On Profit and Pump Prices
Thursday, November 10, 2005
Five top oil company executives appeared at a Senate hearing yesterday to defend their high profits and spikes in gasoline prices and to beat back calls for punitive action.
The oilmen -- representing companies including Exxon Mobil Corp., Chevron Corp., ConocoPhillips, Shell Oil Co. and BP America Inc. -- came to Capitol Hill as disgruntled motorists are increasingly pressuring lawmakers to do something about high prices. But many lawmakers yesterday lobbed soft questions at the executives, and analysts said no legislation is likely to be enacted soon.
Some members of the House and Senate have been calling for legislation to deal with gasoline prices, which spiked to more than $3 a gallon after Hurricane Katrina, along with the surging oil profits. One proposal calls for a new tax on oil profits.
In an effort to counteract the proposals, the executives sought to play down their earnings and said they were spending heavily on new production. They said their earnings per dollar of sales were near or below the average of U.S. industries. "We do not see this as a windfall," said James J. Mulva, the chief executive of ConocoPhillips, whose company recently reported a quarterly profit of $3.8 billion, up 89 percent from the comparable period last year.
In addition to a profits tax, some lawmakers have called for rescinding tax breaks for oil companies and putting in place a federal law preventing gouging.
Under questioning from Sen. Ron Wyden (D-Ore.), the oil executives said their companies would be little affected if tax breaks for oil and natural gas in a recent energy bill were repealed. "When you add it all up, that energy legislation is zero in terms of how it affects Exxon Mobil," said Lee R. Raymond, the company's chief executive.
Wyden said that was proof that the tax breaks are not needed, but other lawmakers said the breaks are designed to encourage smaller companies to produce more.
So far, none of the proposed measures has made much headway in the legislative process. Analysts said they did not expect much to come of them, particularly a tax on the oil companies. "We do not believe the Congress will approve a windfall profits tax or any other such levy," said Kim N. Wallace, a Washington analyst for Lehman Brothers Inc. "Why not? The energy industry disproportionately supports Republicans, and there is sufficient evidence to suggest that a tax like that is counterproductive economically."
Some lawmakers who did not take part in the hearing agree. "It's all about making speeches and issuing talking points," said Rep. Jim Cooper (D-Tenn.). "No tax increase will get out of this Congress."
At a joint hearing before the Energy and Natural Resources Committee and the Committee on Commerce, Finance and Transportation, oil executives repeatedly explained that oil and gasoline prices are set on world markets that they do not control. Asked why they did not keep gasoline prices low after hurricanes Katrina and Rita, company officials said doing so would have caused shortages. Charging market prices, they said, held down demand.
Oil executives reminded lawmakers that for years, their profits were far lower and that the industry has gone through repeated boom and bust cycles. They said they maintain spending in new production in both cycles.
"Over the last 10 years, Exxon Mobil's cumulative capital and exploration expenditures have exceeded our cumulative annual earnings," said Raymond, whose company reported a quarterly profit of $9.92 billion, up 75 percent from a year ago. "So, we keep investing in the future when earnings are high as well as when they are low."