[House Hearing, 110 Congress]
[From the U.S. Government Printing Office]
RETAIL GAS PRICES (PART II):
COMPETITION IN THE OIL INDUSTRY
TASK FORCE ON COMPETITION POLICY
AND ANTITRUST LAWS
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
MAY 22, 2008
Serial No. 110-180
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California LAMAR SMITH, Texas
RICK BOUCHER, Virginia F. JAMES SENSENBRENNER, Jr.,
JERROLD NADLER, New York Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina ELTON GALLEGLY, California
ZOE LOFGREN, California BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas STEVE CHABOT, Ohio
MAXINE WATERS, California DANIEL E. LUNGREN, California
WILLIAM D. DELAHUNT, Massachusetts CHRIS CANNON, Utah
ROBERT WEXLER, Florida RIC KELLER, Florida
LINDA T. SANCHEZ, California DARRELL ISSA, California
STEVE COHEN, Tennessee MIKE PENCE, Indiana
HANK JOHNSON, Georgia J. RANDY FORBES, Virginia
BETTY SUTTON, Ohio STEVE KING, Iowa
LUIS V. GUTIERREZ, Illinois TOM FEENEY, Florida
BRAD SHERMAN, California TRENT FRANKS, Arizona
TAMMY BALDWIN, Wisconsin LOUIE GOHMERT, Texas
ANTHONY D. WEINER, New York JIM JORDAN, Ohio
ADAM B. SCHIFF, California
ARTUR DAVIS, Alabama
DEBBIE WASSERMAN SCHULTZ, Florida
KEITH ELLISON, Minnesota
Perry Apelbaum, Staff Director and Chief Counsel
Sean McLaughlin, Minority Chief of Staff and General Counsel
Task Force on Competition Policy and Antitrust Laws
JOHN CONYERS, Jr., Michigan, Chairman
RICK BOUCHER, Virginia STEVE CHABOT, Ohio
ZOE LOFGREN, California RIC KELLER, Florida
SHEILA JACKSON LEE, Texas F. JAMES SENSENBRENNER, JR.,
MAXINE WATERS, California Wisconsin
STEVE COHEN, Tennessee BOB GOODLATTE, Virginia
BETTY SUTTON, Ohio CHRIS CANNON, Utah
ANTHONY D. WEINER, New York DARRELL ISSA, California
DEBBIE WASSERMAN SCHULTZ, Florida TOM FEENEY, Florida
LAMAR SMITH, Texas, Ex Officio
Perry Apelbaum, Staff Director and Chief Counsel
Sean McLaughlin, Minority Chief of Staff and General Counsel
C O N T E N T S
MAY 22, 2008
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Chairman, Task Force on
Competition Policy and Antitrust Laws.......................... 1
The Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Member (Ex Officio), Task Force on
Competition Policy and Antitrust Laws.......................... 2
The Honorable Sheila Jackson Lee, a Representative in Congress
from the State of Texas, and Member, Task Force on Competition
Policy and Antitrust Laws...................................... 6
The Honorable Steve Chabot, a Representative in Congress from the
State of Ohio, and Ranking Member, Task Force on Competition
Policy and Antitrust Laws...................................... 7
The Honorable Steve Cohen, a Representative in Congress from the
State of Tennessee, and Member, Task Force on Competition
Policy and Antitrust Laws...................................... 9
The Honorable Ric Keller, a Representative in Congress from the
State of Florida, and Member, Task Force on Competition Policy
and Antitrust Laws............................................. 10
The Honorable Betty Sutton, a Representative in Congress from the
State of Ohio, and Member, Task Force on Competition Policy and
Antitrust Laws................................................. 10
The Honorable Chris Cannon, a Representative in Congress from the
State of Utah, and Member, Task Force on Competition Policy and
Antitrust Laws................................................. 12
The Honorable Debbie Wasserman Shultz, a Representative in
Congress from the State of Florida, and Member, Task Force on
Competition Policy and Antitrust Laws.......................... 14
The Honorable Darrell Issa, a Representative in Congress from the
State of California, and Member, Task Force on Competition
Policy and Antitrust Laws...................................... 15
The Honorable Tom Feeney, a Representative in Congress from the
State of Florida, and Member, Task Force on Competition Policy
and Antitrust Laws............................................. 16
Mr. John Hofmeister, U.S. President, Shell Oil Company
Oral Testimony................................................. 18
Prepared Statement............................................. 21
Mr. Peter J. Robertson, Vice Chairman of the Board, Chevron
Oral Testimony................................................. 34
Prepared Statement............................................. 36
