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On Profit and Pump Prices
Oil Executives Make Their Case Before Senators

By Justin Blum and Jeffrey H. Birnbaum
Washington Post Staff Writers
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said their companies would be little affected if tax breaks for oil and natural gas in a recent energy bill were repealed.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."

In recent weeks, lawmakers have been talking tough about the oil companies, including Republicans who are usually friendly to their concerns. At the hearing, however, the Republican committee chairmen blocked a Democratic effort to put the oil executives under oath, which occurred in a 1974 hearing called to address oil shortages and high prices.

Sen. Mary Landrieu (D-La.) said the companies had done good work in helping the Gulf Coast recover from Katrina and Rita. "I know the heroic work that all of your companies did to save lives, to get people out of the gulf, out of harm's way," she said.

Perhaps the harshest criticism came from Sen. Barbara Boxer (D-Calif.), who displayed a large chart showing oil executives' multimillion-dollar bonuses. She asked if they would be willing to donate some of their earnings, along with their companies', to help low-income people pay higher energy costs. She did not allow time for a response.

The hearing, held in a cavernous, wood-paneled room, drew a large audience, including activists who wore shirts saying "Exxpose Exxon" and occasionally guffawed at executives' statements.

The executives used questions on prices and other topics to ask for more areas in the United States to be opened for drilling. They said more supplies would moderate prices. "The U.S. government should open areas currently off limits," said David J. O'Reilly, chief executive of Chevron.

A Senate budget measure includes a provision that would allow drilling in Alaska's Arctic National Wildlife Refuge. But last night, House leaders agreed to strip a provision allowing ANWR drilling from the House version of the legislation.

The hearing was held at the request of Majority Leader Bill Frist (R-Tenn). After the executives testified, however, Frist said in a statement that they "did not adequately answer the question of whether the sky-high gas prices we saw earlier this fall were entirely justified, and whether their companies' profit margins are appropriate given the hardships energy consumers are facing and will continue to face this winter."

By the end of the executives' testimony, Sen. Pete V. Domenici (R-N.M.) expressed frustration with executives' explanations for how oil is priced and asked for written information. "I hope you're expert enough to do a better job in writing that out than you were in answering it here," he said.

Yesterday afternoon, the chairman of the Federal Trade Commission told lawmakers that her agency has a congressionally mandated study underway to determine whether oil companies have been gouging consumers.

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