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U.S. Senate Committee on Commerce, Science and Transportation and U.S. Senate Committee on Energy and Natural Resources Hold a Joint Hearing on Energy Pricing and Profits

Part 2 of 3

Courtesy FDCH e-Media
Thursday, November 10, 2005; 10:40 AM

The transcript picks up with Sen. Barbara Boxer (D-Calif.). To return to part 1 of the transcript, click here.

BOXER: You said it wasn't economically viable.

It wasn't true. Internal documents showed Bakersfield refinery was making about 55 cents profit per gallon, the biggest marginal profit of any Shell refinery in the country.

The truth is it also was the most reliable Shell refinery in the country for 2003.

And I ask consent to put those documents in the record that prove what I'm saying is accurate.

I ask consent to put those documents in the record, Mr. Chairman.

STEVENS: (inaudible) consent. What documents?

BOXER: If I could have a moment to explain the documents without it coming off my time, please.

STEVENS: If they're official documents.

BOXER: They are official documents.

STEVENS: Without objection.

BOXER: Thank you.

At the end of the day, there was a credible buyer; the refinery is up and running.

So could you please explain why your company put out that word that there were no buyers -- that wasn't true -- that the refinery wasn't reliable -- that wasn't true -- that the refinery wasn't making money -- that wasn't true? Was it because you wanted to control the supply of gasoline and make gasoline even more expensive to my people in California?

HOFMEISTER: Senator, I'd like to thank you and the attorney general for the help that you gave us, ultimately, in the sale of that refinery.

BOXER: Well, you weren't happy when we intervened initially, but I'm happy you're happy now.

HOFMEISTER: And the refinery is up and operating and Shell continues to support the new owners of that refinery in its technical requirements and in a smooth handover from one owner to the next.

Fundamentally, we'd shopped the refinery around unofficially but did not find buyers. We then decided to close it.

The reason for closing it is that this is a refinery that is one of the oldest in the country. It is one of the smallest in the Shell system. And it is on multiple sites. So, in other words, the refinery is not contiguous; it operates in different plots of land in the city of Bakersfield.

And so, in terms of future investments, as we look at the need for world-scale, large manufacturing operations, what we really require are world-scale factories. And this was not going to get to world-scale.

It was impossible to expand it. It was impossible to link it up in the way in which refineries are to be linked up to meet our investment criteria.

So, in the end, it was sold. It's operating. We're delighted that the employees are still employed.

BOXER: Well, Mr. Chairman, if I just might say this to you, this was a struggle to get Shell to cooperate with us. The attorney general had to force them, in essence, to open up their books.

And I just would say to you, I'm very happy that you now think it was a good thing. At the time, the people in charge there were not happy with us. And it seemed to us, and in retrospect still does, that there was a desire to short the market even more.

And, Mr. Chairman, thank you.

STEVENS: Thank you very much.

Senator Domenici -- yield now to his committee.

DOMENICI: On our side, Senator Murkowski and Senator Wyden?

MURKOWSKI: Thank you, Mr. Chairman.

And welcome to the members of the panel here this afternoon, or this morning.

I would like to talk a little bit about the natural gas situation following up on Senator Alexander's comments.

People were shocked with the hit in the price of gas at the pump. But I think it's fair to say that this winter people across the country are going to be shocked when they look at their natural gas bills that we anticipate all across the country.

As we all know, Alaska has 35 trillion cubic feet of known natural gas reserves just waiting for a means and a mechanism to get to the market. Now, for about the past year or so, the gas owners, Exxon, BP, Conoco-Phillips, have been in negotiations with the other owner of the gas, the state of Alaska, to work a deal so that we can get the gas moving.

And, Mr. Mulva, I appreciate your comments here, this morning insofar as the tentative agreement that Conoco-Phillips has reached with the state. We appreciate that.

And given that the third quarter profits that we've seen from the three companies that I just mentioned exceed the estimated $20 billion cost of the entire pipeline project, I'd like to direct a question to you, Mr. Raymond, and you, Mr. Pillari.

MURKOWSKI: What is holding Exxon up, what is holding BP up from reaching a firm agreement with Alaska and actually committing to build this very vitally needed pipeline?

Gentlemen?

RAYMOND: Well, Senator, I think we've been involved with the state of Alaska in discussing the building of a gas pipeline now for some 30 years.

Fortunately, we didn't do it earlier, because it would have been an economic disaster for both the companies and the state.

The comment about the structure of the natural gas market I think is one that we're all concerned about. And the National Petroleum Council three years ago had an exhaustive report on that, and it was updated a year ago. And frankly the position that the country is in, in natural gas, is exactly what the NPC said was going to be the case.

In terms of our current discussions with the state and with the governor, I'm told by our people that we continue to make progress. The specific issues that are out there I think are more appropriately handled between the governor and the people up there who are trying to negotiate it.

I think the intent is, as we've had for a long time, is to come to a successful conclusion. But I think we have to recognize that it would probably be the largest single private project anywhere in the world. And, therefore, it's absolutely critical from our point of view that all the elements of the agreement be clear and the interaction between the gas operation and the oil operation at Prudhoe Bay also be clear.

MURKOWSKI: Mr. Pillari?

PILLARI: The only thing I would add to that is I think progress has been made. We would like to see this pipeline built. My understanding is people were working seven days a week to get the details done.

I think every company approaches a negotiation a different way. We would like to see all the details resolved before we agree to go forward, but we believe this project is a good project, and we believe it will get done shortly.

MURKOWSKI: I appreciate that air of optimism from you, Mr. Pillari.

We don't want to be sitting here 30 years from now. As you point out, Mr. Raymond, it has been 30 years in the making already. And I appreciate the confidentiality of the terms of the agreement and the effort that has been made.

MURKOWSKI: But I think we need to be aware that there will come a point when the American consumer's going to say: Well, wait a minute, you're got all the gas up there, you've been trying to get this line going, is it these companies that are trying now to manipulate the price of natural gas and holding off and not moving forward with the project?

It may cause us here in Congress to question or revisit some of the incentives that we moved forward just last year to help facilitate this project.

So I want to just put that on the record, that we don't want to be sitting here in another hearing a year or two from now saying: What happened? Why have you not participated?

I just have a couple seconds remaining here. I want to put out also the issue of access to a natural gas pipeline and what it would mean under the FERC order that covered the gas line. There are some parameters to ensure access to others so that we guarantee line expansion in an equitable and an economic way, and I would just like to know that you would be willing to work with the state, essentially guarantee that access to expansion to the line. And if I can have either Mr. Raymond or Mr. Pillari speak to that.

