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THE NEW YORK TIMES: A Senate Panel Interrogates Wary Oil Executives

Published: March 15, 2006
The nation's top oil executives were called before Congress again yesterday to defend their industry's recent mergers and record profits, in the face of public outrage over high oil and gasoline prices.
It was the second time in four months that the oil industry faced strong criticism from both Republican and Democratic senators. In November, the Senate held similar hearings, which produced a show of indignation but were followed by little legislation.
Most of the companies represented, including Exxon Mobil, Chevron and ConocoPhillips, participated in the wave of mega-mergers of the late 1990's and early 2000 that created today's behemoths. Given the sharp rise in oil prices, the top five of them reaped record earnings of well over $100 billion.
Senator Arlen Specter, the chairman of the Senate Judiciary Committee, called the hearings to examine whether mergers in the oil and gas industry had resulted in higher gasoline prices at the pump.
Gasoline prices jumped above $3 a gallon after Hurricane Katrina last summer and are now about $2.37 a gallon. They have risen by 60 percent in the last five years.
“We do know that there have been mergers and that gasoline prices have risen,” Senator Specter, Republican of Pennsylvania, said in his opening remarks.
He proposed to introduce a bill that would tighten scrutiny on mergers that might hurt competition and would reconsider some of the $14.5 billion tax incentives that were granted to energy companies in last year's energy law.
Increasingly, rising energy and fuel costs are becoming potent issues in Washington. In his State of the Union message in January, President Bush said that he wanted to cut America's “addiction” to oil and develop alternative fuels.
When five oil executives testified last November, they successfully lobbied for their top executives to be spared the fate of tobacco executives, who were made to testify under oath in 1994. After the hearings, some Democrats said that the executives had misled them with incomplete and inaccurate answers.
Yesterday, the executives, six of them this time, were sworn in. This formality created the very kind of picture — some of the most powerful American executives lined up with their right hands up in the air — that oil executives had sought to avoid.
Otherwise, theatrics were largely absent although the arguments from the oil executives were the same.
“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,” Rex W. Tillerson, Exxon Mobil's chairman and chief executive since January, said in response to Senator Specter.
“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,” he said.
John Hofmeister, the president of Royal Dutch Shell's American unit, said that despite the immense size of the largest oil companies, “this remains a highly competitive industry.”
Also testifying were the top representatives of Chevron, ConocoPhillips, BP America, and Valero, the nation's largest independent refiner.
While oil prices remain high, the American economy has so far absorbed the increased energy costs. Still, in an election year, politicians seemed eager to turn the heat on oil men.
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. 2. Last year, it earned net income of $36.1 billion.
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 that the degree of competition and the amount of market power held by oil companies following the mergers 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.
Speaking during a witness panel before the industry executives, Severin Borenstein, a professor at the Haas School of Business at the University of California, Berkeley, 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, a sponsor of the provision.
Still, there were some moments of levity, such as when Senator Herb Kohl, Democrat of Wisconsin, said: “Our constituents, your consumers, aren't very happy with your explanations. If you'd be losing money, they wouldn't be so upset.”
One senator — John Cornyn, Republican of Texas — defended the industry, providing the oil executives with an easy plank to make their case.
“Since it isn't a crime to make a profit, what I would ask is, What can the government do that would be positive to bring down the price of oil and gas?” the senator asked.
“Would it be productive or destructive for us to pass a windfall profit tax?”
The answer from the executives, of course, was “not productive.”

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