Big oil, bigger questions?
24 April 2008
On March 14 the top execs of the big oil companies were once again called before Congress to defend their industry's recent mergers and record profits. When appearing before Congress just four months earlier, they had been spared the fate of tobacco execs, who were forced to testify under oath in 1994. Footage of their swearing in continues to be shown as part of critical reports on the tobacco industry. This time, after both Democrats and Republicans complained about being misled, the oil execs were sworn in.
Coming under the most criticism was Exxon Mobil, the largest privately-held oil company. In 2005, it posted profits of more than $36 billion, the largest annual reported net income in US history.
The increase in energy prices helped propel Exxon Mobil past General Electric as the world's most valuable company. Before Exxon Mobil CEO Lee Raymond retired last fall, his annual compensation package jumped to more than $38 million.
It's worth noting that before being renamed in 1972, Exxon Corp. was known as Standard Oil Co. From 1870 to 1911, that company held a near monopoly over the US oil industry. Through elimination of competitors, mergers and use of favorable railroad rebates, it ultimately controlled about 95% of all oil produced in the United States.
In 1911, the US government broke up the Standard Oil empire after a lengthy antitrust suit. Among the corporations that once belonged to the trust was Mobil. In 1999 Exxon and Mobil were reunited - one of 2,600 mergers in the oil and gas industry since 1991.
During the recent hearings, Senator Dianne Feinstein (D-Calif) said the weakening competition and the strengthening market power held by oil companies following the mergers raised “really serious questions.”
“Although each of these mergers reduced the companies' costs, they were nevertheless followed by increases in the costs to consumers,” she pointed out. “I think we have a real problem.”
Rex Tillerson, who replaced Raymond as Exxon Mobil CEO, disagreed. “With respect to the committee's specific question - whether mergers and acquisitions in our industry have contributed to higher prices at the pump - my answer is no,” he said.
The execs attributed the rising fuel prices in large part to refinery shutdowns. However, suspicious observers noted that refineries now are running at about 87% and that inventories of both crude oil and petroleum products have risen since the beginning of the year.
During the first week of April, the average national retail price of diesel fuel has jumped 5.2 cents from the previous week to $2.617 a gallon. The diesel price was the highest since a $2.602 national average price on November 14, 2005.
During their March testimony, the oil execs protested that they should not be singled out because prices for other commodities also were escalating. Left unsaid was the fact that other prices were being driven up largely by the high costs of fuel for transporting items.
Our Transportation Group members can attest that they must compensate for rising fuel expenses by either hiking their own prices or sacrificing profits. They also know that good old-fashioned price wars aren't going to break out on opposite sides of a highway following an oil-company merger if one of the competing stations is shut down or transformed into a sister station to its former competitor.
Make no mistake, SC&RA wants the oil companies to remain financially healthy. After all, many of the association's members serve that industry by hauling, lifting and erecting equipment for oil fields and platforms. But there need to be limits. The oil execs should have taken notice when several members of Congress called their profits “obscene.” And they also should listen to recent rumblings about a windfall profits tax.
If the oil industry fails to take action to scale back prices, deregulation may very well give way to reregulation. Isn't it about time those top execs step up and make the moves necessary to justify their massive compensation packages?