Oil executives defend profits before senators

November 10, 2005|By FRANK JAMES | FRANK JAMES,CHICAGO TRIBUNE

WASHINGTON -- With the budgets of millions of Americans squeezed by soaring fuel prices, top executives from the nation's largest oil companies defended themselves yesterday before senators demanding explanations for the companies' record profits.

Hoping to fend off a potential windfall profits tax, the executives said that they weren't gouging consumers and that the reasons for the sharply higher prices had to do with the basic economics of supply and demand.

Even Republicans traditionally close to the energy industry took a tough-talking approach toward the leaders of Exxon Mobil, Chevron, ConocoPhillips, BP America and Shell Oil

Together, the five companies earned $32.8 billion in profits in the July-September quarter as the price of crude oil hit $70 a barrel and gasoline surged to record levels after the disruptions of Hurricanes Katrina and Rita.

"Americans have been experiencing painfully high prices at the pump," said Sen. Pete V. Domenici, a New Mexico Republican.

"Whether you think so or not, they think so," he told the oil executives at a joint hearing of the Senate Commerce and Energy committees. "Most Americans and most of the polls show that our people have a growing suspicion that the oil companies are taking unfair advantage of the current market conditions to line their coffers with excess profits ... that in the process, somebody's getting ripped off, and they think it's them."

Sen. Larry E. Craig, an Idaho Republican, was more blunt.

"I must tell you, it's not terribly fun defending you," he said, adding that constituents besieged him at recent town hall meetings, demanding to know why Idaho's gasoline prices are 15 cents higher than the national average.

One by one, the executives recounted how hurricanes disrupted oil production and pipeline activity in the Gulf of Mexico and damaged oil refineries along the Gulf Coast. And they noted that even before hurricanes Katrina and Rita, a tight global market for oil supplies, caused partly by China's surging demand, had driven up gasoline prices around the world.

"We do not set or control the price of crude" oil, said John Hofmeister, president of Royal Dutch Shell's U.S. operations, which notched third-quarter profit growth of 68 percent over the same quarter in 2004. He was seconded by Ross Pillari, president of BP America Inc.

ConocoPhillips Chairman James Mulva warned against a Republican proposal to impose a windfall tax on their recent profits to help pay for home-heating assistance for the poor, suggesting that it would discourage investment in finding new energy supplies.

"Singling out an industry is not necessarily a good precedent," he said.

After Katrina and Rita, gas prices nationwide spiked to more than $3 a gallon. Prices have since fallen, but the national average was about $2.38 a gallon for regular unleaded gasoline for the week that ended Monday, according to the U.S. Energy Information Administration.

Meanwhile, energy analysts have warned that the global demand for natural gas, as well as the limited receiving facilities in the United States for foreign-produced natural gas, will result in shockingly higher heating costs for many consumers this winter.

Lee Raymond, chairman and chief executive officer of Exxon Mobil, whose $9.92 billion third-quarter profit was more than any U.S. company has ever earned in a single quarter, acknowledged the burden higher energy prices have placed on consumers.

"The increases in energy prices following Hurricanes Katrina and Rita have put a strain on Americans' household budgets. We recognize that," he told senators.

But Raymond tried to shift the focus off profits.

"The petroleum industry's earnings are at historic highs today," he said. "But when you look at our earnings per dollar of revenue -- a true apples-to-apples comparison -- we are in line with the average of all U.S. industries," he said, adding that the oil industry is pumping profits into exploration and production.

In case anyone believed the industry was in a position to soon bring down prices for consumers, Raymond indicated otherwise. "Given the scale and long-term nature of the energy industry, there are no quick fixes and there are no short-term solutions," he said.

Nonetheless, he defended his company's huge profits, saying petroleum earnings "go up and down" from year to year.

But senators pressed Raymond to explain why, in the aftermath of Katrina, some Exxon Mobil gas station operators complained that the company had raised the wholesale price of its gas by 24 cents a gallon in 24 hours.

They asked whether that was not price gouging.

Raymond said he could not confirm the specific price increase but acknowledged that Exxon Mobil at times drove up wholesale prices to discourage consumption and avoid shortages. "It was a tough balancing act," he said.

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