Oil Executives Face The Heat In Washington
WASHINGTON, Nov. 9 – The chief executives of five major oil companies were in the hot seat Wednesday as they defended their companies’ record-breaking profits before Congress.
In recent months, much of the debate on Capitol Hill focused on addressing the country’s growing energy needs in the face of escalating prices. Members of the Senate Energy and Natural Resources Committee and the Commerce, Science and Transportation Committee, meeting jointly, questioned the oil industry panelists as to how much of the industry’s profits were a result of price gouging during a time of uncertainty made worse by Hurricanes Katrina and Rita.
“In the midst of suffering, in the midst of sacrifice,” companies’ raking in so much money is a cause for question, said Sen. Daniel Inouye (D-HI), co-chairman of the Commerce Committee.
For instance, Exxon Mobil Corp., the world’s largest non-government petroleum company, with over 86,000 employees and a market capitalization of about $350 billion, posted third-quarter earnings close to $10 billion.
Lee R. Raymond, chief executive at Exxon, said that although the petroleum industry’s earnings are at historic highs, when they are compared to other industries on earnings per dollar of revenue, “we are line with the average of U.S. industries. Our numbers are huge because the scale of our industry is huge.”
Raymond, joined at the witness table by chief executives from Chevron Corp., ConocoPhillips, BP America Inc. and Shell Oil Co., said that the company’s profits have always been reinvested into capital expenditures and research.
In total, the five oil companies earned more than $25 billion during the three months that ended Sept. 30.
Inouye questioned Raymond about reports that an Exxon-branded station in the storm-affected Gulf Coast region raised gasoline prices by 24 cents in 24 hours. If price gouging is defined as “unconscionably excessive,” he asked, “then isn’t this price gouging?”
Raymond said while he couldn’t confirm the specific incident, Exxon doesn’t control prices except in the case of company-owned stations. As for wholesale prices on gasoline sold to independently owned stations, Raymond said the corporate directive was to minimize price increases but without lowering prices to the point of causing a gasoline shortage.
“The concept we had was not to price gouge,” Raymond said.
Sen. John Sununu (R-NH) urged other legislators not to institute a windfall profits tax on oil companies, as was done in the 1980s. He said reports showed that the tax resulted in an increase in the cost of gas, a three to six percent decline in domestic oil production and an increase in oil imports.
Many senators wanted explanations of how gasoline is priced. James J. Mulva, chief executive at ConocoPhillips, said that crude oil prices are set by the world markets and that growing demand, geopolitical problems in the Middle East and limited production capacity have driven prices up.
“While ConocoPhillips doesn’t expect the prices we see today to be sustained, we do want to give you an appreciation of the challenges that lie ahead in supplying the U.S. and the world’s energy needs,” he said.
Another influence on the market is speculators, or commodity traders, who bid on crude oil in the financial markets and drive prices up further, the witnesses said. Sen. Ron Wyden (D-OR.) said he wanted to rein in speculators with legislation.
Wyden asked the witnesses if their companies needed incentives and tax breaks to operate, to which they all answered no. “Then I hope you’ll support me when I try to rescind these tax breaks,” he said.
Supporters of such breaks argue that the purpose isn’t to assist the big oil giants but to help smaller refineries around the country.
Sen. Barbara Boxer (D-CA) brought up executive compensation and said while the industry executives are reaping huge bonuses on top of already huge salaries, the average American is struggling to get by and is concerned about home heating costs this winter.
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