Oil companies face heat from US lawmakers over record profits

Washington (Platts)--28Oct2005

Oil and natural gas companies are facing increasing heat from US
lawmakers to make investments and help low-income energy consumers as crude
and product prices remain high while companies are reaping record profits.
     This week, four oil majors reported almost $30-bil in third-quarter
profit--ExxonMobil ($9.92-bil), Shell ($9-bil), BP ($5.3-bil) and
ConocoPhillips ($3.8-bil)--spurring politicians on both side of the aisle to
ratchet up the rhetoric, especially as they brace for an expected wave of
upcoming phone calls from constituents struggling to pay winter fuel bills. 
     A group of 10 Democratic Senators have sent a letter to the heads of some
of the largest oil companies operating in the US, asking them to "act as good
corporate citizens" and invest a portion of their profits into programs, such
as fuel funds, that will provide energy assistance to low-income Americans.
     "Rising energy prices threaten to financially overwhelm low-income
families and seniors this winter," the Democrats wrote in the leader. "These
households will face impossible choices this winter: to heat or to eat."
     The letter was addressed to the heads of ExxonMobil, Chevron,
ConocoPhillips, Sunoco, Valero, Marathon, Amerada Hess, Tesoro and Citgo. 

     URGED TO FOLLOW UTILITIES' LEAD           
     The Democrats, largely from Northeast and Midwest states, suggested that
oil companies follow the tact of natural gas utilities, which for years have
contributed to fuel funds designed to help low-income families pay their
winter heating bills.
     "In 2003, contributions to fuel funds totaled $68-mil," they wrote,
adding that oil company profits for the first nine months of this year
increased by more than 35% percent over last year.
     "Contributing just 10% of your company's profits to assist low-income
families faced with high energy burdens will have a substantial impact this
winter," the letter, dated Thursday, said. 
     The letter was signed by Senators Jack Reed (Rhode Island), Maria
Cantwell (Washington), Mike Dayton (Minnesota), Barbara Mikulski (Maryland),
Herb Kohl (Wisconsin), Tim Johnson (South Dakota), Debbie Stabenow (Michigan),
Frank Lautenberg (New Jersey), Edward Kennedy and John Kerry (both from
Massachusetts), and Hillary Clinton (New York). 
     But it was not just Democrats calling for action. Senate Majority Leader
Bill Frist, a Tennessee Republican, Thursday said he would ask oil executives
to appear at a Senate hearing to explain why energy prices are so high. 
     He also requested the Senate permanent committee on investigations to
examine whether oil companies were price gouging consumers in the wake of
back-to-back Gulf hurricanes Katrina and Rita.
     Senator Susan Collins, a Republican from Maine, said she had introduced a
provision that would direct the Senate Finance Committee to identify ways to
pay for funding increases for the federal Low Income Home Energy Assistance
Program by eliminating "subsidies and special tax breaks that benefit the
major oil companies." 
     "At a time when huge oil corporations are expected to report record
profits, and Congress is dealing with troubling budget challenges, it makes no
sense to continue providing these companies with special subsidies and tax
breaks," Collins said in a statement.
     "These are dollars that could be better spent on critical programs such
as LIHEAP, which helps low-income Americans heat their homes in the winter
months," the statement added.
     On Thursday, US Energy Secretary Samuel Bodman said he would oppose any
proposal to impose a tax on the oil industry to help fund the LIHEAP program.
He indicated that such taxes had been tried in the past without success. 

     INDUSTRY DEFENDS PROFIT 
     Oil companies, and the organizations that represent them, have been left
to defend the industry for making money. The American Petroleum Institute this
week issued a statement saying that the oil industry's earnings were " very
much in line with other industries and often they are lower."
     Even though companies were posting huge profits, they also have huge
costs, API said. "The profits earned are only half the story, not a complete
picture," the Washington-based organization said. "Profit margins, or earnings
per dollar of sales (measured as net income divided by sales), provide a more
relevant and accurate measure of a company or an industry?s health..."
     API noted that when looking at second-quarter earnings compared with
sales, the oil industry made 7.7 cts for every dollar in sales, compared with
19.6 cts/$1 spent for the banking industry and an average for all US industry
of 7.9 cts.
     On a return-on-investment basis over the past 10 years, oil and gas
producers have made a 10.3% return and refiners and marketers a 6.2% return,
compared with the Standard & Poor's industrial average of 13.5%, API added.
--Cathy Landry, cathy_landry@platts.com

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