Mr. John E. Lowe, Executive Vice President, ConocoPhillips
Oral Testimony................................................. 53
Prepared Statement............................................. 55
Mr. Robert A. Malone, Chairman and President, BP America
Oral Testimony................................................. 107
Prepared Statement............................................. 109
Mr. J. Stephen Simon, Senior Vice President, Exxon Mobil
Oral Testimony................................................. 132
Prepared Statement............................................. 134
Material Submitted for the Hearing Record........................ 215
RETAIL GAS PRICES (PART II):
COMPETITION IN THE OIL INDUSTRY
THURSDAY, MAY 22, 2008
House of Representatives,
Task Force on Competition Policy
and Antitrust Laws
Committee on the Judiciary,
The Task Force met, pursuant to notice, at 11:12 a.m., in
room 2141, Rayburn House Office Building, the Honorable John
Conyers, Jr. (Chairman of the Task Force) presiding.
Present: Representatives Conyers, Jackson Lee, Waters,
Cohen, Sutton, Wasserman Schultz, Smith, Chabot, Keller,
Cannon, Issa, and Feeney.
Also present: Representative Peterson.
Staff present: Anant Raut, Majority Counsel; and Stewart
Jeffries, Minority Counsel.
Mr. Conyers. Good morning, ladies and gentlemen. We are
ready to begin.
We welcome you all here again. Many of you have almost
become professional witnesses, you have been here so many
This is the second hearing that the Antitrust Task Force
has held, but I am putting in the record all the hearings that
have been held on the Hill with the Senate and the House, with
our various Committees. It comes to a very large number.
The reason these hearings are called, gentlemen, is that
every one of my colleagues on this Committee join with me in
wanting to figure ways to bring the price of gas down at the
pump. We all want to do it.
The question is how do we do it. And it is not that you are
the ultimate resolvers of this issue, but certainly you are
among the major players. And it is in that sense that we begin
On May 7, when we had our first hearing on this subject,
the national average price of gas was $3.66. Today, it is
$3.81. In Washington, DC, it is $4. In other places, it is just
So we come here to explore this. We thank you so much for
I wanted to just recognize my colleagues for a couple
minutes for them to bring their welcome and identify the key
point that is on their mind when they come today.
I will start with the Ranking Member of the full Committee,
Mr. Smith of Texas, for his comments, and then I will go to
Mr. Smith. Thank you, Mr. Chairman.
Mr. Chairman, fuel prices at the pump have caused a
significant strain on individuals' and businesses' finances
across the nation. This week, the average price for gallon of
gas hit $3.84, a new high.
Unfortunately, some people are playing a blame game when it
comes to prices at the pump, often pointing fingers at big oil.
According to the Federal Trade Commission, though, there is no
collusion to fix prices in the retail sale of gasoline.
So what can Congress do to reduce fuel prices?
Congress should be working to expand the domestic supply of
energy. House Democratic leaders have rejected opportunities to
increase that supply, which would result in a drop in prices at
For example, last August, 95 percent of House Democrats
voted against a proposal that would have opened up the outer
continental shelf and the Arctic National Wildlife Refuge to
drilling for oil and natural gas.
Only one-tenth of 1 percent of ANWR would be impacted. The
area is frozen tundra, not exactly where the caribou roam.
There may be as many as 86 billion barrels of oil in the outer
continental shelf and Arctic National Wildlife refuge, enough
oil to keep America going for 5 years, with no foreign imports
Drilling in ANWR alone would increase U.S. crude oil
production by 20 percent of today's levels, which would mean
lower gas prices in the future.
While no one contends that opening up the OCS and ANWR to
drilling will make United States energy independent overnight,
it is a step in the right direction.
Many believe that alternative fuels are the solution to gas
prices and while alternative sources of energy are important,
including solar and wind, they account for only 6 percent of
U.S. energy consumption.