RAYMOND: Well, if I may, Senator, I think the issue of access to the expansion of the line, while it's an interesting question, isn't really the key question right now. The key question is to build the line to begin with. The question isn't access to expansion.

The facts are, and I think people need to realize that even if we come to an agreement with the state on the construction of the line it will be probably 10 years from now before that gas flows. And the issue of natural gas in this country, while that can make a significant contribution years down the road, the more important question is in the near to medium term, when we have to start to dealing with imports of gas through LNG terminals.

The facts are, Senator, we need to do it all.

MURKOWSKI: We need to do it all, and I understand from your full-page advertisement a couple days ago that you've got a $14 billion commitment over in Qatar to assist with that LNG facility. We would just like to do what we can domestically. We recognize that it takes a while to get the Alaska gas on line, but we got to get moving sooner than later.

Thank you, Mr. Chairman.

RAYMOND: I don't disagree with that.

DOMENICI: Senator Wyden is recognized for five minutes.

WYDEN: Thank you, Mr. Chairman.

Gentlemen, the president says, and I quote, "With $55 oil, we don't need incentives to oil and gas companies to explore. There are plenty of incentives."

WYDEN: Now, today the price of oil is above $55 per barrel. Is the president wrong when he says we don't need incentives for oil and gas exploration? If I could just have a yes-or-no answer and go right down the row, beginning with your Mr. Raymond.

Is the president wrong?

RAYMOND: No. And I don't think our company has asked for any incentives for exploration.

WYDEN: Sir?

O'REILLY: In my oral comments I said we do not need -- what we do need though is access.

WYDEN: Just a yes or a no.

O'REILLY: Yes.

WYDEN: Sir; the president's correct?

MULVA (ph): He's correct.

WYDEN: Sir?

HOFMEISTER (?): Yes, he is.

WYDEN: All right.

Now, your companies have been charging record prices and getting record profits, but also getting record tax breaks.

Now, the president says they aren't needed. You've just told me they aren't needed. But Congress just a couple of months ago gave you several billion dollars in new tax breaks on top of the tax breaks you already get.

My question to you is: Why shouldn't Congress take back the billions of dollars in brand new tax breaks, breaks that you've just told me aren't needed, and use that money to help people that are hurting in our country?

Mr. Raymond, your response?

RAYMOND: I've heard that comment made many times since the passage of that legislation, and I've asked my people many times if they could identify what so-called tax breaks are in that legislation that would apply to Exxon Mobil. And the answer they come back with is when you add it all up, that energy legislation is zero in terms of how it affects Exxon Mobil.

Now, how it affects the industry, some other people can respond to.

WYDEN: So you would have no problem -- because I'm on the Finance Committee and I'm going to offer an amendment to take back the $2.6 billion of brand new tax breaks and use that money to help people who are hurting. You said you're not getting any.

RAYMOND: As far as my company is concerned, doesn't make any difference whether it's there or not.

WYDEN: Good. I'm glad you'll support me on Thursday.

Sir?

RAYMOND: That's a different question. That's a different question.

WYDEN: I think you summed it up. Just a yes or no answer.

Sir?

O'REILLY: Senator, it's impossible to...

STEVENS: The senator will suspend.

Our rules provide that the chairman has the duty to maintain good order and any public demonstration of approval or disapproval indicated by people in the audience, it's the duty of the chair to enforce on his own initiative and without any order by any senator the decorum of this hearing.

When the chair feels it's necessary to maintain order, he shall have the power to clear the room and the committee will continue in closed session so long as there's any doubt about the continued disruption of the hearing.

The Senate will proceed.

WYDEN: Sir, right down the row...

O'REILLY: Senator, it's impossible to give a yes or no answer, but if you'll permit me a sentence or two I'll answer.

WYDEN: I think what I need to know -- you've told me the tax breaks aren't needed. I want to take them away...

O'REILLY: I didn't say that. I didn't say that.

WYDEN: You said the president was right, that we don't need tax break, price is over $55 dollars a barrel.

O'REILLY: If you'll forgive me, Senator, I would like to answer the question.

And that is from our perspective, it will have had a minimal impact on our company -- minimal.

However, I think my understanding of those breaks, because they must affect others, is that whatever steps are taken by the government, they should be done on a prospective basis so they don't penalize people that have made decisions based on the act that's already been adopted.

Thank you.

MULVA: Senator, with respect to oil and gas exploration, production, we do not need incentives, what we need is access so that we can explore. And second, the recent energy...

WYDEN: So you'll support my effort Thursday to take them back?

MULVA: The recent energy legislation that was passed, while it's a good step, did not do very much with respect to supporting and enhancing additional supply, which is what we really need -- additional supply -- and that goes back to access.

WYDEN: Our next witness?

PILLARI: I would agree with what's just been said and say it's a minimal impact on us. I would add that included in that bill is something about LNG siting, which I believe is very important.

HOFMEISTER: The bill for us is not material in any way, but I do think we are a large, diverse and complex industry in which many of the industry players see it differently than we do.

I would say that there are some areas of the bill, such as coal gasification, which offers benefits to states, not only to industry.

WYDEN: I just want the public to know, you've got $2.6 billion of tax breaks. You've told me they aren't needed. I hope you'll support my effort to take them back and give that money to people who are hurting.

One last question for you, Mr. Raymond, if I might.

You've been quoted as saying that speculation accounts for about $20 of the current per barrel price of oil. Yet you have given us now several times multiple, kind of, discussions about how the markets are working. Shouldn't we rein in those speculators who, by your own admission, are accounting for $20 of the current per-barrel price of oil in order to make markets work?

WYDEN: Will you support legislation to rein in those speculators?

RAYMOND: Well, I think the point, Senator, is that that is part of the market. That is part of the market system. Now, in terms...

WYDEN: Speculation is good?

RAYMOND: I think you will find that, many times, speculation is a requirement for an orderly market.

Now, I'm not going to be here to defend the speculators on Wall Street. That's not my role in life. But I think the point I'm trying to make to you is that that's an extraordinarily complex interaction to try and deal with that.

And the facts are that in the petroleum markets, in the scene that has been set for the petroleum markets, the uncertainty -- political, all around the world -- leads to speculation. And that speculation does impact on the price of petroleum.

Beyond that, what you want to try and do with it, that's up to you.

WYDEN: My time is up, Mr. Chairman.

I'm only saying that when you yourself say that speculation is such a big factor in this clobbering people are taking at the pump, it seems to me you owe it to the public to be aggressive in terms of trying to root out some of these abuses.

