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Profits realistic, oil execs insist: Exxon Mobil Chairman Lee Raymond’s $400 million 2005 retirement package?

Houston Chronicle
April 1, 2008, 11:10PM

But lawmakers offer own ideas on industry behavior

Copyright 2008 Houston Chronicle Washington Bureau

WASHINGTON — Oil company executives expressed sympathy for consumers hurt by high energy costs Tuesday but defended their companies’ record profits.

With gasoline prices at an all-time high and angry truck drivers parking their rigs Tuesday in protest of even-higher diesel prices, executives from the nation’s five largest oil companies appeared before a House panel, where they were chastised by Democrats for their corporate profits and failure to invest more in renewable energy sources.

“On April Fools’ Day, the biggest joke of all is being played on American families by Big Oil, who are using every trick in the book to keep billions in federal tax subsidies, even as they rake in record profits,” said Rep. Edward Markey, D-Mass., a longtime oil industry critic and chairman of the House Select Committee on Energy Independence and Global Warming.

The energy executives tried to defuse some of the outrage over their profits — which Markey tallied at $123 billion in 2007 — at a time when many Americans are struggling to find the cash to fill up their cars.

“All Americans feel the pain of $100 oil, and it’s not just at the pump,” said Chevron Vice Chairman Peter Robertson. “Everything is more expensive. People are concerned about rising costs. And rightly so.”

But J. Stephen Simon, Exxon Mobil Corp.’s senior vice president, and Robert A. Malone, president of BP America, pointed to figures they said suggest the oil and gas industry’s profits last year were not out of line with companies in the Dow Jones Industrial Average.

Oil and gas companies, the executives said, earned an average of 8.3 cents per dollar of sales, compared with 7.8 cents per dollar for the Dow companies — which include Exxon Mobil and Chevron.

Simon said that Exxon Mobil’s effective tax rate in 2007 was 44 percent, compared with 30 percent on average for 80 U.S. companies surveyed by Tax Notes, a print and online news service covering tax issues.

Simon said that over the last five years, Exxon Mobil’s U.S. tax bill has exceeded the company’s U.S. earnings by $19 billion.

Intense exchanges

House Democrats had telegraphed the kind of reception the executives could anticipate with the hearing’s title — “Drilling for Answers: Oil Company Profits, Runaway Prices and the Pursuit of Alternatives.”

And the hearing lived up to expectations in what proved to be an often-testy exchange.

Markey quickly went after Exxon Mobil, asking why a company that earned more than $40 billion last year — the most ever earned by a U.S. company — has plans to invest only $100 million over 10 years in renewables and alternative energy programs.

Simon said company officials examined a range of alternative energy sources a number of years ago and were unsatisfied with their potential.

Instead, Simon said, company officials want to focus on leapfrogging current technologies and find a breakthrough for the world’s energy concerns.

“The current technology does not have any appreciable impact on this challenge,” Simon said.

Democrats pointed to the commitments BP and Shell have been making in alternative energy sources.

Markey wants them to do more, though, and invest at least 10 percent of their profits in renewables and alternative energy sources.

But early Tuesday, at Washington’s Center for Strategic and International Studies, Jeroen van der Veer, chief executive officer of Netherlands-based Royal Dutch Shell, warned against sinking too much cash on alternatives such as biofuels if they cannot be competitive in the marketplace.

“There is no point to spend billions of dollars on a technology that is too expensive for consumers,” van der Veer said.

Retirement package

Rep. Emanuel Cleaver, D-Mo., asked Simon how to explain former Exxon Mobil Chairman Lee Raymond’s $400 million 2005 retirement package to consumers struggling with high energy bills.

“I would have hoped that would be behind us now,” Simon said.

“That is in the past.” Simon noted, however, that Raymond’s package was decided by outside directors and not inconsistent with what other executives of comparable stature received.

The ranking Republican on the panel, Rep. James Sensenbrenner of Wisconsin, said that while “everyone knows the economic impact that gasoline can have on goods in the market … these companies create a lot of good jobs, and their expanded investment in market-driven research and technology only serves to create more jobs.”

The oil company executives are keen to fend off a bid to sock them with $18 billion in taxes to provide incentives for renewable and clean energy programs.

The Democratic-led House approved such a bill in February, but the measure has stalled in the Senate, and the White House has threatened a veto if it passes Congress.

Asked what policymakers could do to help bring down energy costs, the oil executives reiterated their long-standing call for access to areas now out of bounds to oil and gas exploration — particularly the Outer Continental Shelf off the East and West coasts.

“Altogether, these areas are estimated to hold 80 billion barrels of recoverable oil and natural gas equivalent — enough to double current U.S. reserves,” said John Lowe, executive vice president for exploration and production at Houston-based ConocoPhillips.

But Markey and other Democrats were unsympathetic to the call for greater access to new areas, arguing the oil companies have not been drilling in much of the acreage they already have leased from the federal government.

The House hearing came just one day after prices at the gas pump hit a record of $3.29 a gallon for regular, according to AAA’s Daily Fuel Gauge Report. The price was down a fraction of a penny Tuesday.

Shell Oil Co. President John Hofmeister noted that while consumers may be struggling to cope with higher fuel bills, prices at the pump have risen far more slowly than crude oil prices.

Crude still at $100

The price of oil, which historically has accounted for around half the price of gasoline, now accounts for 70 percent, according to the American Petroleum Institute, an industry trade group.

Light, sweet crude for May delivery closed at $100.90 a barrel Tuesday on the New York Mercantile Exchange.

While Tuesday’s session seemed to produce little meeting of the minds, Markey vowed it would be but the first of a series of the hearings the House will hold this year on the oil and gas industry.

The oil executives, Markey said, will be the winners of any contest for “most visits to Washington in 2008.”

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