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The New York Times: Oil Company Execs Defend Profits to Senate: "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.": Thursday 10 November 2005

Published: November 10, 2005
Filed at 5:51 a.m. ET

WASHINGTON (AP) -- 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 Exxon Mobil Corp., 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.

Exxon Mobil, the world's largest publicly traded oil company, earned nearly $10 billion in the third quarter. Raymond was joined at the witness table by the chief executives of Chevron Corp., ConocoPhillips, BPAmerica Inc., which is a division of BP PLC, and Shell Oil Co., a division of Royal Dutch Shell PLC.

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 Exxon Mobil 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 Exxon Mobil 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.

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.

Majoras said the FTC recently formally demanded documents and other data from many of the major oil companies in connection with investigations into pricing activities after Hurricane Katrina and into whether companies have manipulated prices by reducing refinery capacity. The refinery investigation was directed by the energy law passed last summer, with a report due to Congress in the spring.

Mulva of ConocoPhillips said, ''We are ready 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 Mulva.

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.

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