And I hope you'll try to do that when a group of us try to make those changes as well.

Thank you, Mr. Chairman.

STEVENS: Senator, I look forward to that debate on the floor since primarily that tax relief was for small refineries. We'll be happy to have another panel of them come and answer your question to tell you why it's necessary.

The next senators to question are Senators Smith and Senator Cantwell.

SMITH: Thank you, gentlemen, for being here. Obviously, this is a most important hearing to the pocketbooks of the American people.

It's my understanding that, while the price of crude has gone up about 40 percent this year, the price of gasoline has gone up 60 percent. Given that refining costs are essentially constant, can you explain to me or, more importantly, to the American people this growing disparity between crude oil and gasoline prices?

RAYMOND: Is this to me?

SMITH: Any of you.

O'REILLY: I'll take a turn.

There really are two markets at work, Senator.

First of all, the crude oil market has a bearing on all of refined products, whether they are gasoline, jet fuel or diesel. Because, underlying gasoline, jet fuel and diesel, you have -- inherently, the raw material the raw material cost is crude and it is by far the biggest factor in the cost.

O'REILLY: So crude is a global market and it moves up and down.

Gasoline isn't quite as global, in a sense. It has regional characteristics that are both geographic and quality in nature. Some gasolines are different than others. For example, Oregon has a different gasoline than California. So you will see differences in gasoline markets that are related to supply.

SMITH: Is 20 percent what it takes to account for those differences?

O'REILLY: Well, clearly, if 15 percent of refining capacity comes out of the market, as it did during the period of the hurricane, you will have dramatic impacts on the product markets that are independent of crude. And I think that's what you're seeing.

There has been more volatility in product markets, particularly this year, than in typical years.

SMITH: I understand those kinds of things. I run a commodity business myself.

But the concern that I have is that, while the Gulf can probably be explained by these incredible hurricanes and natural events, however, where these three senators sit, we are not affected by that. We get no crude from the Gulf. And yet the prices on the West Coast spiked as well. And I think that that's really hard for me to explain at a town hall in Pendleton, Oregon.

O'REILLY: Well, as a West Coast-based company, I think I owe you help with the answer to that question.

A lot of people don't fully appreciate that the West Coast is deficit products and we typically bring product to the West Coast from the Gulf Coast, from Asia and at times from Europe, because the supply lines are so long.

When the Gulf Coast refineries went down because of the hurricanes, there was literally a bidding for the gasoline that's coming from these areas. And, obviously, prices in the Gulf Coast were so high that that's where the products moved. And it caused an abnormal supply situation to occur in the West.

It wasn't as dramatic as what happened in the Gulf or as volatile, but nevertheless it did impact the markets in California, it impacted the markets in Asia, as well as in Europe.

SMITH: Well, look, I want...

MULVA: If I could answer one point.

SMITH: Yes, please.

MULVA: The oil market certainly is a worldwide market, and we have regional situations as a result of the hurricane or whatever.

But there is something else, that as an industry when asked earlier, when we started the hearing today, what could be done. We have so many different fuel requirements and specifications from one season to the next across the United States that one of the things that we feel quite strongly that we need to do and certainly as I think you, as working here in Congress and all in the Senate could help us, is to go to more standardized fuels and get away from the boutique fuels. That can help somewhat with respect to the dramatic changes from products from one season to the next and within regions of the United States.

SMITH: Let me also say, I don't know petrol, but I know the pea business. That was my business.

If I own the farm, if I own the food processing plant, if I own the distributor and I own the grocery store, if I'm totally integrated and I post enormous profits, the likes of which the petroleum industry has posted, I would get a lot of attention.

My concern is your vertical integration on the West Coast. And when I see profits posted at $9.9 billion, $3.6 billion, after you've already accounted, as I understand it, for your capital investments, your taxes and more, I'm hard-pressed to feel good about defending these kinds of increases when all of this vertical integration has taken place, from the ground to the gasoline station.

SMITH: And this is a public relations problem that you have and it's a public policy problem that we have, and we need your help to solve it.

Thank you, Mr. Chairman.

DOMENICI: Ms. Cantwell?

CANTWELL: Thank you, Mr. Chairman.

Gentlemen, this committee was billed as an investigative hearing, and I think you can imagine as the public looks at some are saying will be $100 billion in profits this year for the oil industry while my constituents are losing their jobs or losing their pensions, that Americans want answers.

So I'm going to try, in my five minutes, to ask you some questions like my colleagues, and if you could give me yes-or-no answers that would be helpful.

First, I'd like to know whether your companies in 2005 exported fuel -- gasoline, diesel -- outside of U.S. markets prior to Katrina? Just a yes-or-no answer.

RAYMOND: Well, Senator, there are no easy yes-or-no answers in this business.

CANTWELL: Did you export fuel outside of the United States prior to Katrina in 2005? It's just a simple question.

RAYMOND: No, it's much more complex than that.

Historically, this country has exported some products. It is basically the way that the Caribbean and Central America live. So the extent you say you can't export to places that have been traditional export areas we go to, they will continue.

If you're asking the question, "Have we had discretionary exports that would be not in the historical pattern for our company?" the answer to that is, no.

CANTWELL: I'm asking a simple question: Did you export any fuel -- gas or diesel -- out of the United States during 2005 -- it's a simple question -- prior to Katrina?

Mr. O'Reilly, yes or no?

O'REILLY: Senator, we import a lot more than we export, but we always export because the Caribbean is dependent on our refineries in the Gulf Coast.

CANTWELL: Mr. Mulva?

Yes or no will do.

MULVA: Senator, as a result of the hurricane, we did not export product...

CANTWELL: Prior to Katrina. I'm asking prior to Katrina.

MULVA: We did export product prior to Katrina.

CANTWELL: OK, thank you.

PILLARI: I don't have details, but I would think we did to places like Mexico and Canada and the Caribbean.

CANTWELL: Thank you.

HOFMEISTER: We both import and export.

CANTWELL: Thank you.

Did any of you sell product outside of the United States in the same time period for a smaller profit than you would have made if you would have sold the product in the United States?

RAYMOND: I don't know the answer to that question.

CANTWELL: Mr. O'Reilly, do you know?

O'REILLY: Impossible to answer without checking.

MULVA: I don't know the answer.

PILLARI: I don't know.

HOFMEISTER: Don't know.

CANTWELL: Thank you.

Will you gentlemen provide information about how much gas and diesel your companies exported in 2005 and whether you sold any of that product for a lower profit than you would have made in the United States? Will you provide the committee with that information?

