Oil Industry Defends Its Record Profits

Top oil company executives were summoned for a return engagement Tuesday on Capitol Hill to defend their business practices -- and this time, they raised their hands and were sworn in.

Still, the hearing by the Senate Judiciary Committee was markedly less contentious than a similar session in November, conducted shortly after damage to Gulf Coast refineries caused by Hurricane Katrina led to gasoline prices that surpassed $3 a gallon in much of the country.

Four months ago, senators focused on accusations of price-gouging, which the company officials strongly denied. And a symbolic dispute spotlighted the tensions surrounding that hearing by the Senate Commerce Committee.

Sen. Ted Stevens (R-Alaska), the chairman of the Commerce panel, refused to administer the oath to the witnesses, calling such a procedure “nothing but a photo op.” That, in turn, sparked complaints by Democrats.

Sen. Arlen Specter (R-Pa.), the chairman of the Judiciary Committee, avoided any such controversy at Tuesday’s hearing by swearing in the executives representing America’s six largest oil and refining companies.

The businessmen then faced questions about whether mergers and acquisitions among oil and gas companies have reduced competition and led to higher prices. They flatly rejected those premises.

“My answer is, no,” said Rex Tillerson, chairman and chief executive of Exxon Mobil Corp.

Tillerson and executives from Chevron Corp., ConocoPhillips, Shell Oil Co., BP America Inc. and Valero Energy Corp. said industry consolidations had made their businesses more efficient and better able to pursue large, often risky projects to boost energy supplies.

“Scale matters,” David O’Reilly, Chevron’s chairman and chief executive, told the committee.

Some lawmakers disputed such arguments; Sen. Charles E. Schumer (D-N.Y.) said it was “naive to think that massive consolidation has had no impact” on prices.

But overall, the hearing’s tone underscored the changed political climate since gasoline prices dropped from their high marks last year. (In California, prices for regular gasoline now average slightly more than $2.50 a gallon).

Proposals for a windfall profits tax on oil companies have foundered. A tax bill approved by the Senate that could cost oil companies more than $4 billion faces an uncertain fate in negotiations with the House. And Congress might pass a bill eagerly sought by the industry that would open new areas off the Gulf Coast to energy exploration.

In their testimony Tuesday, the executives insisted their industry remains highly competitive. And as they did in November, they defended their profits, saying the companies have plowed a large chunk of the money into projects to increase energy supplies.

“When supply is limited and demand is not reduced, the consequence is higher prices; in a free market, that’s how it works,” Shell President John Hofmeister told the committee.

Sen. Dianne Feinstein (D-Calif.) said that mergers within the industry raised “serious questions about the degree of competition that’s actually left ... and the huge amount of market power that some of these companies now wield.”

In California, six major oil companies control more than 80% of the refining capacity.

Specter said he planned to push legislation that would require closer federal scrutiny of the effect of oil company mergers on energy prices.

Some senators pressed the executives on the issue of profits.

“We’re representing people ... who are very upset with the price of gasoline,” said Sen. Herb Kohl (D-Wis.) “It’s hard to explain to them how you all, at a time of record high prices that you’re paying for your raw material [crude oil], are able to generate record profits.”

At November’s hearing, the profit issue sparked tough questions from senators who generally are oil industry allies. In another example of the changed atmosphere since then, Sen. John Cornyn (R-Texas) defended the industry Tuesday.

“While each of you might be accused of ... making quite a bit of money, that is not yet a crime in America,” he said.

The hearing drew criticism from one group, the National Assn. of Manufacturers.

“Parading energy executives before TV cameras and interrogating them won’t move us any closer to more flexible, plentiful and affordable energy supplies,” the group’s president and chief executive, John Engler, said in a statement.

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Times staff writer Elizabeth Douglass in Los Angeles contributed to this report.