facilities? Not to mention the investment that would been needed to modernize those old sites to meet current environmental standards. As for my engineering costs example - costs of intellectual resources / design engineering staff is one of the primary portions of an engineering contract. Do you have any concept of what size of an engineering staff is required for projects this size and how long they take from conception to start-up? ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [February 28, 2008, 12:02am UTC](https://boards.straightdope.com/t/hillary-clintons-oil-company-windfall-profits-plan/438789/44 "2008-02-28T00:02:36Z")
[QUOTE=LonghornDave] Rate of return on investments will be highly correlated with profit margins. They are essentially both measurements of the same thing. A company with a high net profit margin usually also has high gross profit margins, operating profit margins, return on equity, return on assets, and return on investments in comparisons with their peers. Also, again let me add the caveat that I don’t think any comparison between financial ratios among companies in different industries is meaningful. You can draw no meaningful conclusions by comparing the financial ratios of Microsoft and a neighborhood grocery. We’re specificly talking about profit margins in this example, but other ratios are equally meaningless. A grocery store may have an inventory turnover much shorter than Microsoft, but that doesn’t mean they are more efficient. It could simply be the nature of the differing businesses. [/QUOTE] That expected profit margins differ between industry segments is clear. However when we’re talking about risk, that can be compared across businesses. Even within the software business, I don’t think you can say that profit margin is correlated to risk - in fact some of the best profit margins come from companies with close to monopoly positions, and thus market power to raise prices. I’m not sure what you mean by return on investment in terms of profit margin. It can’t be dividends, since these hardly exist for some classes of companies. It can’t be stock prices, since greater risk would seem to lower these. Investment decisions within a company of course follow the greater the risk the higher required return rule. In the old days I’d grant that volatility was correlated to risk, but that doesn’t seem to be the case anymore. If risk is a factor in profit margin, it is so minor a factor as to be practically invisible. ---
**Author:** ![DMC](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/dmc/32/18049_2.png) [@DMC](https://boards.straightdope.com/u/DMC)\ **Post date:** [February 28, 2008, 1:47am UTC](https://boards.straightdope.com/t/hillary-clintons-oil-company-windfall-profits-plan/438789/45 "2008-02-28T01:47:39Z")
[QUOTE=LonghornDave] You are misunderstanding me. I think that profit margins are a perfectly good ratio to help determine how profitable a company is as long you are comparing it to another similar type of company. I don’t think it has any meaning at all when comparing accross industries. [/QUOTE] And yet you’ve failed to demonstrate why we shouldn’t compare the two. If you want to call an industry’s profit margins “nominal”, then you need a yardstick to measure by. Hell, I’ve even told you to come up with one. So far it hasn’t happened. > [@](#): > > Similarly, I think that Debt to EBITDA is a great measure of leverage. It would, however, be stupid for me to compare a company that primarily earns their EBITDA through offshore exploration and production with a ratio of 2.00:1 to a pipeline company with a ratio of 5.00:1 and say the offshore company has better leverage. Why? Because the life of an offshore well may only be 3 years and the life of the pipeline may be 30 years. You may as well be trying to use tackles to determine who is a better football player between Randy Moss and Adrien Peterson. It shows a basic lack of understanding of financial statement analysis. If we were talking about leverage, this might be relevant. We’re not. It isn’t. > [@](#): > > I will only politely tell you that you do not understand the fundamental nature of risk versus return. I’ll politely tell you that I developed credit risk management software for the internal use of one of the largest privately held companies in the world. In other words, you’re full of shit. > [@](#): > > Out of curiousity, which has greater risk, an FDIC insured certificate of deposit or an investment in the stock market? Oh gee, the market. What do I win? > [@](#): > > Which has greater returns on average? When? Which performs better depends greatly on how the various metrics of the economy are doing. 