RAYMOND: Sure.

CANTWELL: Could you answer so for the record?

O'REILLY: We'll get it for you.

MULVA: Yes, we will do.

PILLARI: Sure.

HOFMEISTER: Yes.

CANTWELL: Do you know of any instance in which your companies might have diverted supply, that any instance where you had a ship heading toward the United States destined for U.S. market with supply and the petroleum products en route to the United States were diverted?

RAYMOND: No.

O'REILLY: Senator, the other way around. Without bringing products from places like Europe and Asia to the West Coast...

CANTWELL: I'm just asking if...

O'REILLY: I would just like to clarify. We would have been short on our product on the West Coast.

MULVA: Senator, no, not that I'm aware.

PILLARI: No, I don't believe so.

HOFMEISTER: Senator, there were cases where ships were on their way to this country but there was no more capacity, no room to bring the imports into this country, particular in the New York harbor where the capacity was simply unable to take more imports.

CANTWELL: Will you provide this information to the committee, as well? Could you...

HOFMEISTER: Yes.

CANTWELL: Thank you.

Now, I only have a few minutes left. And I would hope that the members before us today would speak to the issue of the spot market. Because having dealt with this situation with Enron, where all my colleagues here heard that this was about the fact that we just didn't have enough supply, and it was environmentalists that were holding things up, or it was the process, only to find out it wasn't so much about production but about manipulation of supply.

CANTWELL: And I want to know whether you gentlemen will help us reform the spot market sales and lack of transparency that occurs in the off-market exchanges; the fact that we don't know what these records and trades were; there's no ability to track that.

So would you disclose your sales in this off exchange in the spot markets for this same time period in 2005?

RAYMOND: I have no problem with that. I mean, we're basically not in those markets.

O'REILLY: With clarification, I would be happy to provide the data.

MULVA: Yes, I think with further clarification, we would provide it. We're essentially in the physical markets, not necessarily in the financial markets so we would share that information with you.

PILLARI: Yes, we'd be happy to work with you on what it is you're looking for and then provide it.

HOFMEISTER: Same.

CANTWELL: Thank you.

Thank you, Mr. Chairman.

I think this is a very critical, important issue: the fact that we have lack of transparency and product inventories have changed drastically. This industry has moved to just-in-time inventories and instead of having 26 days of reserves now have five days of reserves or something of that nature. Let's find out.

But I think that that leads to a manipulation of supply that increases price. Prior to Katrina, the spot market fluctuation has to have transparency.

Thank you, Mr. Chairman.

STEVENS: We now recognize Senator Martinez and Senator Landrieu for five minutes each.

MARTINEZ: Thank you very much, Mr. Chairman.

Mr. O'Reilly, the first question is to you. I heard your testimony about the area of Destin Dome, which happens to be in my state of Florida. And, frankly, one of the things I hear when I go home is folks not only asking, "What's going on with the prices?" but they also do say, "Thank you for protecting our beaches, thank you for protecting Florida."

And so in that vein, in addition to economic considerations, environmental considerations, I wonder if you're aware of the fact that very close to the Destin Dome is one of the largest Air Force bases in the United States, in fact, the largest land area in the United States, the Eglin Air Force Base, which utilizes extensively the Gulf of Mexico for military training missions? Are you aware of that presence there?

O'REILLY: Yes, I am, Senator.

MARTINEZ: And would it be also part of the consideration of not drilling immediately 25 miles off the coast of Florida, immediately south of Eglin Air Force Base, the fact that military missions and training and testing would be impeded if there were platforms in that immediate area just south of Eglin Air Force Base?

O'REILLY: Senator, I think it's a policy decision that the government should make. This was done on what I would call a bipartisan basis.

O'REILLY: I'm just pointing out, it's a policy decision. We can either develop the gas or we can leave it there. It's a government choice.

MARTINEZ: But there are policy considerations in why we make certain decisions which then have ramifications, I do understand?

O'REILLY: That is correct. That was the point in one of my recommendations, is policy alignment is, I think, a very critical issue. And I'm just pointing out that it is difficult for us to develop resources unless policies are there to support them.

MARTINEZ: Your example, they went on to talk about liquefied natural gas from Angola. The fact is that there are other means by which gas product can get to Florida, through pipelines over land. And those are really the more normal routes by which gas comes to Florida, since there are no liquefied plants that I'm aware of in the state of Florida, anyway.

O'REILLY: No, there are not. That is correct, Senator.

MARTINEZ: So that's not really how Florida receives its gas product, Angola?

O'REILLY: It will be, because it will get into the pipelines then ultimately arrive in Florida.

MARTINEZ: Not today?

O'REILLY: In a few years, Senator.

MARTINEZ: This is for all of you now.

I had recently had an opportunity to become aware of some of the things that are being done in Brazil and have been done over the years in Brazil with the use of ethanol in their mix of fuels.

As the leading energy companies in our country as it relates to gasoline and servicing of our folks that attempt to move about in our transportation network with the fuels that we currently have, I want to know what each of your companies is doing about the future. I want to talk about the thinking that we have as to what we will do for tomorrow that will be different than what we've been doing in the past.

In Brazil, they're utilizing ethanol extensively as a mix into their gasoline. In addition to that, I understand, from what I was told while there, that every single gas station outlet in the country has a pump that will pump ethanol. And I know that the automobile companies there -- Ford and GM, for two -- are developing vehicles that will soon be on the market that will allow them to run on either ethanol or on more traditional gasoline.

I do believe in the ingenuity of our industry. I do believe in the ability of the American know-how to be reenergized and for us to become not so wedded to what someone decides on a given day in Saudi Arabia that they will sell us crude oil for, but that we will be independent of that and that we will be independent of irrational and unstable dictators south of the border that control a substantial percentage of our fuel.

What are each of your companies doing for us to develop that ingenuity and that know-how into independence of fossil fuels as we've known them in the past, utilizing renewables, utilizing ethanol, and maybe other technologies as well?

Begin with you, Mr. Hofmeister. I noticed we started at the other end of the table; I want to give you an equal opportunity.

HOFMEISTER: Well, thank you, Senator.

We are heavily involved in the ethanol business in Brazil. And that is a good business.

MARTINEZ: But why are we not doing it here?

HOFMEISTER: Well, in fact, we are the world's largest marketer of ethanol, and we are doing it here. We are shipping daily some tens of thousands of barrels of ethanol to different parts of this country.

We're also investing in cellulose ethanol, which is a more derivative form of ethanol. We're both passive investors in companies that are doing it, in which we are funding their research, but also in our own laboratories.

