Senators to Grill Oil Executives

11/09/2005

WASHINGTON (AP) - Huge oil company profits at a time when motorists paid $3-plus for gasoline have sent shivers through a Congress worried about the political fallout.

Now senators are venting some anger - and hoping to get some answers - as the top executives of five of the biggest and most profitable oil companies testify at a Senate hearing.

The executives hoped Wednesday to dampen any further momentum for calls for taxing windfall oil company profits, something still viewed as a longshot but also no longer out of the question. Such a tax could inhibit investment in refineries or oil exploration and production, the industry contends.

The oil industry’s record third-quarter profits - at a time when motorists were reeling from unprecedentedly high gasoline costs and warned of huge heating bills this winter - has caught the attention of both Republicans and Democrats in Congress. Some analysts predict the 29 largest oil companies will earn $96 billion this year.

“Consumers need relief from high energy prices,” Sen. Byron Dorgan, D-N.D., said Tuesday, reiterating his call for a windfall profits tax on oil companies. “Talk is cheap. The price of energy is not. Congress needs to act.”

By most accounts, the hearing Wednesday will have much rhetoric and likely result in little action.

Lawmakers, especially on the Republican side, “need some cover in the face of record-breaking profits,” says Christine Tezak, an energy analyst for Stanford Washington Research Group. “Expect a lot of criticism ... but there is far more rhetoric than votes in support of windfall profits taxes.”

The oil executives are expected to defend their profits and emphasize that the profit numbers are huge because the industry is huge.

Together the five companies - Exxon Mobil Corp. (XOM), Chevron, ConocoPhillips, BPAmerica and Shell Oil USA - reported more than $25 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.

“It’s profits that make the companies run and make the economy run,” ExxonMobil chairman Lee Raymond said Tuesday on CNBC, showing no sign of being defensive about his company’s nearly $10 billion in earnings, on revenue of $100 billion, during the third quarter.

He called the industry cyclical by nature. “We have to have the peaks because we know we’re going to have the valleys,” he said, adding that ExxonMobil plans to invest $18 billion this year. As for a windfall tax, Raymond said it will mean “less earnings” and “our ability and willingness to invest is going to diminish.”

The industry argues that the run-up of gasoline prices, which began earlier in the year, stems from high global crude oil costs and growing demand for gasoline this past summer, followed by a disruption of gasoline supplies when the hurricanes shut down more than a dozen refineries on the Gulf Coast.

Prices since have retreated from more than $3 a gallon to an average nationwide last week of $2.37, according to the Energy Department.

While the loudest calls for action against oil companies has come from Democrats, some Republicans have expressed similar frustrations.

“They are unhappy with the behavior of the oil companies,” said GOP pollster David Winston, who advises GOP congressional leaders. “These are free market guys. They believe the market works. But in this case they are concerned that the consumer was clearly taken advantage of ... and they’re pretty angry about it.”

Senate Majority Leader Bill Frist, R-Tenn., who called the hearing to examine oil profits, said it may be time for a federal law against energy price gouging. And House Speaker Dennis Hastert, R-Ill., recently urged oil companies to invest more of their money into building more refineries, warning that if they don’t Congress may take action.

Hastert said he plans to meet privately with a number of oil company executives this week to discuss, “eyeball-to-eyeball,” the recent profit surge. An aide to Hastert said the speaker does not favor a windfall profits tax, but that momentum for it is growing.

Last week, Sen. Charles Grassley, R-Iowa, urged the industry to donate some of its profits to help low-income families meet energy costs. Advocates for the poor estimate $5.1 billion will be needed to help low-income households pay for heating this winter. The government provided about $2 billion last year.

Grassley said he still opposes a windfall profits tax on the oil companies. Another Republican, Sen. Judd Gregg of New Hampshire, however, has joined a number of Democrats in calling for such a tax.