Oil Company Execs Defend Huge Profits

AP via New York Post ^ | 9 NOVEMBER 2005 | H. JOSEF HEBERT

[rdb3]

Nov 9, 4:29 PM EST

Oil Company Execs Defend Huge Profits

By H. JOSEF HEBERT
Associated Press Writer

WASHINGTON (AP) -- The chiefs of five major oil companies defended the industry's huge profits Wednesday at a Senate hearing where they were exhorted to explain prices and assure customers they're not being gouged.

There is a "growing suspicion that oil companies are taking unfair advantage," Sen. Pete Domenici, R-N.M., said, opening the hearing in a packed committee room.

"The oil companies owe the American people an explanation," he declared.

Lee Raymond, chairman of Exxon Mobil Corp., said he recognizes that high gasoline prices "have put a strain on Americans' household budgets" but he defended his company's huge profits, saying petroleum earnings "go up and down" from year to year.

[lesko]

I demand a stop to price gouging at all airports and sporting events. The airlines and the concession stands at sporting events know damn well that my kids are going to get hungry and thirsty and therefore raise the price to make a profit.

[Fido969]

One word defense:

Economics

It's not a free market, though.

Drop the barriers to entry - let's see some REAL competition, and then let's talk economics.

Pig.

[samtheman]

Turning to Marxism in a time of crisis is a bad thing as well...

Right.

[Fido969]

...donning flame-proof underwear...

[libertarianPA]

http://www.capmag.com/article.asp?ID=4467

[Iron Matron]

"The oil companies owe the American people an explanation," he declared.

NO! Our Government owes the American people an explanation for using socialists tactics in this great Republic.

Any and all that have called for Big Oil to reach in their pockets to pay the "poor and underprivileged who cant afford heat" should be Removed from Office!!!!!!

Where were these SOB's when Domestic Oil Companies were losing their livelihoods while the Saudis Flooded the Market? HUH???

Who paid oil service company employees (mostly poor Mexicans) when they were all laid off and lost their homes, huh??? WHO PONIED UP MONEY FROM THEIR FAT POCKETS THEN???

I am so SICK of this Out of Control Government of ours..SOCIALISTS PIGS!!!

[Political Junkie Too]

If you want to talk about gouging, how much money goes into the campaigns to elect the politicians who sit on these committees? Where is that money spent? On TV commercials, newspaper and radio ads? Who sells the air time? Would that be... ABC, NBC, CBS, CNN, Time Warner...?

These campaigns every two years means a wide-open spigot of cash flowing from campaign donors to Big Media!

-PJ

[raygun]

I watched Charlie Rose interview him on PBS last night. That issue was actually addressed. While it is true that no new refineries have been built in the last thirty years, the equivalent of three refineries has been added to production capabilities of existing refineries. Secondly, it would take 3 to 4 years to get the permits needed to build new refineries, and then it would take about 7 years to build one. Finally, there is a whole support infrastructure that needs to be in place to support refinery operations. Lee said that there are serious economic viability issue concerning building new refineries.

Furthermore, Lee said that prospecting for new oil is an intractible issue. For the most part he said that oil exploration in the U.S. is pretty much over. All the major reserves have been found. Reserves that are known of are either prohibited from being drilled, or they are in deep water GOM. Lee intimated that if a company was going to drill anywhere, they'd be better certain that they're going to tap something. Because at $100 million per well, it don't pay to drill a dry hole. Lee even mentioned ANWR.

He said that there's no conclusive proof that oil exists in ANWR. Lee's has a long background in the industry, and he said that he's talked to many a geologist who was certain where oil would be found. And many a dry well were drilled on that certainty too. So all the controversy about ANWR is for the birds until we actually drill there to find out if oil actually is there.

Furthermore, Lee said that in real terms, even at $70/bbl, oil is cheaper at present than it was in '80-'81. He said that in '80-'81 he said discovery/extraction costs amounted to $4/bbl. He said that today it amounts to $0.66/bbl. He intimated that the expense decrease was due to increased efficiency of the technology, and equipment. He intimated that its extremely difficult for a company to remain fiscally viable engaged in the search, extraction, processing and sale of a commodity that gets progressively cheaper in real terms, despite increased volume of sales.

I thought it was a pretty good interview considering the host, i.e., Charlie Rose.

[Iron Matron]

Good Post.

Hope they got through to the Socialists Powers that Be.

[Racehorse]

Lets get a definition gouging. Say Company A has a profit margin of 7%. What % profit margin would it need to get to for it to be considered gouging?

When your customers reach critical mass, scream bloody murder, and the yelps for someone's scalp frightens an election-mindful Congress to threaten you with an excess profits tax.

[LibertarianInExile]

"Fine, but let's see a reasonable fraction of those profits go into new refineries and infrastructure. It would be good for the overall economy to put some stability into the fuel price structure."

