Big Oil Defends Profits

The Senate hearing had yet to begin when a dispute erupted over whether the top executives of five major oil companies should testify under oath about their record profits.

Democrats wanted it that way, but Republicans balked, calling such a move a needless photo op that smacked of grandstanding. So no oath was taken.

In the three hours that followed, the executives, whose companies and parent corporations earned $32.8 billion during the last quarter, provided little beyond what the industry has been saying for weeks: Their profits are huge because the industry is huge; the companies are ready to invest billions of dollars to get more oil; and if Congress tries to punish them by imposing a windfall profits tax, it will only lead to fewer such investments.

CBS News correspondent Bob Orr reports oil executives blamed gas station owners for wildly fluctuating prices at the pump and blamed OPEC for the high cost of oil.

From July through September, Orr adds, ExxonMobil made nearly $10
Billion, Shell earned $9 billion, B.P., $6.5 billion, and Conoco-Phillips and Chevron, more than $3 billion each -- $33 billion, or $110 for every man, woman and child in the United States.

The oil executives found little sympathy from senators, who said their constituents are suffering from high energy prices while Big Oil makes big profits.

Sen. Barbara Boxer, D-Calif., cited multimillion-dollar bonuses atop multimillion-dollar salaries and stock options the executives are getting while "working people struggle" to pay for gasoline and face the specter of soaring home heating bills.

"People are concerned about fairness and justice at a time of sacrifice," Boxer told the executives. "Your sacrifice appears to be nothing."

None of the executives responded.

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

Talking to reporters after the executives were dismissed, Domenici praised them for answering all the questions but added, "The question of gouging still remains" a mystery.


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.

Oil company heads also warned a tax on their windfall profits could hurt the oil supply, and rejected an idea of voluntarily giving money to help poor people heat their homes this winter, reports CBS News correspondent Bob Fuss (audio).

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.

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 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.