1962-1982, the CD wins. 1982-2000, the market wins. > [@](#): > > How do you reconcile the results of these questions with your personal risk/return understanding? Because they are apples and oranges. Again, and let me repeat it since you seem to be missing this. The argument being made were that profit margins were “nominal”, which is what I posted a rebuttal to. If you also think they are “nominal”, then back it up. Telling us that we can’t measure them doesn’t help that. I’ve also offered to use your metrics, but you don’t seem to want to give those either. **So, one question. Just one. How, in your opinion, can we determine whether the profits of Exxon are non-existent, nominal, poor, sufficient, good, great, or fucking awesome?** > [@](#): > > Just to help you out again, please realize that it is incorrect to categorize Exxon as a petroleum refiner. They are a major integrated energy company. When comparing their financial performance, you should compare it to other majors. A petroleum refiner would be someone like Western Refining, Inc. Exxon has upstream, midstream, and downstream business units. You may as well be calling Walmart an electronics store. There would be some truth in your comment because they do sell TVs, but it would not make much sense to try to compare their financial statements to Home Theater Store. I don’t care what they do (that’s Fortune’s categorization). Their profit margin isn’t nominal. Not by any measure you’d care to use. You have yet to demonstrate otherwise, even nominally. ---
**Author:** ![RTFirefly](https://avatars.discourse-cdn.com/v4/letter/r/c77e96/32.png) [@RTFirefly](https://boards.straightdope.com/u/RTFirefly)\ **Post date:** [February 28, 2008, 5:17pm UTC](https://boards.straightdope.com/t/hillary-clintons-oil-company-windfall-profits-plan/438789/46 "2008-02-28T17:17:03Z")
[QUOTE=flickster, now] In my original message I stated that the oil companies were investing billions in facility expansions. [/quote] > [@flickster](#): > > to increase refining capacity I keep forgetting that some people don’t realize that others can scroll up, and even click back to previous pages if it comes to that. > [@](#): > > I provided links to examples of just some of those projects in my follow-up. You feel that billions spent on expansion projects is irrelevant??? No, I’m saying that despite those investments, the result is less refining capacity than there used to be. > [@](#): > > As for closing of old facilities over the past 25 years did it ever occur to you that much of that was made possible by increased efficiencies and expansion at alternate facilities? Not to mention the investment that would been needed to modernize those old sites to meet current environmental standards. I guess you didn’t read the stuff I posted. People were willing to buy those refineries and modernize them. The big companies wanted to shut them down to increase their profit margins. And in the past few years, they’ve been boo-hooing that refining capacity is tight because the evil regulators have prevented them from building any new refineries since the 1970s. Bull. Shit. Sure, they’ve been spending billions on expanding refineries. To replace capacity that independent refiners used to provide. For purposes of policymaking, that spending should be regarded as their problem, not ours. > [@](#): > > As for my engineering costs example - costs of intellectual resources / design engineering staff is one of the primary portions of an engineering contract. Do you have any concept of what size of an engineering staff is required for projects this size and how long they take from conception to start-up? No, I don’t - that’s my point. This will mark the third time I’ve asked you to provide an idea of the size of those costs, relative to oil company profits. Will it be the charm? I doubt it. ---
**Author:** ![flickster](https://avatars.discourse-cdn.com/v4/letter/f/7bcc69/32.png) [@flickster](https://boards.straightdope.com/u/flickster)\ **Post date:** [February 28, 2008, 6:01pm UTC](https://boards.straightdope.com/t/hillary-clintons-oil-company-windfall-profits-plan/438789/47 "2008-02-28T18:01:40Z")
[QUOTE=RTFirefly] I keep forgetting that some people don’t realize that others can scroll up, and even click back to previous pages if it comes to that. No, I’m saying that despite those investments, the result is less refining capacity than there used to be. I guess you didn’t read the stuff I posted. People were willing to buy those refineries and modernize them. The big companies wanted to shut them down to increase their profit margins. And in the past few years, they’ve been boo-hooing that refining capacity is tight because the evil regulators have prevented them from building any new refineries