Even if we doubled our reliance on these types of energy,
increasing 100 percent, it would hardly be noticed at the gas
With fossil fuels constituting so much of our energy
consumption, both now and in the future, expanding our access
to oil and natural gas must be a part of the solution in
reducing gasoline prices.
An excess profits tax on the oil companies has been
proposed. While it is true that these companies have strong
profits, profits are necessary for companies to expand, produce
and create more jobs.
To put these profits in perspective, last year, oil and gas
companies had a profit margin of 8.3 percent, lower than the
8.9 percent profit margin enjoyed by all manufacturing sectors
and significantly lower than the 13 percent profit enjoyed by
computer companies and the 18 percent profit in
Do we really want to start punishing any business that
makes more than an 8 percent profit?
Regarding energy companies, an excess profits tax would
only serve to discourage them from investing more in their
exploration, production and refining capabilities. This is not
the way to reduce the price of gas.
Not only would an excess profits tax not produce an extra
drop of oil, it would drive down the value of oil company
stocks, which are owned by millions of Americans and their
pension funds, retirement funds and mutual funds. In fact, all
Federal employees who participate in the thrift savings plan
have a stake in the energy companies.
There is an old cartoon in which the character, Pogo, says,
``We have met the enemy and he is us.''
It is Congress who needs to be held accountable for not
supporting policies that would increase the supply of oil and
reduce the price of gas.
There are no short-term fixes to this problem. But over the
long term, Congress can help reduce the cost of gas at the
Mr. Chairman, one final request, a unanimous consent
request to have an editorial that was in ``Investor's Business
Daily'' today made a part of the record.
And I will yield back the balance of my time.
Mr. Conyers. Without objection.
[The information referred to follows:]
Mr. Conyers. I am pleased now to recognize the gentlelady
from Houston, TX, Sheila Jackson Lee.
Ms. Jackson Lee. Mr. Chairman, let me, first of all,
express my appreciation to you and this Committee for the
insight of convening such a very important hearing and previous
hearing that we have had.
I think it is well known that Houston claims and still
remains the energy capital of the world. Many of these
companies are my constituents and I proudly represent their
employees, and I know that they are hardworking and patriotic
But as we proceed in this hearing, I hope that the approach
will be a collective and collaborative effort of solutions. We
already know the core principals and proposals of the industry,
which is that this Congress has not worked effectively--when I
say that, this bipartisan Congress--over the long term and that
the answers to our problems are at our feet.
I would turn the cards back toward the industry and hope,
in this process, this hearing, that you will offer creative
solutions. Frankly, I believe that the issue of speculators,
which many Americans are unaware of, add to the price.
I think the structure of OPEC, which many of you believe
cannot be touched, adds to the price.
I do think that we have to be broad-based in our thoughts
about how we secure more resources. I am a champion of drilling
offshore of Texas and Louisiana. Why? Because there is a
consensus. You have done it well. You have done it an
environmentally safe manner.
I think the other interest that I have, and I do want to
make mention of your colleague, Mr. Hofmeister, avocation in
the road, and I am going to extend an invitation for a
roundtable discussion in our city by all of you, at my
invitation, on the question of solutions.
But this is an antitrust Committee. So we will be asking
the hard questions. What is impacting these prices? Are there
collusions and price fixing, in the ultimate results of the
truck drivers who we heard from who are losing their business
or to the moms and pops who are trying to go on a limited
vacation over the summer or carpools.
All of this has a major impact on the mindset and the
attitude that Americans have about how their country is
I think all of us, regardless of whether you are in the
private sector, you are, in fact, public servants. You have a
utility, a need that we cannot survive without.
Yes, we can look alternatively and we have done a good job.
This Committee, the Energy and Commerce, the leadership of this
Congress, Democratic leadership, looking at R&D and looking at
alternatives, but, Mr. Chairman, I do believe that we have to
have a balanced energy policy that includes a variety of
resources, which these gentlemen represent.
Let us find a way that the callers that spoke to me this
morning ask, and that is to relieve the pain. There may not be
a short term if we think narrowly, but there may be a short
term if we think broadly.
And I do think we have ideas that would warrant that and I
hope to pose questions, Mr. Chairman, along those lines.