You're right! In fact, let's do that with the rest of the economy, too. For example, let's do the same thing with all the people who made windfall profits from selling their houses. We should start by forcing them to take their money and invest in low-income housing or building multifamily housing, or tree farms, or directly subsidizing construction companies. All those things would help future housing prices drop, which might be counter to the profit-takers' interests in owning houses now, but hey, the objective is to be FAIR, right?

Also, since the oil companies made almost 10% (imagine!) profit on every dollar they earned last year, and it's widely accepted we should also tax heavily their profits now because they've accrued that phenomenal profit margin, we should do the same for homeowners who sell, make them give any profit over, say, 1%, to their community or to the state.

I think both those reasonable ideas would be widely acceptance by the public, don't you? After all, the same basic law should apply to everyone--from each, according to his abilities, to each, according to his needs.

[Alberta's Child]

Let's see a reasonable fraction of those profits go wherever the hell the directors of the company want them to go.

Preferably in the pockets of their shareholders, of course.

[infidel29]

So let me see if I get this, I bought my house for $43,500. If I sell it for $58,000 that's considered a "windfall profit" of +34% and I should be taxed on the difference as well as being subject to a congressional investigation?

Since the original government tax was put on Big Oil in 1977, the government has made $1.34 trillion in taxes while oil companies have made $600 billion in profits. Who is raking in the windfall again?

Source: Jim Quinn's show. He didn't source it, so bitch at him for the verifying links.

[raygun]

Outgoing Exxon-Mobil chairman Lee addressed that issue while interviewed by Charlie Rose on PBS last night. Lee said that he's absolutely and intimately aware that he's engaged in a cyclical commodity market. He says that sometimes they make money, and sometimes they don't. He said that he's averse to saying that he's entitled to retaining profits at this time, because the government didn't assist the industry when they were going through hard times. He says feast and famine is a nature of the beast. He said that he's a free-market, free-enterprise capitalist kind of guy, and that's just how it is. He said that its his duty to clip the peaks and valleys out of the picture and to take a long term view of things. He said that Exxon-Mobil's philosophy was that they've earmarked so much money for research, development, improvements, etc. that is not going to change from year to year. He said that next year if they don't make any money (or as much), they'll spend the same amount of money regardless. He said that in 1998 when oil was $10/bbl, the company made $9 billion, and yet spent $19.8 billion on all that. He says even if they don't make any money, the programs aren't going to stop.

He was a little vague about what he was going to do with short term profits right now. But he intimated that according to the company's philosphy there are two currencies: the $U.S., and Exxon-Mobil stock. He said that he's no control over the former (being dependent on people in Washginton D.C. for that), but has a fiduciary obligation to ensure the value of the latter to stockholders. He said that if in the future revenues aren't of the magnitude they are at present, he has to ensure the financial viability of the company through lean times. He said that in order to finance operations of the company during such times, it may be necessary to utilize the latter currency to obtain the capital necessary (to purchase debt for example).

[thackney]

He said that there's no conclusive proof that oil exists in ANWR.

What BS. Arctic National Wildlife Refuge, 1002 Area, Petroleum Assessment

I guess the oil actually seeping out of the ground naturally doesn't mean anything either.

[rdb3]

The smell of money always brings out the cheap demagoguery.

You said more than a mouthful. It shouldn't surprise me at the number who are taken in by it.

[Racehorse]

Some people will never understand that gasoline prices go up and down to control distribution.

This problem is mainly caused by people at the pump, not the oil industry.

Senator Domenici demanded an explanation from oil executives about how the price of petrol was set. "Most Americans think someone rigs those prices. Are you rigging the price of oil?" he said.

Mr Raymond responded that the question was "extraordinarily complex".

Hope C-SPAN taped the hearings.  I missed them.

I don't think oil industry profits are all a matter of prices at the pump, meaning they don't deliver just one product to one category of customer, do they?

What I'd like to find is an easily digestible article explaining the structure of the petroleum industry and explaining the various market forces determining that final price to the customer, whether the product be my gas at the pump or the oven bags I'm using to cook up my babyback ribs.

Don't believe it is a simple matter of supply and demand.  Do believe Mr. Raymond when he says setting petrol prices is extraordinarily complex.

[kaktuskid]

One word defense:
Economics

It's not a free market, though.

Drop the barriers to entry - let's see some REAL competition, and then let's talk economics.



No free market? How about Valero(the LARGEST oil refiner in the US), Sunoco, Giant Industries, Sinclair, ALON USA, Flying J, Frontier Oil, Holly Corp (all independent oil refiners)...and all of the exploration companies.

[misterrob]

If you can ads that is...

[thackney]

What I'd like to find is an easily digestible article explaining the structure of the petroleum industry and explaining the various market forces determining that final price to the customer

There are good sources of info at eia.doe.gov

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