Oil firms defend record earnings Senate grilling hints at legislative action

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WASHINGTON – Oil executives sought to justify their huge profits under tough questioning Wednesday, but they found little sympathy from senators who said their constituents are suffering from high energy prices.

“Your sacrifice appears to be nothing,” Sen. Barbara Boxer, D-Calif., told the executives, citing multimillion-dollar bonuses the officials are receiving amid soaring prices at gasoline pumps and predictions of more of the same for winter heating bills.

There is a “growing suspicion that oil companies are taking unfair advantage,” said Sen. Pete Domenici, R-N.M. “The oil companies owe the American people an explanation.”

The executives represented five major companies that, along with their global parent corporations, earned more than $32.8 billion during the July-September quarter.

Consumers, meanwhile, saw gasoline prices soar beyond $3 a gallon in the aftermath of supply disruptions caused by Hurricanes Katrina and Rita.

Lee Raymond, chairman of ExxonMobil Corp., the world’s largest publicly traded oil company, acknowledged the high gasoline and home heating prices “have put a strain on Americans’ household budgets,” but he defended his company’s profits.

Petroleum earnings “go up and down” from year to year and are in line with other industries when compared with the industry’s enormous revenues.

It would be a mistake, said Raymond, for the government to impose “punitive measures hastily crafted in response to short-term market fluctuations.” They would probably result in less investment by the industry in refineries and other oil projects, he said.

ExxonMobil earned nearly $10 billion in the third quarter.

Raymond was joined at the witness table by the chief executives of Chevron Corp., ConocoPhillips Co., BP America Inc. and Shell Oil Co.

But senators pressed the executives to explain why gasoline prices jumped so sharply in the aftermath of Hurricane Katrina, when prices at the pump in some areas soared by $1 a gallon or more overnight.

Sen. Bill Nelson, D-Fla., asked why the industry didn’t freeze prices, as it did after the Sept. 11, 2001, terrorist attacks.

“We had to respond to the market,” replied Chevron chairman David O’Reilly.

Raymond said that after Sept. 11 “the industry wasn’t concerned about whether there was adequate supply,” as it was after this year’s Gulf storms. By keeping prices higher, adequate supplies were assured, he maintained.

Democrats said that during the storm, some ExxonMobil gas station operators complained the company had raised the wholesale price of its gas by 24 cents a gallon in 24 hours.

Raymond said his company had issued guidelines “to minimize the increase in price” but added, “If we kept the price too low, we would quickly run out [of fuel] at the service stations.”

“It was a tough balancing act,” said Raymond, who said ExxonMobil was not price gouging.

A number of Democrats have called for windfall profits taxes on the industry. Other senators, including Majority Leader Bill Frist, R-Tenn., have said it may be time to enact a federal law on price gouging.

Some Republican and Democratic lawmakers have suggested that the oil companies should funnel some of their earnings to supplement a federal program that helps low-income households pay heating bills.

That brought a cool reception from the executives.

“As an industry we feel it is not a good precedent to fund a government program,” said James Mulva, chairman of ConocoPhillips.

Sen. Olympia J. Snowe, R-Maine, a member of the Commerce Committee, is one of the lawmakers who have urged voluntary contributions by oil companies to the Low Income Home Energy Assistance Program.

“For months, I have been working with my colleagues in the Congress to bring up the level of funding to the LIHEAP program,” Snowe said in a prepared statement. “While I am disappointed that the oil industry is unwilling to offer any assistance despite astronomical third-quarter profits, I remain committed to securing this vital funding before Congress adjourns for the year.”

Sen. Susan Collins, R-Maine, who also has been working to increase funding for LIHEAP, on Wednesday called on Congress to fund an increase by repealing unnecessary tax incentives for oil companies and placing a tax on windfall oil profits.

“At a time when huge oil corporations are posting record profits, low-income families should not be forced to choose between putting food on the table and putting heating oil in the tank,” Collins said in a prepared statement.

The head of the Federal Trade Commission said a federal price-gouging law “likely will do more harm than good.”

“While no consumers like price increases, in fact, price increases lower demand and help make the shortage shorter-lived than it otherwise would have been,” FTC Chairman Deborah Platt Majoras told the hearing.

“That’s an astounding theory of consumer protection,” replied Sen. Ron Wyden, D-Ore.

Mulva of ConocoPhillips said, “We are ready [to] open our records” to dispute allegations of price gouging. ConocoPhillips earned $3.8 billion in the third quarter, an 89 percent increase over a year earlier. But Mulva said that represents only a 7.7 percent profit margin.

“We do not consider that a windfall,” he said.

Chevron’s O’Reilly attributed the high energy prices to tight supplies even before the hurricanes struck. He said his company is “investing aggressively in the development of new energy supplies.”

Shell earned $9 billion in the third quarter, said John Hofmeister, president of Shell Oil Co., but he said the company’s investment in U.S. operations over the last five years was equal to its income from U.S. sales.

“We respectfully request that Congress do no harm by distorting markets or seeking punitive taxes on an industry working hard to respond to high prices and supply shortfalls,” said Hofmeister.