HOFMEISTER: We are investing in biofuels -- a wide range of biofuels, not just ethanols -- to test their viability.

And we're working closely with the auto manufacturers on their engine designs to see to it that the long-life nature of engines is protected with the introduction of these biofuels in such a way that we can also handle the climate change issues; what I mean by that is, the existing climates of north and south and east and west of this country.

Also, four miles from here, we're selling hydrogen in a retail station. And we believe that the hydrogen business, working in a partnership with General Motors, is a very good future business for us, but it's many years into the future before it really does touch many of the consumers in the U.S.

MARTINEZ: Well, I realize my time has expired. If anyone can give a similar answer, I would appreciate it. If not, I would take it in writing from each of you.

PILLARI: Senator, I would just add that we are an extremely large user of ethanol. We will continue to grow our ethanol use. We have hydrogen sites, pilot sites now in Florida, Michigan and California. We are working with auto manufacturers on what they're going to do with engines. So it's a very similar story.

STEVENS: Senator's time has expired. I'm sorry.

MARTINEZ: Thank you, Mr. Chairman.

STEVENS: Senator Feinstein?

FEINSTEIN: Thank you.

It's my impression that refineries in the United States are virtually at capacity, and yet no new refineries are planned.

I wrote to each CEO earlier asking what you are going to do to try to see that prices are lowered or whether you would cooperate to see that prices are lower, and I received no affirmative answer.

I did, however, receive a letter from Mr. Bindra (ph), Mr. O'Reilly, of Chevron, with respect to refinery production; indicates that Chevron is increasing the total California refinery production capacity by roughly 20,000 barrels per day. That's 800,000 gallons a day. It's a 10 percent increase, as I understand it, in production. And that the Richmond refinery has already submitted permit applications for the city of Richmond and the Bay Area Quality Management District, and that modernization is under way at El Segundo.

So I think that's good news.

But Deutsche Bank reported that refining margins on the West Coast have doubled in two years, going from $11.99 in 2003, to approximately $24.60 in the third quarter of '05.

And so it appears that oil companies are holding back adding refining capacity because it helps increase margins.

FEINSTEIN: Now, I know you've spoken about expansion, but I'd like to know how much of your profit margin is due to refining, and what justification you have for such huge refining margins.

RAYMOND: Well, Senator, if I may, I recall the letter you sent, but I think in our case, as I recall, it was directly primarily toward California.

You probably don't recall -- no need that you would -- but at the time that Exxon and Mobil merged, each one of the companies owned the refinery in California. The Federal Trade Commission and the state of California made it very clear that we could only own one refinery, and they weren't interested in our making any additional investments in any refining in California.

So given that that was the circumstance a few years ago and we now only own one refinery, we probably aren't the right people to talk to.

FEINSTEIN: Mr. O'Reilly?

O'REILLY: Senator, with two refineries -- of course, we're in the process, as you pointed out, of expanding both. They're in the permitting phase. And, in fact, the one in El Segundo is under way; the one in Richmond is in the permitting phase. And we hope to be able to expand there in the coming year if the permits are all approved.

The issue in California is really twofold. It's also an issue of the investments that have been required there to meet the unique California gasoline and the very strict environmental regulations.

And I'm not squabbling at all about the fact that we need strict environmental regulations. But the capital that has been invested in California is enormous over the last decade to meet those.

So I think the issue for us is to continue to work on expansion and to try to assure that we can meet the market needs.

Today, we bring gasoline into California from places as far as Europe to supply the needs, because of its unique formulation and the fact that the expansion prospects at our refineries are difficult to accomplish.

So I think we're on the right track, but it's a constant battle.

FEINSTEIN: I think perhaps I was a little too subtle.

What I'm trying to get at is, it would appear, if you look at the profit margins, that the industry is purposely keeping refining capacity low.

FEINSTEIN: I tried to recognize your expansion at Chevron. But it would appear that overall there is a purposeful effort to keep refining capacity tight, because it increases profit margin. That's what I'm trying to get at.

Because the profits have been enormous due to this. And it seems to me -- and I've always been told, you know, "We don't have refining capacity in California. You can't add any more, regardless."

Therefore, it seems to me that what we need to do is increase refining capacity all over this nation.

Mr. Mulva?

MULVA: Senator, we are one of the largest refiners in the United States, and we operate in all regions of the United States.

Several years ago, we started embarking on a program to expand capacity as well as to modernize our refineries to handle the lower quality crude oils that will be made available over time, that are imported from Canada, from Central America, as well as from the Far East and from the Mideast.

And so what that does is not only are we adding capacity, but our company announced a $4 billion program over and above what we normally do to add capacity, modernize refineries, so we can make more jet fuel, more heating oil, more gasoline, more diesel.

So we have worked upon -- historically these businesses have not had the returns that we've experienced in the last several years.

But the utilization of capacity -- refining capacity -- has moved up from less than 80 percent years ago to essentially full utilization.

So we are, our company -- and you heard from the other people on this panel today -- we are significantly putting money to add capacity and increase in our capability to handle the lower quality crude so we make the transportation fuels and the clean fuels that the consumer and the public needs.

STEVENS: The senator's time has expired. I'm sorry.

We'll yield five minutes to Senators Hutchison and Pryor.

HUTCHISON: Thank you, Mr. Chairman.

Mr. Chairman, I was looking up some of the tax breaks that were mentioned earlier and trying to determine where those might be applied to oil companies.

And one is allowing natural gas distribution lines to be depreciated over 15 years instead of 20, to encourage more gas distribution lines.

Another is an incentive for deep drilling in the Gulf, which we have had for a long period of time because of the risk and the cost that is added, the Gulf being one of the few places that we can really drill on our shores.

So my question is this: You say, "Well, we can do without the tax breaks." But when you are making the decisions about where you can put your money most productively, do 15-year depreciation rules instead of 20-year depreciation rules or incentives for something as expensive and risky as deep drilling in the Gulf, does it make a difference in where you start making allocation decisions as opposed to not needing it?

RAYMOND: Well, Senator, I think the problem you get into here is that each company views that somewhat differently. And I think in our own case, when we look at the specific issues you talk about, the conclusion we came to is that they will not significantly alter the programs that we have in any of those areas.

But in saying that, that doesn't mean that's the case for every company.

HUTCHISON: Let me just ask anyone else, because we're trying to do things that will spur building of refineries, building of pipelines, and more production in our country. And we are trying to determine the best way to do that.

So I am trying to see if there are certain incentives for doing things that you might not do, making a business decision, in those areas that have been put in our tax bills.

