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Bloomberg: Big Oil’s Record Profit Inspires Democrats to Seek $1.8 Billion

By Daniel Whitten

March 10 (Bloomberg) — Record oil-company profits, gasoline prices over $3 a gallon and the threat of a U.S. recession are increasing Democrats’ prospects for taxing oil and gas producers to pay for wind, solar and conservation programs.

Exxon Mobil Corp., Chevron Corp. and ConocoPhillips reported earnings of almost $10 million an hour in the fourth quarter. The economy appears headed toward the first contraction in a presidential election year since 1980. Democrats will probably raise taxes on the oil companies by at least $1.8 billion a year by 2009, senators in both parties say.

“I don’t think you want to be politically or any other way aligned with oil companies that are racking up these kinds of profits at a time when consumers in your state are paying $3 or $3.50 a gallon for gasoline,” says Senator John Thune, a South Dakota Republican who doesn’t face re-election.

The U.S. House on Feb. 27 voted for the third time in 14 months to raise taxes for investment in renewable energy. Senate Majority Leader Harry Reid, a Nevada Democrat, said he needs one more supporter before bringing it up again, after a similar measure fell a vote short in December.

President George W. Bush threatened a veto because it would curtail economic growth. Democratic presidential candidates Hillary Clinton and Barack Obama call for renewable energy investment, while Republican nominee John McCain skipped two Senate votes on directing tax credits for solar and wind.

`Why Settle?’

Bush’s opposition means Democrats may have to wait until next year. Legislative leaders “believe under a President Obama or a President Clinton they will get much more done,” says James Lucier, senior political analyst at Washington research firm Capital Alpha Partners. “Why settle for half a loaf when you can get two loafs in 2009?”

More punitive measures against producers may follow the current legislation, which would generate $18 billion over a decade, says Don Duncan, vice president for federal and international affairs at Houston-based ConocoPhillips.

“In today’s climate, $18 billion may not seem like a lot compared to earnings, but when the market goes down and prices drop, you still are stuck with the tax,” Duncan says.

The proposal would raise taxes about 2 percent for Exxon, Chevron and ConocoPhillips, cutting a few cents a share in profit initially and probably more as money is diverted to taxes from exploration, says Kevin Book, an analyst at Friedman Billings Ramsey & Co. in Arlington, Virginia.

Record Prices

“It hits the top line and it hits the bottom line,” says Douglas Ober, who manages the $850 million Petroleum & Resources Corp. fund in Baltimore, including shares of Exxon. “There is less revenue, less cash going to them, less ability to invest.”

Crude reached a record $106.54 a barrel on March 7 with American consumers facing the first nationwide drop in home prices since the Great Depression and the biggest monthly job losses since August 2003. The same day, heating oil touched a high of $2.9863 a gallon on the New York Mercantile Exchange.

Regular-grade gasoline will average a record $3.41 at the pump in the second quarter, the Energy Information Administration estimates.

Oil prices have risen because of constrained supplies and a weakening of the dollar that has driven investors to commodities. The increase in gasoline prices is causing public anger, said Representative Edward Markey, a Massachusetts Democrat, who accused oil companies of “turning the American consumer upside down at the pump.”

Repeal Tax Credit

The price jumps may fuel voter discontent this year, says Daniel Weiss, a senior fellow at the Center for American Progress.

“Record oil-company profits, high gas prices and a recession could increase pressure for clean energy policy this year,” Weiss says. “It will certainly prompt action in 2009.”

The House proposal would repeal a tax credit for domestic oil and natural-gas production and roll back a break for income from foreign crude to Irving, Texas-based Exxon, Chevron and ConocoPhillips. Tax revenue would fund wind and solar projects and energy-efficiency efforts.

The 10-year cost for the five largest energy companies will be more than $14 billion, says Book. Chevron, Exxon and ConocoPhillips may each pay $3.5 billion on average, while it may cost London-based BP Plc and Royal Dutch Shell Plc, of the Hague, $2 billion because they don’t qualify for the extraction credit. Smaller companies would pay about $3 billion.

Curtailed Investment

The proposed new taxes over a decade would represent about 53 days of combined profits last year for the five biggest energy companies. Exxon earned $11.7 billion in the fourth quarter, while Chevron had $4.88 billion, ConocoPhillips $4.37 billion, Shell $8.47 billion and BP $4.4 billion.

Exxon gained 15 percent in New York Stock Exchange trading in the 12 months through March 7, while Chevron rose 25 percent and ConocoPhillips 17 percent; the Dow Jones Industrial Average fell more than 2 percent. BP and Shell both climbed 2 percent in London.

The five largest oil companies said they will invest a combined $110 billion this year in new wells, refinery expansions and other projects.

Exxon and Chevron, based in San Ramon, California, referred requests for comment to the American Petroleum Institute trade group, whose president, Red Cavaney, said increased taxes will force producers to cut investment in new supplies.

To contact the reporter on this story: Daniel Whitten in Washington at [email protected]

Last Updated: March 10, 2008 00:03 EDT

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