I yield back.
Mr. Conyers. I thank you, Sheila Jackson Lee.
We would now turn to the Ranking Member of the Antitrust
Task Force, Steve Chabot of Ohio.
Mr. Chabot. Thank you, Mr. Chairman. I would like to thank
you for holding this hearing, with our nation facing record
high gas prices and energy prices.
And as we were preparing this speech, this was the part in
the speech where we had a number and, over the past week to 10
days, since we knew we were going to have this hearing, we had
to keep revising this figure and we have been scratching it out
and putting it in.
And now, this morning, my staff gave me this morning's
``Cincinnati Enquirer'' article saying that ``gas zips past $4
mark.'' So it is now $4 or higher than $4 in Cincinnati, Ohio.
And there is not an issue that we hear more about from our
constituents than when is Congress going to do something about
the high gas prices and how they are affecting their lives.
The public is demanding answers to questions such as, ``Are
we going to make energy more affordable in the short term? How
are we going to make our nation more energy independent in the
long term? What will be our primary source of energy in the
future and how are we going to get there?''
In response, this Congress gives them legislation that
purports to fix our energy problems simply by raising taxes by
billions of dollars on domestic energy companies and hoping for
That is not an energy policy. That is what amounts to a tax
increase on every American family. And let's face it. For the
most part, the oil companies are going to pass that cost on to
the consumers at the gas pump. So they are basically just
taxing the public.
We should be debating legislation to streamline the Federal
permitting process that has stifled construction of new
refineries. We haven't built one in about 32 years, the last
one back in 1976.
We had 324 oil refineries back then. We have got fewer than
150 now, 30 years later.
We should be talking about benefitting consumers by
simplifying our nation's fragmented gasoline supply. The number
of regional boutique fuels restrict the movement of our fuel
supply and raises costs on Americans at the pump.
And as Lamar Smith indicated before, we should be opening
up Alaska's Arctic National Wildlife Refuge, ANWR, and the
outer continental shelf for energy exploration. And all
indications are that, combined, there is approximately 16
billion barrels in ANWR and 86 billion barrels in the outer
continental shelf; so the two together, about 100 billion
barrels of oil and, also, millions of cubic--excuse me--
trillions of cubic feet of natural gas.
Previous Congresses made the decision to keep these vast
reserves off limits. I know I personally voted 11 times since I
have been here to open up ANWR. We had the votes to pass it in
the House, but, unfortunately, it would go over in the Senate
and be killed over there.
Of course, the price of a barrel of oil was much less then,
too. It is now about $100--well, here we go again--$130 a
barrel, $135 a barrel, and that is since yesterday, and reports
indicate that it may reach $150 a barrel at some point this
summer, this says. God only knows where it is going to be this
summer at this point.
It is time we revisit this very important issue. What about
encouraging the construction of nuclear power plants? We began
that process in 2005 with the passage of the Energy Policy Act,
but as we sit here today, we haven't built a new plant in
European and Asian nations are building them by the dozens.
India has nine new plants under construction. Japan has built
five more and China is--they plan to build dozens of new
Let's talk about how we intend to compete with China, who
is canvassing the globe in its quest to ensure a reliable
supply of oil. Reports indicate that the Chinese are forming
energy partnerships with rogue nations like Iran and Cuba, and
Cuba is planning to work with China to drill of the Florida
So we are not going to go after that oil, but Cuba and
China are. It is an absolute outrage.
Shouldn't we be talking about boosting domestic production
simply so we wouldn't have to rely on the mood of third world
dictators like Hugo Chavez? Wouldn't it be nice if prices
didn't spike at our neighborhood gas stations when unrest in
nations such as Nigeria occur and they impact us here directly?
Now, some may argue, and they might well be right, that oil
isn't the long-term answer. It is a finite resource that may be
exhausted or very scarce some years down the road, and China
and India continue to develop and to soak up more of the oil
that is available out there.
So maybe oil isn't the energy of the future, but shouldn't
we consider boosting our oil and natural gas supplies,
increasing our energy independence, that might just buy is the
time necessary to develop the next fuel source?
Perhaps hydrogen fuel cell technology will take us into the
next century or maybe other renewable resources that could be a
combination of both or maybe something that we haven't even
discovered yet? We don't know.
