Big Oil Set to Defend Big Profits at Senate Hearing
WASHINGTON, DC, Nov 09, 2005 (Dow Jones Commodities News Select via Comtex)
Top executives from five of the world's largest oil companies will have some explaining to do Wednesday on Capitol Hill as they try to fend off attempts by some U.S. lawmakers to tell them what to do with their record profits.
ExxonMobil Corp. (XOM) Chairman and CEO Lee Raymond, Chevron Corp. (CVX) Chairman and CEO Dave O'Reilly, ConocoPhillips (COP) Chairman and CEO Jim Mulva, Shell Oil (RDSB.LN) President John Hofmeister and BP America Inc. (BP) President and CEO Ross Pillari are expected to tell a joint Senate hearing that they are powerless to thwart a relentless rally that took fuel prices - and some of their third-quarter profits - to record highs a few weeks ago.
But that will not stop members of the Senate Energy and Natural Resources Committee and the Committee on Commerce, Science and Transportation from accusing Big Oil of contributing to high gasoline and home heating costs by keeping refining capacity tight and not investing enough of their bumper profits on expanding production capacity.
In written testimony, BP's Pillari pointed out that BP is still working to repair damage caused by the twin hurricanes that hit the Gulf this year. "We believe the events of 2005 reflect unusual challenges to the global markets for oil and gas. We know we have a responsibility to help meet these challenges and we are working hard to fulfill the role we play in helping the nation recover from these extraordinary events," Pillari said.
Still, calls for a windfall profit tax from legislators from both parties may not have enough momentum to make it through Congress but the oil executives will probably be asked to make sizable donations to the federal Low Income Home Energy Assistance Program (LIHEAP) program.
Sen. Pete Domenici, R-N.M., head of the Senate Energy and Resources Committee, says a windfall profit tax was under consideration but he wasn't convinced it was a good idea. "It has been tried before and had counterproductive effects," he said.
But he said he was keen to hear from the oil companies why they weren't investing more to boost oil and gas supplies.
"We haven't heard their explanation. We haven't heard what they're investing in," Domenici said.
Exxon's Raymond, whose company's $9.92 billion third-quarter profits were among the highest of any company ever, is expected to blame speculators for much of the run-up in crude oil prices and to tutor senators on the global nature of the oil market.
"In a strange sense, I think the point to be made is in simple terms, 'Welcome to the world'," he said Tuesday in an interview with Dow Jones Newswires and the Wall Street Journal.
"There has been a notion in this country for a long time that on things like energy, we're in our own world," he said. "There is one big pool out there. The countries that can compete the most effectively will have a cost advantage."
He, and some of the other oil executives, are also expected to defend their conservative stance on downstream investment, pointing out that they are not convinced that two or three years of handsome profits on refining can immediately erase the two decades of dismal returns.
"It's hard for me to imagine what the government could do to convince you to build a refinery that isn't going to be economical," Raymond said. "Today's price is irrelevant, you have to thank about where margins will be in 10-15 years time."
Republicans Also Angry
The hearing, called by Senate Majority Leader Bill Frist, R-Tenn., will be get underway at 9:30 a.m. EST. It is the first time this year that oil company executives have been asked to appear on Capitol Hill to explain high fuel prices.
A second panel, scheduled to begin testimony about consumer protection against price gouging at 2 p.m. EST, will include Deborah Platt Majoras, the head of the Federal Trade Commission, as well as the New Jersey, South Carolina and Arizona attorneys general.
Though the Democrats have been the most vociferous in their complaints about Big Oil, politicians from the Republican Party, which receives a lot of campaign money from energy companies, have stepped up their criticisms in recent weeks.
Republican Senator Judd Gregg of New Hampshire, head of the Senate Budget Committee and self-described fiscal conservative, has called for a windfall profit tax to provide more funding for federal home heating assistance programs and to help cut the nation's budget deficit.
But the Senate's top tax writer, Finance Chairman Charles Grassley, R-Iowa, reacted skeptically to such a proposal. Instead, he has called on the oil and gas industry to donate 10% of its quarterly profits to the federal low-income heating assistance program.
"It's not unreasonable to expect corporations with 50, 75 or 100% growth in earnings this quarter to contribute a mere 10% of those profits to fuel fund programs that supplement LIHEAP," Grassley said in a letter to the American Petroleum Institute, the industry's main trade association.
Sen. Byron Dorgan, D-N.D., and Sen. Christopher Dodd, D-Conn., plan to introduce legislation during the next two weeks that would levy a 50% windfall profit tax as long as crude oil prices remain above $40 a barrel, which is nearly $20 a barrel below current futures prices.
Energy Secretary Samuel Bodman has said several times in recent weeks that he was firmly against a windfall profits tax on the oil industry that he believed did not work in the 1980s.
In their testimony, the oil chiefs will note that the late summer spike in crude and gasoline prices came after very tight global spare production and refining capacity was squeezed further after Hurricanes Katrina and Rita pounded the oil-rich U.S. Gulf coast, industry sources said.
They will also point out that a windfall profit tax introduced by President Jimmy Carter in 1980 merely discouraged oil companies from investing more money in expanding refining and oil production capacity.
"The hearing will be a good opportunity for the industry to educate a lot of people," an industry source said last week. "There was nothing we could do about the latest run-up in prices."
Several of the biggest companies have taken out full-page newspaper ads in recent weeks detailing investment plans and noting how hard they worked to restore hurricane-affected facilities in the Gulf. In Wednesday's Washington Post, Chevron used a huge center-spread ad to tell consumers to cut down on their fuel use.
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