O'REILLY: Senator, I think that, from our perspective, the most important thing for refining is the permitting side of the business.

It's one thing to have a 15- or a 20-year depreciation schedule, but it's another thing to get it started. And one of the problems that we face are things like new source review, which is in litigation, and the rules around new source review.

I mean, if you take it -- if you fix the furnace in your home, you shouldn't have to go back and re-permit all of the other energy- consuming efficiencies in your home. Yet that's what we have to do in refineries.

So it is a complex issue and, frankly, I would much prefer, from our company's perspective, to see streamlined permitting than to see -- to me that's a much more important barrier to overcome than tax incentives.

RAYMOND: I would share that view, Senator. I don't think, at least in the last 20 years that I can speak for, that we've ever come here and asked for a financial incentive to do anything.

If there are things that can be done, it's more in the regulatory process and the access issues that are more fundamental to our investment outlook in this country.

HUTCHISON: Could I just pursue that? Because if you're saying that the regulatory environment -- and I will tell you that I have heard this many times from other company CEOs, not just oil and gas -- that the reason refineries or other investments in manufacturing are not made in the United States but are instead made overseas is because the regulatory environment is more stable and more predictable in other places.

HUTCHISON: Are you saying that that is the issue that we need to address more than any other for incentives for building refineries, Mr. Mulva?

MULVA: Senator, I think the prior comments are certainly applicable. But what we definitely need is really the streamlining of regulations and permits to allow us to expand.

One of the things we know on refineries is our ability to expand capacity generally speaking is about half the cost of building a new refinery. So if we can have accelerated permitting and whatever to expand, we can bring on capacity far more quickly.

With respect to the upstream part of the business, exploration and production, we really need access.

Now, the panel that's here today are representing the larger integrated companies, but as you know, we have numerous, many, many independent producers in the United States who develop a great deal of oil and gas. And for all of us, the integrated companies and the independent producers, what we really need is access to explore, to drill, and add capacity of oil and gas, versus incentives on the upstream part of the business.

HUTCHISON: Thank you, Mr. Chairman.

STEVENS: You must stop there, Senator.

Senator Pryor is recognized for five minutes.

PRYOR: Thank you, Mr. Chairman. I have an opening statement I'd like to insert in the record.

STEVENS: Without objection.

PRYOR: And also, Senator Sununu and I were talking a minute ago how we feel like we're at Thanksgiving dinner and you've put us at the children's table.

(LAUGHTER)

Is there a reason for that?

STEVENS: (OFF-MIKE)

(LAUGHTER)

PRYOR: Fair enough. Fair enough.

Let me just say that I have a concern, and maybe even a suspicion, and it's basic Adam Smith economics. And that is, in a market economy you have supply and demand, and that works pretty well unless there's market manipulation.

I think what you're hearing voiced from us and our constituents is that we have concerns about market manipulation. I don't have any evidence of that. I can't point out four, five things where I'm basing that on, but I'll tell you right now, that's something I'm very concerned about and I'm looking at.

Mr. Raymond, if I can start with you, one of the disconnects in this price of gasoline issue in the oil industry right now, one of the real disconnects, in my mind, is your profits -- and I single you out, but the industry -- but your profits have risen dramatically. And what you posted in the third quarter, that's obvious to everyone.

And many times today the panel has talked about the hurricanes and how disruptive the hurricanes have been and what the adverse effects of the hurricanes have been. But are you telling the committee today that had we not had the hurricanes that your profits would be even higher?

RAYMOND: That's a hard question to answer. I don't believe I would say that that's the case.

I think the focus on the hurricanes is related to the question about what happened to gasoline prices in this country as a result of when 30 percent of the refining capacity had to go off-line because of the hurricanes.

RAYMOND: The broader issue of the general level of profitability, I think, is somewhat different.

As I commented, 75 percent of our profits come from outside of this country; they have nothing to do with our U.S. operations. When you then start to focus on the U.S. operations, I'll be the first to comment to you that we're at the high point of a cycle.

We go through many cycles. I can recall with pain when the crude oil price was $10 a barrel and consumers, of course, were very happy because gasoline was less than $1 a gallon.

We're now on the other end of the cycle. But, in our business, we have to manage through the cycles. And the question is: what is the profitability through the cycle, not at any point in time.

PRYOR: Well, you understand the concern I have on that, though.

RAYMOND: Well, I understand that. And I think I made that comment earlier today. I certainly do understand it.

But the other side of it is, people need to realize we are in a commodity business. There are ups and downs in the commodity business. And our job is to manage through the ups and downs with a view toward the long term, which is what we try to do.

PRYOR: Mr. Hofmeister, let me ask you. And I hate to ask you to keep your answers very brief because we just have five minutes today.

But in your opening statement, you talked about crude prices going up. And we all have seen that on the world market. What is the connection between the price of crude and profits?

And the reason I ask that is it's intuitive to me that, when your crude price goes up -- in other words, your feedstock price goes up -- and actually, you're going to have to pass that cost on to the consumer -- and your profits would go down.

But it appears that we're in a market right now where your crude oil process have been at an all-time high and your profits have been at an all-time high. So what's the relationship between crude prices and profits?

HOFMEISTER: Well, I think it is largely driven by demand. The demand is what is driving up the end price that consumers pay. It is also driving up crude. In other words, the availability of crude is simply not sufficient at this point in time to meet all of the demands put upon that crude.

And, as a result, the pull on the available crude is keeping crude prices high. The demand for products is keeping product prices high. That's yielding the profits that we see.

PRYOR: OK. We know that, from the ground up, it's very expensive to build a new refinery. Is that correct? And what's the estimated cost on the refinery?

HOFMEISTER: It really depends on the size of the new refinery.

PRYOR: OK. Well, here's my question for you because I noticed that Shell had posted about a $9 billion profit in the third quarter. Is it your intention...

STEVENS: Senator, this is your last question, please.

PRYOR: Yes, sir.

Is it your intention to take those profits and build a new refinery?

HOFMEISTER: Senator, in September, we commissioned an engineering study to look at alternatives between several-hundred- thousand-barrel-per-day expansions up to a 325,000-barrel-per-day expansion in a single site.

And we will see the results of those studies probably in the first quarter and then be in the position to make a decision whether to go forward or not.

DOMENICI: Back on our side, and if I've got it right, it's Senator Thomas and then Senator Landrieu.

THOMAS: Thank you, Mr. Chairman.

Thank you, gentlemen, for being here.

I've got several questions. I'll do it quickly and hope you can do it quickly.

