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Vol. 12, No. 43 Week of October 28, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Average Joes own Big Oil, says API-commissioned study by leading economists

“Big Oil” is making outrageous profits since oil prices have more than tripled. And it’s grasping executives and wealthy board members who have benefited from this frenzy of profit-taking, right?


A new study conducted by two leading economists for the American Petroleum Institute has found that U.S.-based oil-company profits have actually lagged those of other sectors during most of the past 13 years and the lion’s share of oil-company profits have gone to Joe Six-pack and his prudent neighbors rather than to company insiders.

That’s right, U.S.-based oil and gas company stocks are largely owned by households in mainstream America, through mutual funds, pensions and individual retirement accounts.

In fact, managing executives and directors held only a fraction of the outstanding shares of 74 companies in the oil and natural gas industry between 1993 and 2006.

“This study disproves the popular misconception that ‘Big Oil’ is owned by a small group of industry insiders. In reality, across the oil and natural gas industry only 1.5 percent of shares of public companies are owned by company executives,” said study author Robert J. Shapiro, who served as undersecretary of commerce for economic affairs under President Bill Clinton. “The data show that ownership of industry shares is broadly middle class, with the majority of industry shares held by institutional investors, often on behalf of millions of Americans through mutual funds, pension funds and individual retirement accounts.”

Oil profits in sync with other industries

The study’s results also undermine a recent popular argument that Congress should take action to curb alleged greedy profit-taking by company insiders.

“When politicians seek to punish these companies and ‘take their profits,’ they are not targeting industry executives but the hard-earned savings of working people,” API Chief Economist John Felmy said Sept. 19 in announcing the study.

“Further, we find that while the oil and natural gas industry has recorded very strong profits for the last three years, this recent record follows more than a decade in which real oil and natural gas prices declined and the industry’s profits and returns lagged those of the rest of the economy,” said Shapiro and former World Bank economist Nam D. Pham, who coauthored the study.

“In both periods, concerns that company insiders capture a substantial share of those profits are unfounded. The data strongly suggest that most of those profits go to the industry’s majority shareholders, who are middle-class U.S. households with mutual fund investments, pension accounts, other personal retirement accounts, and small personal portfolios,” they observed

Money managers control industry stocks

Nearly 70 percent of the shares of U.S. oil and natural gas companies are held by institutional investors, especially asset management companies, and predominantly on behalf of middle-class American households who own shares through mutual funds, pension funds and retirement accounts, according to the researchers.

Shapiro and Pham collected data on 12 U.S. based companies, 15 foreign companies and 47 industry service firms from the U.S. Securities and Exchange Commission as well as from records of other government and industry agencies, including the Federal Reserve Board, Federal Deposit Insurance Corp. and Energy Information Administration.

“Individual investors who manage their own portfolios, and are not company insiders, account for almost 30 percent of all industry ownership, which again includes significant numbers of middle-class households holding IRA and other personal retirement accounts,” the economists said.

Among the study’s findings:

•Of oil and natural gas company shares, 42.7 percent are owned or held by mutual funds and other asset management companies that have mutual funds. Mutual funds manage accounts for 55 million U.S. households with a median annual income of $68,700, 16 percent of which have incomes of $25,000 or less.

•While no data exists on the precise percentage of investors who hold oil and natural gas shares through mutual funds, including pension participants, it is very likely that the tens of millions of households whose mutual fund portfolios include oil and natural gas shares closely resemble the average, middle-income mutual fund holder.

•Fourteen percent of oil and natural gas company shares are held in IRAs and other personal retirement accounts. Forty-five million U.S. households have IRA and other personal retirement accounts, with an average account value of just over $22,000.

To access the full study, visit

—Rose Ragsdale

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