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WASHINGTON -- The chiefs of five major oil companies defended the industry's huge profits Wednesday at a Senate hearing where lawmakers said they should explain prices and assure people they're not being gouged, reported the Associated Press.
There is a "growing suspicion that oil companies are taking unfair advantage," Sen. Pete Domenici said as the hearing opened in a packed Senate committee room, according to the report.
"The oil companies owe the country an explanation," he said. Lee Raymond, chairman of Exxon Mobil Corp., said he recognizes that high gasoline prices "have put a strain on Americans' household budgets," but he defended his company's huge profits, saying petroleum earnings "go up and down" from year to year, reported AP.
ExxonMobil, the world's largest privately owned oil company, earned nearly $10 billion in the third quarter. Raymond was joined at the witness table by the CEOs of Chevron, ConocoPhillips, BPAmerica and Shell Oil USA. Together the companies earned 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, reported AP.
Raymond said in the AP report that the profits are in line with other industries when profits are compared to the industry's enormous revenues. Democrats had wanted the executives to testify under oath, but Republicans rejected the idea. "If I were a witness I would demand to be put under oath," said Sen. Daniel Inouye, according to the report.
The soaring prices have sent shivers through a Congress worried about political fallout. The White House said President Bush was concerned about energy prices, reported AP.
"Energy prices have been too high and energy companies have realized significant increases in profits," said spokesman Scott McClellan in the AP report. "It's important that the private sector be good corporate citizens and invest in the energy infrastructure and support those who are in need."
A number of Democrats, joined by a few Republicans, have called for a windfall profits tax on oil companies. Domenici said in the report that he opposed such a move, saying "it didn't work before and probably won't work again."
The government imposed taxes on oil company windfall profits in the 1970s, resulting in a drop in investment in oil development. The executives hoped to dampen any further momentum for calls for taxing windfall oil company profits, something still viewed as a long shot but also no longer out of the question. Such a tax could inhibit investment in refineries or oil exploration and production, the industry argues, according to AP.
According to AP, James Mulva, chairman 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 he said that represents only a 7.7 percent profit margin for every dollar of sales. "We do not consider that a windfall," said Mulva.
David O'Reilly, chairman of Chevron, attributed the high energy prices to tight supplies even before the Gulf hurricanes hit and said in the report that his company is "investing aggressively in the development of new energy supplies." The oil executives said their companies spend tens of billions of dollars in investments, AP reported.
Shell earned $9 billion in the third quarter, John Hofmeister, president of Shell Oil Co., told AP, but he said over the last five years the company's investment in U.S. operations was equal to its income from U.S. sales.
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 -- have caught the attention of both Republicans and Democrats in Congress. Some analysts predict the 29 largest oil companies will earn $96 billion this year, according to AP.
"Consumers need relief from high energy prices," Sen. Byron Dorgan said in the report, reiterating his call for a windfall profits tax on oil companies. "Talk is cheap. The price of energy is not. Congress needs to act."
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, reported AP.
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 have come from Democrats, some Republicans have expressed similar frustrations. "They are unhappy with the behavior of the oil companies," said Republican pollster David Winston, who advises GOP congressional leaders, according to the AP report. "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."