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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Oil Industry Influence Waning Amid Oil Price Slump

Oil Industry Influence Waning Amid Oil Price Slump

One unexpected victim of the oil price downturn seems to be the U.S. lobbying industry. The group of firms, whose business revolves around making sure government officials hear the concerns of U.S. companies, have long counted the oil and gas industry as a big customer. Now that seems to be changing as lower U.S. oil prices leave energy companies looking to cut costs wherever they can.

Lobbying by oil and gas companies has dropped 10 percent on a year over year basis while lobbying by E&P firms fell a more dramatic 25 percent. What’s interesting though is how little cash the industry as a whole is spending to lobby the government and what an outsized influence that cash has. The oil and gas industry as a whole spent just under $24 million in the second quarter for instance, putting it on track to spend roughly $100 million for the entire year. The energy and natural resources industry in its entirety has spent a total of about $165 million so far in 2015 versus about $350 million in all of 2014. Related: The Shale Delusion: Why The Party’s Over For U.S. Tight Oil

Those numbers, while large to an individual firm, are trivial in the context of an entire industry. In 2014 for instance, Exxon Mobil alone earned over $32 billion in profit or roughly 100 times the entire lobbying budget for the industry.

Yet despite the low level of spending on lobbying, there is little doubt that Congress has tremendous power to help or hinder entire industries. In addition to obvious corporate issues like repatriation of foreign earnings and the corporate tax rate, smaller issues like the use of the country’s strategic petroleum reserve, the ethanol and solar tax credits, and the oil export ban all could dramatically change the face of the energy industry. In that sense then, either lobbying is very ineffective to accomplish these priorities, or U.S. energy firms are making a big mistake by not spending much more on lobbying. Related: Is This The End Of The LNG Story?

In fact, the U.S. energy sector is not the largest lobbying group – it’s not even second. The energy sector comes in a distant fifth in lobbying behind Miscellaneous Business, Finance, Healthcare, and Communications. There are no energy companies on the list of top lobbying firms in 2015 so far, and in 2014, only sprawling conglomerate Koch Industries made the list of top 20 lobbyists spending a relatively paltry $13.7 million. The U.S. trade organizations representing the oil and natural gas industries are looking to merge to improve their clout having spent $10.5 million in 2014. Oil and gas lobbying has actually been on a steady decline since 2010 despite years of high oil prices.

All of this highlights the fact that, for all of the purported power of “Big Oil,” the reality is that the industry pales in comparison to the influence of much less talked about entities like “Big Communications” and “Big Miscellaneous Business.” The U.S. Chamber of Commerce is consistently the top lobbying spender, and while in an era of Super PACs lobbying is just one way to influence the conversation, it’s likely that the same industries which are willing to invest in lobbying are also the ones willing to invest in election funding. Related: Iran Enjoys Increased Oil Exports, U.S Shale Plays Face Structural Decline

In some respects the fact that the U.S. oil industry has been so effective despite spending so little is a testament to the appeal of their position for many in Congress and the importance of the oil industry to many states. For instance, Congress now appears poised to approve a lifting of the oil export ban which is a top objective for the industry despite the lack of funding going towards lobbying. It’s hard to say if the effectiveness of this effort is due to Congress wanting to support the industry in an obvious time of turmoil, or if the remaining lobbying dollars are simply being well spent, but either way, energy investors should hope the political winds continue to be favorable.

By Michael McDonald of Oilprice.com

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