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Daily Telegraph: Big Oil bears the brunt as Uncle Sam turns hostile

Business comment

By Damian Reece, City Editor
Last Updated: 12:03am GMT 20/01/2007

Nancy Pelosi has wasted no time in setting out the Democrats’ agenda for business. As House Speaker, she has capped a feverish start to her time in the limelight by seeing through a Bill aimed fairly and squarely at Big Oil. Ending tax breaks, and slapping a new conservation fee on oil companies that refuse to renegotiate leases, is aimed at raising $14bn (£7bn) from oil companies over 10 years.

The measures still need to go before the Senate and the President but for energy company chief executives, the prospect is clear. The US is becoming a more hostile place to do business after years of benign oversight by the Republicans. That factor is just one more problem facing the industry which is once again having to learn how to cope with falling oil prices and production, not to mention greater scrutiny on safety.

The Democrats want to reinvest their windfall from the oil companies in renewable energy sources. Arguably, it would be more efficient and possibly more likely to produce results if, instead of taxing energy companies, the businesses were given more financial incentives to invest themselves in cleaner energy sources. After all, they are the experts in this field and targeted tax breaks could well be a more effective tool than blunderbuss fiscal measures. But then Big Oil has hardly helped itself in recent years. It certainly can’t expect any favours from governments which have seen oil prices and resulting profits soar while their electorates suffer penal rises in household energy bills. So far, the UK Government has resisted ploughing “green taxes” into backing specific “green measures”, much to the ire of those industries that pay them, such as the airlines. But, having seen resurgent Democrat politicians do it in Washington, Labour could yet follow suit.

The Democrats are playing an obvious political card at a time when the demands for environmental reform are deafening. I sat and listened to Al Gore’s speech at the Morgan Stanley Great Britons Awards on Thursday night in the City and heard the green campaigner and former vice-president invoke the spirit of the Allies during the Second World War in calling for a new transatlantic push in the fight to preserve the environment.

That battle will have many fronts and the House of Representatives has clearly placed Big Oil on the side of the bad guys. Dealing with that kind of hostility is going to make management’s life even more difficult at the top of the oil business. Coupled with the structural problems already facing oil producers the tide is turning fast. The result? Quite possibly another wave of mergers between large energy companies that need scale to find efficiencies and cost savings to cope with a more challenging existence.

The industry’s great rainmaker, Lord Browne, the chief executive of BP, is standing down at the end of July after a decade during which he has led oil industry consolidation. With him gone, further mega-deals, such as a merger with Royal Dutch Shell, seem less likely, even though the challenges of the next few years could see pressure grow significantly for another round of serious deals.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/01/20/ccom20.xml

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