since the 1970s. Bull. Shit. Sure, they’ve been spending billions on expanding refineries. To replace capacity that independent refiners used to provide. For purposes of policymaking, that spending should be regarded as their problem, not ours. No, I don’t - that’s my point. This will mark the third time I’ve asked you to provide an idea of the size of those costs, relative to oil company profits. Will it be the charm? I doubt it. [/QUOTE] You obviously have issues and/or an axe to grind - neither of which interest me. I simply offered recent facility investment information in response to the following > [@Voyager](#): > > But the oil companies have fixed costs for refining, transportation, and drilling which don’t change much with oil prices, so a 30% increase in costs with the same margins looks like windfall profits to me. As for the increased engineering costs, the detailed apples to apples comparison figures you’re looking for don’t exist. I could provide the $$ value of contract award to firms like Jacobs, Flour, or Bechtel but that won’t give you a comparison to what that same contact would have been 10 years ago. However, as Voyager has already pointed out, those costs end up being spread out over many years so the impact on oil company profits is minimal. ---
**Author:** ![RTFirefly](https://avatars.discourse-cdn.com/v4/letter/r/c77e96/32.png) [@RTFirefly](https://boards.straightdope.com/u/RTFirefly)\ **Post date:** [February 28, 2008, 6:21pm UTC](https://boards.straightdope.com/t/hillary-clintons-oil-company-windfall-profits-plan/438789/48 "2008-02-28T18:21:43Z")
[QUOTE=flickster] You obviously have issues and/or an axe to grind - neither of which interest me. I simply offered recent facility investment information in response to the following [/quote] If you hadn’t associated that information with an alleged effort to increase capacity, you’d have been good, I suppose. But the context of this is the viability and appropriateness of windfall-profits taxes on oil companies. Quite simply, it makes a big difference whether or not the oil companies are spending money to increase _overall U.S. refining capacity_, or whether, having squeezed out and bought out competition, and shut down a bunch of American refineries, they’re now increasing capacity at their remaining refineries to make up some of the shortfall they’ve engineered, now that demand has increased. If the former, it makes perfect sense to make sure they can deduct such costs from a windfall-profits tax, if you want one in the first place. If the latter, then screw 'em. The facts support “screw 'em.” > [@](#): > > As for the increased engineering costs, the detailed apples to apples comparison figures you’re looking for don’t exist. I could provide the $$ value of contract award to firms like Jacobs, Flour, or Bechtel but that won’t give you a comparison to what that same contact would have been 10 years ago. However, as Voyager has already pointed out, those costs end up being spread out over many years so the impact on oil company profits is minimal. “the impact on oil company profits is minimal.” Well, I’ll be damned. Third time _was_ the charm. 🙂 ---
**Author:** ![flickster](https://avatars.discourse-cdn.com/v4/letter/f/7bcc69/32.png) [@flickster](https://boards.straightdope.com/u/flickster)\ **Post date:** [February 28, 2008, 7:13pm UTC](https://boards.straightdope.com/t/hillary-clintons-oil-company-windfall-profits-plan/438789/49 "2008-02-28T19:13:01Z")
Before an honest conclusion could be gathered, a detailed look at why each of those facilities mentioned in your consumer watchdog list were closed, not to mention what the product was that the facility produced - after all not all refineries are the same. It’s not that I doubt that some were closed with the intent to lower overall refining capacity but even if they were who’s to say that those steps weren’t perfectly justified at the time. I call bull shit on the wave of the paint brush over a list of 176 facilities and inferring that they were all closed for the same purpose. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [February 28, 2008, 9:04pm UTC](https://boards.straightdope.com/t/hillary-clintons-oil-company-windfall-profits-plan/438789/50 "2008-02-28T21:04:24Z")
