Contact l Sitemap

home industries issues reasearch weblog press

Home  » Industries » Energy

US: Congress Challenges Oil Executives on Profits

by Jad MouawadThe New York Times
March 14th, 2006

The top executives of the big oil companies were once again called before Congress today to defend their industry's recent mergers and record profits.

It was the second time in four months that the oil industry faced strong public criticism from both Republican and Democratic politicians. In November, a third of the Senate was present for a theatrical show of indignation, but one that was followed by little legislation.

Increasingly, rising energy and fuel costs are becoming potent issues in Washington. In January, President Bush said in his State of the Union address that he wanted to cut America's "addiction" to oil and develop alternative fuels.

Senator Arlen Specter, the Pennsylvania Republican who is chairman of the Senate Judiciary Committee, called the hearings to examine whether the oil and gas industry's concentration had resulted in higher gasoline prices at the pump.

"We do know that there have been mergers and that gasoline prices have risen," Senator Specter said in his opening remarks. He proposed introducing a bill that would tighten scrutiny on mergers that might hurt competition.

At the last Congressional hearings, the oil companies had successfully lobbied for their top executives to be spared the fate of tobacco executives, who were made to testify under oath in 1994. After those hearings, Democrats said that the executives had misled them.

This time, the oil executives were sworn in. This formality created the very kind of picture six of the most powerful American executives lined up with their right hands up in the air that they had sought to avoid.

Otherwise, much of the theatrics were the same, and so were the arguments from the oil executives.

"With respect to the committee's specific question whether mergers and acquisitions in our industry have contributed to higher prices at the pump my answer is no," said Rex W. Tillerson, Exxon Mobil's chairman and chief executive since January. "We need U.S. energy companies that have the scale and financial strength to make the investments, undertake the risks and develop the new technologies necessary to provide Americans with greater energy access and greater energy security."

John Hofmeister, the president of Royal Dutch Shell's American unit, Shell Oil Company, said that despite the size of the mega oil companies, "this remains a highly competitive industry."

While oil prices remain high, the American economy has so far absorbed the increased energy costs. Still, in an election year, the sight of politicians turning the heat on oilmen was very compelling.

Because it is the largest privately held oil company, Exxon Mobil came under the most criticism. The company was formed in 1999 from the merger of Exxon, the top American oil company, with Mobil, the No. 1. Last year, it earned $36 billion in profits.

There have been 2,600 mergers since 1991 in the oil and gas industry, according to a report by the Government Accountability Office.

Senator Dianne Feinstein, Democrat of California, said the degree of competition and the amount of market power held by oil companies following the merger raised "really serious questions."

"Although each of these mergers reduced the companies' costs, they were nevertheless followed by increases in the costs to consumers," she said. "I think we have a real problem."

Gasoline pump prices jumped above $3 a gallon after Hurricane Katrina and are now at a national average of $2.37 a gallon. They have risen by 60 percent in the last five years.

"Concentration in the industry equals obscene prices plus record prices," said Senator Charles E. Schumer, Democrat from New York.

Speaking during a witness panel, Severin Borenstein, a professor at the University of California Berkley's Haas School of Business, said oil companies were not solely responsible for high gasoline prices.

"It's a world market for oil and that's why we have high gasoline prices," Mr. Borenstein said.

Senator Specter's proposed legislation would also permit the government to take legal action against the Organization of the Petroleum Exporting Countries for fixing oil prices.

"One of the biggest causes of high crude oil prices is the illegal price-fixing of the OPEC cartel," said Senator Mike DeWine, Republican of Ohio.

The other executives testifying were Ross Pilari, the president and chief executive of BP America; James J. Mulva, the chairman of ConocoPhillips; David J. O'Reilly, the chairman of Chevron. William R. Klesse, the chief executive of Valero, the nation's largest independent refiner, was also present.



This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.