Record oil prices and profits turn up heat in D.C.
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WASHINGTON -- The country's three largest oil and gas companies are expected to report combined first-quarter profits this week in excess of $16 billion, a 19 percent surge from last year that is sure to complicate life for the industry in Washington, where elected officials are scrambling for ways to assuage angry consumers and businesses.
Chart: First quarter profits for top three gas & oil companies
President Bush gave the Environmental Protection Agency the authority yesterday to temporarily waive regional clean-fuel regulations to promote greater gasoline-supply flexibility, but members of Congress have other ideas. Some are renewing calls for a windfall profits tax and some want federal regulators to investigate industry consolidation. Still others are threatening hearings and expressing outrage at how the industry invests cautiously in new refining capacity yet rewards its executives lavishly.
The combined earnings expected from ConocoPhillips, Exxon Mobil Corp. and Chevron Corp. will be 14 times greater than the combined first-quarter profits of Google Inc., Apple Computer Inc. and Oracle Corp. "That level of profit is not justifiable," said Tyson Slocum, a consumer advocate and energy expert at Public Citizen.
But with world oil prices trading around $72 a barrel, analysts say full-year profits for the oil majors are likely to surpass the record-setting earnings of 2005, when Exxon reported a $36.13 billion profit -- the highest ever for a U.S. company. In other words, the hand-wringing in Washington isn't likely to mellow anytime soon. Still, this hasn't dampened investors' enthusiasm for energy stocks.
In a sign of just how much money stands to be made on the refining side of the business these days, Valero Energy Corp., the nation's largest independent refiner, said yesterday that its first-quarter profit jumped 60 percent to $848 million. BP PLC also reported a $5.6 billion first-quarter profit, though that was down almost $1 billion from the year before in part because of lost gasoline output from a refinery damaged by Hurricane Katrina.
L. Bruce Lanni of A.G. Edwards & Sons and other Wall Street analysts said the most likely fallout for the industry in Washington is more bad publicity in the form of hearings and investigations. But some policy experts say there is growing pressure on Congress to deliver more than just speeches given that pump prices are around $3 a gallon for the second year in a row and elections are in November.
Henry Lee, director of the environment and natural resource program at Harvard's Kennedy School of Government, said Democrats and Republicans alike feel enormous pressure from constituents to take some kind of action to lower fuel prices. At the same time, they recognize their relative powerlessness to have any major short-term impact on oil prices, which are up 33 percent from a year ago because of supply disruptions in Nigeria, the West's nuclear standoff with Iran and speculative fervor on Wall Street for all commodities.
So, Mr. Lee said, they are left with two types of options: punitive actions such as a windfall profits tax and creative measures to help balance energy supply and demand for the long-term, whether that means raising automobile fuel-efficiency standards or additional funding for alternative fuels research.
Rep. Joe Barton, R-Texas, said more hearings were necessary to determine how oil companies invest their profits. Sen. Arlen Specter, R-Pa., said a windfall profits tax might be necessary and that any future consolidation in the industry deserves more scrutiny. Sen. Charles Schumer, D-N.Y., has asked the Federal Trade Commission to monitor refiners this summer.
"These are all bad ideas," said John Felmy, chief economist for the American Petroleum Institute, the oil industry's main trade group. Mr. Felmy said taxing oil company profits would be a "disaster," and asked, "How does that help supply?"
The consternation in Washington about persistently high energy prices and soaring industry profits is not simply a matter of looking out for the little guy, analysts said. With midterm elections coming up in November, members of Congress also must look out for themselves.
"They hear it when they go back home" to their districts, said Richard Semiatin, an assistant professor of political science at American University. "And they're getting an earful right now."
But Andy Weissman, an energy analyst at FTI Consulting in Washington, said members of Congress would be making an unfortunate mistake if they were to attempt to curry favor with voters by holding public hearings and lashing out rather than working on genuine solutions to the country's energy crisis.
First Published April 26, 2006 12:00 am