But we do know that America has substantial reserves of oil
and natural gas that we have locked up, that this Congress has
locked up. We have placed it off limits.
These resources could be the bridge that allows America to
cross over the choppy waters of OPEC and third world dictators
to the secure footing of affordable and secure energy sources
Just as no nation has ever taxed itself into prosperity, it
is simply not plausible to believe that we can tax and regulate
our way to energy independence. Yet, that has been the
majority's prescription and it is clearly failing.
As we all know, we remember this, we have heard it before,
that Speaker Pelosi said 18 months ago that she had a plan,
that they were going to--that prices at the pump were
outrageous. They were $2.30 a gallon, $2.30. That was 18 months
ago. Now, in my district, they are $4 a gallon, getting close
to double what they were 18 months ago.
That was one heck of a plan.
I yield back the balance of my time.
Mr. Conyers. Thank you.
Steven Cohen, Memphis, Tennessee.
Mr. Cohen. Thank you, Mr. Chairman.
And thank the panel here for coming before us.
Years ago, I think it was said, in Jefferson's time that
the economy basically was grounded in land and farming and that
agriculture was important, that the land was the foundation of
society, and indeed it was, but that the land really belonged
to everybody, because society was based upon it.
Today, oil is really what the economy is based on and,
accordingly, everybody has an interest in oil, because society
itself is so wedded to it.
You, as the leaders of the companies that produce and sell
the oil, in my opinion, and I hope you agree and, in your
remarks, will comment on this, have a duty to all of society to
do the utmost to make this society a part of the riches that
you have, to see that the price doesn't go up and people are
not being economically stretched, as they are, and to find
alternatives to fossil fuels so that we don't endanger greater
than we already have the planet which we live and the very
existence of man and all other species and the flora and the
fauna that we presently have, some of which are threatened
because of global warming.
You have a responsibility, a great responsibility, almost
like a government unto yourself, to see that society is
furthered and is perpetuated in a way that does not jeopardize
the planet or does not jeopardize everybody's opportunity to
have a share.
The price of gas is a regressive economic factor and poor
people suffer more than a wealthy person does. I can afford $4
gas. But most people in my district cannot.
I heard something on ``NPR'' today that airlines can't
continue with this $125 a barrel, and that is why they are
charging people to put luggage on the airplane.
A lot of society and a lot of things we are used to are
changing and I would just submit to you, while you have a duty
to your stockholders, and I am one of them, that you have a
greater duty to the planet and to the people, American people,
people on this earth, because society has such an investment in
what you have as your business interest.
And I would urge you to think about some social policies
and to try to understand the responsibility you have to
everybody to be cautious in the way that you operate your
What happened in Alaska with the Valdez is unforgiveable
and environmental disasters can't really be compensated. Their
damage is never undone. But the damage you are doing to the
economy can be corrected and I would just ask you to look
within your own mortal souls and try to do something to help
everybody out there and to help us get off of our reliance on
oil and find alternative energy sources, which I know you can.
And I hope that we hear some responses to this in your
Thank you, Mr. Chairman.
Mr. Conyers. Thanks, Steve Cohen.
From Florida, Ric Keller?
Mr. Keller. Thank you, Mr. Chairman.
I am going to make my remarks very brief. I have got a ton
of questions for our oil company executives and I want to get
to them as soon as possible by waiting to let them testify.
So let me just briefly say that in terms of solutions,
which is where we are all going right now, I firmly believe
that we do need more exploration in ANWR, more exploration of
our deepwater oil reserves, more refineries, more alternative
energy solutions, like nuclear energy.
On the conservation side, I think we do need better
conservation efforts, like higher fuel efficiency standards and
tax incentives for hybrids.
I believe the oil company executives, from their testimony
yesterday, have done a good and credible job of explaining that
crude oil increases are the main reason driving the higher gas
prices. I think they have done a good and credible job of
explaining that the crude oil prices are governed by the law of
supply and demand, and the one law we can't change here in
Congress is the law of supply and demand.
I believe, however, on the flipside, that the Achilles heel
of what I have heard from their testimony is the somewhat
exorbitant pay that some of these executives have received in
retirement packages and otherwise, as well as the failure of
these companies to build any new refineries in the United
States over the past 32 years.