In terms of the industry, it seems like in business, usually, as your volume goes up, you make more profit, but the percentage of profit on the sales remains about the same.

Is that true over the last five years, 10 years, in the industry? Has the profit as a percentage of total sales remained somewhat the same or has it increased?

THOMAS: Anybody just...

RAYMOND: No, I think the answer to that over the last 10 years is it has gone up somewhat because in the early part of that period they were extraordinarily low.

THOMAS: OK. But the profits...

RAYMOND: They've gotten now up to about the average of all U.S. business. In the early part of that period, they were well below...

THOMAS: So the entire profits are at least a fundamental part of having higher sales?

RAYMOND: That's right.

THOMAS: OK.

You know, coal remains our largest possible fuel resource, and generally, are you guys interested in looking at the diesel fuel from coal kind of an alternative? Is that something that you look at and are willing to be interested in?

RAYMOND: We have.

Over a long period of time, Senator, we've had a number of research projects, going back to the mid-1960s, that looked at converting coal into liquid fuels, and continue to be interested.

THOMAS: So you don't see that as a conflict with your interest in oil?

RAYMOND: No, no.

THOMAS: OK. Good.

Mr. Raymond, I guess you specifically, you indicated in '98 crude oil was $10 a barrel; your company made $15 billion in capital expenditures. Last year, your prices were over $40 and you still made $15 dollar a barrel. Do you invest more money when you make more profit?

RAYMOND: Well, what we generally try and do, Senator -- the numbers were back in 1988, we made $8 billion and we invested $15 billion. Last year, we made $24 billion and we invested $15 billion. This year, we're going to invest $18 billion or $19 billion.

Our objective over time is to clip off the peaks and the valleys and try and have a generally up trend with regard to the investments. Year to year, you have to be careful, because there can be big projects in one year versus another. So you have to be careful.

THOMAS: So you spread, even it out over a period of time?

RAYMOND: Yes, that's the intent.

THOMAS: Specifically, I guess, in Wyoming, for example, one of the alternatives is to have CO2 secondary recovery, and we're doing quite a bit. And at Arco, for example, they have a program. You produce a good deal of it at the Chute (ph) thing there...

RAYMOND: Yes, we do.

THOMAS: ... but you don't put it on the market. Why not?

RAYMOND: The CO2?

THOMAS: Yes.

RAYMOND: Well, I think all the studies have indicated, given what the location is of the Chute Creek (ph) plant versus where the location is for the CO2 to be injected into the reservoirs, generally up until the prices that have gone up in the last year, the transportation was uneconomic.

THOMAS: But now that the prices -- for instance, there's a pipeline going up to Salt Creek. That's a long ways.

RAYMOND: But the point is that if people felt that the crude price were sustainable even close to the current levels, then it would likely be that the CO2 would become economic.

THOMAS: I got you.

We talked some earlier, you talked some earlier about -- importantly I think -- educating the public as to what some of the issues are in your industry. You have been talking about, for some time, an educational program. Exxon has not joined in that. What's your position on that?

RAYMOND: Actually, we've had an educational program that the company has funded for 15 or 20 years...

(CROSSTALK)

THOMAS: ... industry's talked about one.

RAYMOND: Well, that's the API. I hate to just pass it off to the API, but Exxon has supported programs like that for years.

THOMAS: This is the one that has to do with, like, the livestock deduction for contribution and so on.

RAYMOND: Understand.

THOMAS: OK.

DOMENICI: Senator?

THOMAS: Yes.

DOMENICI: I hate to interrupt, and don't charge this to me. But I just wonder, do you mind when you ask the questions, if other than Mr. Raymond might answer some of them?

RAYMOND: Please.

DOMENICI: Just because he was first doesn't mean he should...

THOMAS: Well, a couple of those were specifically for Exxon.

DOMENICI: Oh, I'm sorry.

THOMAS: And I might ask Shell, if you're interested in shale oil in Wyoming as well as Colorado.

(LAUGHTER)

HOFMEISTER: Absolutely, Senator.

(LAUGHTER)

THOMAS: I know that.

No, I understand.

And I just want to say that, and specifically to say that I know your companies -- and Shell specifically to mention and the others have too -- have made considerable contributions to environmental kinds of things and are interested in making sure that, as we move toward access -- and I agree with you entirely on access, there's a great deal more access available -- but we have to do it in a way that is environmentally sound. And I think we can do that and I appreciate it.

So I will yield my time.

DOMENICI: Thank you very much, Senator.

I think on our side, Senator Mary Landrieu from Louisiana.

LANDRIEU: Thank you, Mr. Chairman.

And I thank the panel. It's been a long morning and we're going to continue on for a while.

But first let me begin by thanking each of you and the companies for what you all did to save lives, to save property, to restore the communities along the Gulf Coast.

Sometimes the members of Congress don't quite understand the tremendous investments and number of people that it takes to supply gas and oil for this country. But those of us from Louisiana and Texas, Mississippi, Alabama, have a little better idea.

And I know the heroic work that all of your companies did to save lives, to get people out of the Gulf, out of harm's way. And I know that your employees, having lost their own homes -- and some of your suppliers lost their own businesses -- stayed up 24/7 so that we could keep the lights on in New York and California and New Jersey and Florida.

So I just want to thank you all for what you did.

Number two, I understand that there is angst, as it should be, by consumers -- residential and industrial consumers -- because the prices are high. When prices are high, our economy is affected in negative ways.

But I do want to say to the members of this committee that look at Louisiana as a producer that we are also a great consumer of energy. And so the senators from Louisiana and Texas can argue both sides of this argument. And I would say we serve as a pretty good bellwether about trying to hit the right balance.

In other words, when prices like they are are so high, we make a little money because we're producers. But because we consume so much energy to produce for our industrial base, we also feel the burden of those high prices.

So Louisiana's policies are a good bellwether because we're a balance.

Having said that, let me just go on the record to say the tax incentives that, Senator Wyden, you inferred in your comments are mostly directed to independent petroleum producers. For the record, they produce -- 85 percent of the wells in the United States are run not by the big oil companies that are represented here, but by independent producers.

Sixty-five percent of the country's natural gas are produced by these independent companies, which are smaller, many of them located in Louisiana and Texas, but some, of course, in Wyoming and the Midwest.

They need these tax incentives because they're smaller. They don't have the international reach. They aren't able to, basically, hedge against the volatility of the price. And that's why most of these tax cuts or tax credits, tax incentives are in the record.

So I just wanted to submit that for the record.