[QUOTE=flickster] As for the increased engineering costs, the detailed apples to apples comparison figures you’re looking for don’t exist. I could provide the $$ value of contract award to firms like Jacobs, Flour, or Bechtel but that won’t give you a comparison to what that same contact would have been 10 years ago. However, as Voyager has already pointed out, those costs end up being spread out over many years so the impact on oil company profits is minimal. [/QUOTE] The complaint people have, and the reason for a call for a tax, is not a comparison of prices today vs ten years ago, but today and one year ago. I don’t know how many engineers it takes to design a refinery, but I do know about the design of a new telephone switch and a new microprocessor. California in particular has a shortage of refinery capacity, due to our special requirements. (We pay more, but we get clean air.) I don’t have any smoking guns, but it seems to take longer to switch from the winter to the summer mix than it used to, and there is a spate of capacity reductions just when prices go down. In most industries if you shut down some of your capacity, you lose big. Gas prices, here at least, are so sensitive to refinery capacity that shutting down a small part of yours can actually increase your revenue from the increase in return from the capacity that is left. This effect has been separate from the price of oil on the global market. ---
**Author:** ![flex727](https://avatars.discourse-cdn.com/v4/letter/f/258eb7/32.png) [@flex727](https://boards.straightdope.com/u/flex727)\ **Post date:** [February 28, 2008, 9:10pm UTC](https://boards.straightdope.com/t/hillary-clintons-oil-company-windfall-profits-plan/438789/51 "2008-02-28T21:10:49Z")
Well, count me as confused. I do not see any way that an oil company can make more money by selling less product. Since oil (and gas) are fungible, you can’t significantly reduce the overall supply by unilaterally reducing your own output. And even if you could, you would be placing yourself at a competitive disadvantage. ETA: This isn’t a response to the post immediately above, but to the posts way up where the allegation is being made that refineries are being closed down to “tighten the market”. ---
**Author:** ![RTFirefly](https://avatars.discourse-cdn.com/v4/letter/r/c77e96/32.png) [@RTFirefly](https://boards.straightdope.com/u/RTFirefly)\ **Post date:** [February 29, 2008, 1:47am UTC](https://boards.straightdope.com/t/hillary-clintons-oil-company-windfall-profits-plan/438789/52 "2008-02-29T01:47:16Z")
[QUOTE=flickster] I call bull shit on the wave of the paint brush over a list of 176 facilities and inferring that they were all closed for the same purpose. [/QUOTE] Well, so do I - but that was _your_ inference. It’s not too often I see someone calling bullshit on themselves. You’re to be applauded for your honesty. 🙂 ---
**Author:** ![flickster](https://avatars.discourse-cdn.com/v4/letter/f/7bcc69/32.png) [@flickster](https://boards.straightdope.com/u/flickster)\ **Post date:** [February 29, 2008, 3:42am UTC](https://boards.straightdope.com/t/hillary-clintons-oil-company-windfall-profits-plan/438789/53 "2008-02-29T03:42:46Z")
[QUOTE=RTFirefly] Well, so do I - but that was _your_ inference. It’s not too often I see someone calling bullshit on themselves. You’re to be applauded for your honesty. 🙂 [/QUOTE] YOU were the one waving your consumer watchdog list of 176 closed refineries inferring that they were closed to reduce capacity and drive up market pricing, not I. All I’m asking for is a detailed listing of those facilities, what their primary product was, why and when they were closed. Your watchdog group shouldn’t have any difficulty providing that. ---
**Author:** ![RTFirefly](https://avatars.discourse-cdn.com/v4/letter/r/c77e96/32.png) [@RTFirefly](https://boards.straightdope.com/u/RTFirefly)\ **Post date:** [February 29, 2008, 3:43pm UTC](https://boards.straightdope.com/t/hillary-clintons-oil-company-windfall-profits-plan/438789/54 "2008-02-29T15:43:03Z")
[QUOTE=flickster] YOU were the one waving your consumer watchdog list of 176 closed refineries inferring that they were closed to reduce capacity and drive up market pricing, not I. [/quote] No, it’s impossible for me to do the inferring - as the reader, that’s _your_ action. As the writer, I can _imply_; you can infer (and have) that I was implying something stronger than I was: that every last one of the 176 closings were for that purpose. My claim is weaker: that we wouldn’t have had anywhere near that many closings without the concerted effort of the major oil companies to reduce competition and capacity. > [@](#): > > All I’m asking for is a detailed listing of those facilities, what their primary product was, why and when they were closed. Your watchdog group shouldn’t have any difficulty providing that. My ‘watchdog group’ is a 2005 article in the Kansas City Star. It is not easy, it is not difficult - it is _impossible_ for that article to produce such a list unless it’s already present in the article. It’s not. [Previous page](https://boards.straightdope.com/t/hillary-clintons-oil-company-windfall-profits-plan/438789.md?page=2)