And I want to give them the opportunity fairly to address
both of those questions, because those are some of the
perceptions that are on people's minds that they need to
address, even though they may not directly impact the price of
crude oil that we are going to pay.
So I will give them the chance to address those perceptions
when I get to my questions. But as Woody Allen said, ``Eighty
percent of life is showing up,'' and I thank you for showing
And I yield back the balance of my time.
Mr. Conyers. Thanks, Ric Keller.
Betty Sutton, Ohio?
Ms. Sutton. Thank you, Mr. Chairman, for holding this
important hearing today.
We began the discussions of what we can do in this
Committee to address outrageous gas prices 2 weeks ago. And I
know the American people have several questions they would like
to ask our nation's oil executives, so I thank our witnesses
for appearing here today.
When we met 2 weeks ago, and this has been alluded to by my
colleague from Ohio, gas prices stood at a record national
average of $3.61 a gallon. Today, the national average is $3.81
per gallon--rising a penny a day for the past month,
surpassing, as he indicated, $4 in many part of our country.
There is no issue that I am hearing more about from my
constituents than gas prices. They are outraged by what they
are paying and, frankly, so am I.
Throughout the President's term of office, he has
consistently claimed that all is well with the economy. My
constituents know this is not the case. People are losing their
jobs and those who manage to hold on while the manufacturing
base has collapsed around them have seen the value of their
wages diminish greatly.
Now, people are spending up to $70--my colleague from
Florida just told me she spent $68 to fill up her tank--to
drive to work, to take their children to school and to go about
their daily lives.
The trucking industry is suffering. A single fill-up costs
truckers over $1,000. That is astonishing.
We heard in our last hearing about the trickle-down effect
that diesel prices have on American consumers, leading to
increases in food prices and other necessities that truck
drivers and retailers live on.
The President says the cost-benefit analysis of taking
immediate action to assist American consumers does not persuade
him. Luckily for the American people, a veto-proof majority of
Congress has disagreed.
Last week, Congress passed legislation, which the President
has now signed into law, that requires the President to suspend
purchases of oil for the strategic petroleum reserve through
the end of 2008, so long as prices remain above $75 a barrel.
I would also like to thank Chairman Conyers for introducing
the NOPEC Act, which passed the House earlier this week and
will eliminate protection for OPEC-controlled entities to allow
the Department of Justice to bring lawsuits in U.S. courts
against cartel members.
We have heard a little bit about one measure supported by
some of my colleagues across the aisle and our witnesses today
to drill for oil in ANWR. Yet, the Department of Energy has
concluded that opening up the Arctic for drilling would reduce
the price of gasoline by approximately one penny per gallon 20
years from now.
The debate over drilling in ANWR has spanned decades,
always resulting in the same answer--drilling in ANWR is simply
not the answer to either what we hope is a short-term crisis or
to our nation's long-term energy needs.
I often say that my top priorities as a Member of Congress
are jobs, jobs and jobs. This morning, I heard one of my
colleagues on this Committee say that our energy future needs
to be green, green and green, and I could not agree more.
This Congress has enacted landmark legislation to take
necessary steps toward a greener and cleaner future for
America's energy policy, first, by passing the Energy
Independence and Security Act that was signed into law in
December and to set new fuel standards for cars and trucks.
Yesterday, we passed the Energy and Tax Extenders Act,
which will retain and create hundreds of thousands of green
energy jobs and provide tax credits for the production of
renewable energy sources, like solar, wind energy and
incentives for the production of renewable fuels and energy-
In 2007, the oil industry recorded record profits of $150
billion, 75 percent which was earned by the companies we have
represented before us today.
Exxon Mobil alone made $40 billion last year. It is the
prerogative of the American people to know how these companies
are possibly in need of the subsidies that the Administration
has lavished upon them, while they themselves are suffering to
make ends meet.
At our last hearing, I expressed concern about the
Administration's energy policy, written in secret, in my view,
by Vice President Cheney.
I look forward to hearing from you the details and the
nature and extent of the involvement of the companies you
represent, about your participation in those meetings which led
this Administration's energy policy.
I thank the Chairman and yield back the balance of my time.