Let me ask -- one of you mentioned that it takes so long to put a new refinery in the United States, that it really diminishes your interest in doing so. Would any one of you want to answer for the record how quickly you can build a refinery in either Brazil or China compared to the building of a refinery in the United States, just roughly?

Does it take you half the time, a fourth of the time or about the same time? Let's start with...

RAYMOND: Well, Senator, we're in the midst of starting to construct a major refinery in China...

LANDRIEU: Just quickly, if you can. Just generally.

(CROSSTALK)

RAYMOND: ... chemical plant, it will take about three and a half years.

LANDRIEU: And what does it take here?

RAYMOND: Comparable time would be seven or eight.

LANDRIEU: What about you, Mr. O'Reilly?

O'REILLY: Four years was the last one we built, which was in Thailand.

LANDRIEU: And how long would it take you here?

O'REILLY: Double that.

MULVA: Similar experience in terms of time of construction, but it takes quite a bit longer in the permitting side in the U.S. compared to other locations.

LANDRIEU: So would it be fair to say that for all of you it takes about at least twice as long to build a refinery here?

MULVA: I don't know if it's twice as long but...

LANDRIEU: But 40 percent, 35 percent, 40 percent more?

MULVA: Could be. But the other thing that's very important is we think we can add the equivalent amount of capacity by expanding our current facilities than to build -- and get the same effect. We get the supply into the marketplace and to the consumer far more quickly.

RAYMOND: I think an important part in the U.S. -- we have multiple layers of government, and in some parts of the world it doesn't exist that way. So if we can do parallel processing or permitting, I think it would be helpful to us.

STEVENS: Senator, this will have to be your last question, please.

LANDRIEU: OK, thank you, Mr. Chairman.

Let me ask on the OCS access: Are you all aware that only 2.5 percent of OCS has been explored in the nation? And are you aware that there would be additional supplies of oil and gas that could supply and help us with the demand situation? And do you support any sort of revenue sharing, starting with Mr. Hofmeister from Shell?

HOFMEISTER: We're fully aware, and we look forward to the inventory that the energy bill calls for. And we would support more revenue sharing.

PILLARI: We are interested in what the report will say. We'll want to take a look at each project. And while I haven't been personally involved in revenue sharing, we'd be interested in looking at anything.

STEVENS: Thanks very much.

MULVA: Certainly support...

LANDRIEU: Can they just finish, Mr. Chairman.

MULVA: Certainly support and willing to consider all alternatives and revenue sharing.

(CROSSTALK)

LANDRIEU: Thank you all very much.

STEVENS: Sorry, Senator.

We will now call on Senator Sununu and Senator Bill Nelson.

SUNUNU: Thank you, Mr. Chairman.

I apologize to you, I suppose, in a manner of speaking, that I don't have a list if questions for the panel. I think the panel, in very reasonable opening statements, tried to make a few points from their perspective.

Their profits are about 8 percent of revenues. It's a lot of money because they are very big companies -- 8 percent of revenues, net income is about what the national average is at the moment. And, obviously, being large companies, you've invested a great deal in capital expenditure, and I suppose that's fine as far as it goes.

For our part, state and federal regulators have passed a lot of Byzantine regulations that result in about 100 different formulations of gasoline and other fuels to be sold. And we all know that no one wants a refinery built in their backyard, and I think those are some of the access issues and the regulatory issues that we absolutely need to deal with.

But we all know what's really on the table here, what's really being discussed, and that is some kind of a discriminatory tax program, a windfall profits tax of sort. And I do have great concerns about that in that we have a pretty clear picture of what that means already, both theoretically and in practice.

One of the things that were handed out -- this is a memo -- joint committee staff. I assume this was put together by all the staff. There's a summary of a Congressional Research Service report, which is a non-partisan group that supports all of us. I want to read from this summary of a 1990 CRS report on the windfall profit tax on crude oil, which sounds great when you all were making a ton of money and we want to show that we're trying to do something about gas taxes.

I think it's important that we talk about what a windfall tax really is.

"In 1980," this is reading from the summary, "federal government enacted a windfall profit tax. The windfall profit tax was a tax on oil produced domestically in the United States. In economic terms, the windfall profit tax increased a marginal cost of domestic oil production."

I don't know if we're really for increasing the domestic cost of oil production but that's what a tax tends to do, increase the cost of things.

It reduced domestic oil production from between 3 percent and 6 percent. Are we for reducing domestic production? I hope not -- and increased oil imports from between and 8 percent and 16 percent.

The CRS, Congressional Research Service, went on to say that the windfall profits tax would reduce domestic oil production and increase the level of oil imports, which at the time was above 50 percent of demand.

The profits tax was repealed in 1988 because it was an administrative burden on the government and a compliance burden to the oil industry and because it made the U.S. more dependent upon foreign oil.

I'll cut the summary of the research service report there, but I think it's important to understand that as much as we all want to be seen as doing something here in Washington about high gas prices or what might be perceived as excess profits in the oil industry, we shouldn't undertake legislation that's been proven in the past to increase demand and increase dependence on foreign imports of oil.

Taxes that discriminate against specific industries, even one that may be as popular as the oil industry at the moment, are a bad idea.

Tax surcharges on energy and the energy industry have been tried and they have failed in practice.

And that doesn't mean that there aren't whole lot of things that should be done better or practices that should be improved in your companies or legislation that even might be passed that could address concerns we have, but taxes and oil -- windfall profits taxes are not one of them.

Even more troubling to me is the fact that these are being proposed now on the heels of a huge energy bill that everyone on this combined committee voted for except for, I think, four of us.

Senator Wyden voted against it; I voted against it. Maybe two or three other members sitting in the room here today voted against this because we don't need to be subsidizing oil and gas production for all the reasons that were described in a very fair and reasonable way.

I think Senator Wyden is spot on when he talks about the need to go back and look at these provisions. There were over $12 billion in different kinds of tax subsidies in that energy bill; not all, of course, going to the oil industry. There were billions more in spending, programs that subsidized research for oil and gas, for coal, for other areas of the energy industry, that simply are not needed, and I think it's...

STEVENS: Senator, have to ask you to wind up, if you will.

SUNUNU: I absolutely will wind up.

And I appreciate being given the five minutes. But my point is one of caution. I think we need to be a little bit more circumspect in the kind of policy ideas we're proposing. I think we need to go back and look at that energy bill. And I think it doesn't serve anyone's interest to just start trying to pass legislation to make it look like we're doing something when it's going to have counterproductive results.

Thank you, Mr. Chairman.

Continue to Part 3 of the transcript.


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