Oil Industry Defends Profits

KWAME HOLMAN:

With the nation's top oil industry executives sitting before them, members of the Senate's Energy and Commerce Committees took turns demanding to know why their constituents are facing high gas prices and record home heating bills this winter.

SPOKESMAN:

A consumer says to us, you know, Mr. and Mrs. Politician, what I see are big economic interests getting rich here.

KWAME HOLMAN:

Energy Committee Chairman Pete Domenici warned the public has doubts about the industry's practices.

SEN. PETE DOMENICI:

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.

KWAME HOLMAN:

Each of the oil conglomerates represented posted record profits in the third quarter of this year. Together, ExxonMobil, Chevron, ConocoPhillips, British petroleum and Royal Dutch Shell took in $31 billion in profit. All the executives acknowledged that high energy costs, particularly following Hurricanes Katrina and Rita, strained household budgets. Yet each defended his company's profits, saying their actual profit margins are near or below the U.S. Industry average.

James Mulva of ConocoPhillips:

JAMES MULVA:

This level of profit in the highest price environment our industry has experienced in 22 years after adjusting for inflation, we do not see this as a windfall.

KWAME HOLMAN:

Lee Raymond of ExxonMobil.

LEE RAYMOND:

Petroleum company earnings go up and down since prices for the openly and globally traded commodities in which we deal are volatile.

KWAME HOLMAN:

But Hawaii Democrat Daniel Inouye asked Raymond to respond to allegations from gasoline dealers that ExxonMobil raised the wholesale price of gasoline in the aftermath of Hurricane Katrina.

SEN. DANIEL INOUYE:

Mr. Raymond, would you consider 24 cents in a 24-hour period as being unconscionably excessive?

LEE RAYMOND:

I can only comment to you the directive that our people had which was that in the directly affected hurricane areas which we really had difficulty with operations simply because we had no electricity so stations can't operate, the roads weren't passable so you couldn't get trucks on the roads to deliver gasoline anyway, but outside of that area, the directive was to minimize the increase in price while at the same time recognizing if we kept the price too low, we would quickly run out at the service stations and have shortages.

KWAME HOLMAN:

North Dakota Democrat Byron Dorgan already has introduced legislation to levy a windfall profits tax on oil companies. He asked ExxonMobil's Raymond how he would explain skyrocketing energy costs to consumers.

SEN. BYRON DORGAN:

In my part of the country people going into the winter understand that heating your home is not a luxury. It's a necessity. Going to pay a substantial amount more to heat their homes this winter while they open their paper and say it's nirvana for you all personally and for the companies. How do you respond to the consumers in a way that says to them this is the right thing and this is the fair thing?

LEE RAYMOND:

The United States, as has been demonstrated by the hurricanes, is just one of many players on the world stage that affect petroleum prices. That means we're going to have to pay the world market price for these products, no matter where they come from. And in doing that, we recognize the consumers in the United States sometimes are going to have difficulty realizing that they're part of that world. But in fact they are. And our job is to get it to them at the most competitive price we can.

KWAME HOLMAN:

Several senators said they would take a fresh look at the billions in tax breaks and incentives Congress granted to oil companies earlier this year in a new energy bill. New Hampshire Republican John Sununu:

SEN. JOHN SUNUNU:

There were over $12 billion in different kinds of tax subsidies in that energy bill, not all, of course, going to the oil industry. There were billions more in spending, programs that subsidized research for oil and gas, for coal, for other areas of the energy industry that simply are not needed.

KWAME HOLMAN:

But Democrat Mary Landrieu, from the oil drilling state of Louisiana, said independent producers– not the oil giants represented at the witness table– have benefited from the tax breaks, and rightly so.

SEN. MARY LANDRIEU:

They need these tax incentives because they're smaller. They don't have the international reach. They aren't able to basically hedge against the volatility of the price, and that's why most of these tax cuts or tax credits, tax incentives are in the records.

KWAME HOLMAN:

The oil executives urged senators not to move too hastily to enact or revise legislation in reaction to the recent surge in energy prices, warning that could discourage investment in domestic oil development.