Senators question whether federal subsidies are needed
Oil company executives were called before Congress a year ago to answer for what were alleged to be lax industry practices that set the stage for the BP oil disaster in the Gulf of Mexico.
View full sizeChevron's chairman of the board and CEO John Watson, center, and Shell Oil President Marvin Odum, right, testify before the Senate Finance Committee on Thursday. On Thursday, they were once again facing the music on Capitol Hill, this time to explain why they make so much money, and whether with high gas prices they really need billions of dollars in government tax incentives and deductions to drill and explore for oil.
"You make a lot of money, that's fine, that's the American way, but it seems maybe the subsidies are just not that necessary anymore," said Senate Finance Committee Chairman Max Baucus, D-Mont.
"How much profit do you need to make on a barrel of oil to not be needful of these subsidies that we think you don't need and you think your life depends on?" asked Sen. Jay Rockefeller, D-West Virginia.
"I don't think the American people want shared sacrifice, I think they want shared prosperity," replied John Watson, chairman and chief executive officer of Chevron Corporation, which made $6.2 billion in profits the first quarter of the year.
"Do you understand how out of touch that statement is?" responded Rockefeller, the great-grandson of John D. Rockefeller, who, as founder of Standard Oil of New Jersey, the forerunner of Exxon, was at the turn of the 20th century the richest man in the world. "We don't get to shared prosperity until we get to shared sacrifice."
But as Watson put it earlier in the hearing, "Don't punish our industry for doing our job well."
Taxes are paid
Watson and his four fellow executives from Exxon Mobil, ConocoPhillips, BP and Shell stood their ground, contending that, as Watson put it, the oil and gas industry already pays its fair share in taxes, that they are not benefiting from subsidies but "long-standing oil and gas provisions in the tax code (that) parallel tax treatment of other industries are designed to prevent double taxation," and that "singling out five companies because of their size" is "anti-competitive and discriminatory."
They said what really is needed is for the U.S. government to issue permits and open new territories for drilling, and shortly after their hearing ended the Republican House approved the third of three bills intended to expedite and expand drilling opportunities. The legislation, approved on a mostly partisan vote of 243 to179, would open lease sales off the Atlantic and Pacific coasts. The action was cheered by industry and chided by environmentalists, who said the House is courting disaster.
"They open some of our most pristine and beautiful shorelines up to the same sort of potential disaster we saw in the Gulf of Mexico with BP Deepwater Horizon -- and they make the system that oversees offshore drilling less safe than before the Gulf spill," said Francis Beinecke, president of the Natural Resources Defense Council and a former member of the National Oil Spill Commission.
Bills could die in Senate
The House bills, which were rushed to the floor by the Republican leadership against a backdrop of spiking gas prices, would appear to have no realistic prospect in the Senate, where Democrats are moving to vote next week on a proposal to remove $21 billion in tax incentives and deductions over the next 10 years for the Big Five oil companies. That effort is unlikely to muster the 60 votes needed, especially with the declaration on the Senate floor Wednesday by oil state Democrats Mary Landrieu of Louisiana and Mark Begich of Alaska that they would fight it.
"In my view it's a waste of time and, no pun intended, a waste of energy that we need to save if we're going to tackle the real hard question, which is how to get us through the debt-limit situation, how to really reduce the deficit, which is going to take a combination of cuts and revenue raisers," Landrieu said Thursday. "But to pick on one industry, particularly an industry that only pulls down less than 15 percent of all energy subsidies but provides 60 percent of the energy, just doesn't make a lot of sense."
But Landrieu's Democratic colleagues on the Senate Finance Committee were determined to place the oil company profits in the context of the economic pain being suffered by ordinary Americans, and the very tough choices before Congress.
View full sizeConocoPhillips CEO James Mulva, left, speaks as ExxonMobil CEO Rex Tillerson examines a chart Thursday on Capitol Hill. Sen. Chuck Schumer, D-N.Y., asked James Mulva, chairman and chief executive officer of ConocoPhillips, which made $3 billion in profits the first quarter, "Do you think your subsidy is more important than financial aid we give to students to go to college?"
"They are two totally different situations," Mulva said. "That's a choice legislatively that you are going to have to make."
Same question, new answer
At the opening of the hearing, Baucus noted that "in 2005, President George W. Bush said, 'With $55 (a barrel) oil, we don't need incentives to oil and gas companies to explore. There are plenty of incentives.' Today, oil costs more than $100 a barrel."
Later, Sen. Ron Wyden, D-Ore., played for the executives a tape of a similar hearing five years ago at which the executives agreed to Bush's assessment.
But this time, the oil executives said removing the incentives could tip investment decisions.
"By undermining U.S. competitiveness, they would discourage future investment in energy projects in the United States and therefore undercut job creation and economic growth," said Rex Tillerson, chairman and CEO of Exxon Mobil Corp., which had $10.7 billion in profits the first quarter of the year. "And because they would hinder investment in new energy supplies, they do nothing to help reduce prices."
The hearing got off to an acrimonious start with Sen. Orrin Hatch of Utah, the ranking Republican on the panel, suggesting that what was to come would be a dog and pony show, and he unveiled a large picture of a dog riding a pony.
"Who is the horse and who is the dog?" Baucus asked.
"I know who the horse's ass is," said Hatch, adding a moment later, "I shouldn't have said that."
Jonathan Tilove can be reached at jtilove@timespicayune.com or 202.857.5125.