Mr. Conyers. Thank you very much, Ms. Sutton.
Chris Cannon of Utah?
Mr. Cannon. Thank you, Mr. Chairman.
I appreciate your holding this hearing. I want you all to
know that I agree entirely with Ms. Sutton that my constituents
are outraged. I couldn't disagree more about the reasons for
This is complicated subject. I am not sure that America and
American citizens understand it, but they are learning. They
are figuring it out. And what I hope they understand, very
quickly, is that the price of oil is going to be a function--
and I hope we hear from our witnesses today about this--that
oil is going to be--the cost of gas is going to be derived by
the availability of oil and the cost of making that oil
And the Democrats have, in fact, interfered continuously
with our ability to make resources available so that the price
will come down. They voted continuously as a body against
drilling in ANWR, continuously as a body against drilling on
the outer continental shelf.
We have had a regulatory proliferation under their period
of control that has led to a diminishing of our ability to
drill in the intermountain west. That has expanded, I think,
somewhat significantly under the current President, but not
nearly enough to keep up with the demands and the growing
On the other hand, if we are going to get out of the
problem of the cost, the $4 a gallon cost of gasoline today, we
have to have another resource. We have to have something new.
We have a great deal--and I think we will hear some
information about some of the unconventional sources, but there
is a vast source of oil that is available to Americans and most
people just don't understand that technology has caught up to
the point where we can produce oil out of shale in the
Colorado has the largest amount, Utah the next, and Wyoming
the third largest amount, and these amounts are in the
neighborhood of 20 times as much as all the other conventional
And, in fact, the amazing thing is that the conventional
resources are very expensive to get. Technology has brought
down--and I think several of the companies that are here
represented today will testify about--or at least I will ask
some questions about their technology for getting oil out of
It is a matter of cost and a matter of availability. How do
we reduce the cost? Well, you reduce the cost by having a
programmatic approach to leasing shale from BLM public land.
But the Democrats have eliminated that program that we
instituted as Republicans, when Republicans controlled the
House and the bill that the President signed.
That is gone. In addition, we have to have the money
available to BLM to promote the development of oil shale and to
deal with the issues and the problems, and the Democrats, in
their appropriations bill last year, included a rider that
prohibited spending any money by BLM on development of shale
oil or developing the opportunity to do shale oil.
One of the employees of one of the witnesses came in my
office the other day. He is a guy who worked in Utah, I know
him well, and he is now running one of these programs, and he
handed me a list, two sheets of paper that had 42 to 46
agencies listed on it, many with multiple permits per agency.
And he said, ``You know, Chris, we have got an 8-year lease
on shale oil. The permitting is going to take us 7 years. How
do I tell my board of directors they should invest in this 7-
year process when the lease is 8 years?''
If we want to reduce the cost of oil, as a Federal
Government, we have to get out of the way of industry, which
now has, by the way, the capital available to, I think, pursue
these alternatives, get out of the way of industry and let them
get on with producing oil so that we can reduce the costs.
And the availability of oil is vast. It is vast. It is
available in shale in America today. I think most of the people
here that are going to be witnesses know, and I want the world
to know, that we have the first commercial test in about 30
years going on to develop or yield oil out of shale today in
It is not done on Federal lands, because we can't do it on
Federal lands. It is being done on school trust lands and I
believe that by about mid-September, you are going to see that
they are able to get oil out of shale. Based upon their tests,
they believe that that could be done for about $30 a barrel.
Thirty dollars a barrel in a world where we are paying $4--
for oil, we are paying about $138 yesterday. It is obscene that
we have an environment where we are grilling these gentlemen
because their companies, competing with each other, are trying
to get the better share of the market in a world where they are
constrained by resource.
And America has vast resources on its public lands, which
it has locked up and kept from getting to the gas pump, kept
from getting to poor people.
You know, Mr. Chairman, you and I have worked on many
issues together where the commonality has been the regressive
cost of Internet or taxes on telephones and other things like
We have a great deal of commonality. It is a crime, it is
immoral to have the kind of policies that rob food from people
in the third world, rob food from the poor people in America,
because we are doing ethanol, and, on the other hand, locking
up our resources and not letting people develop those resources
so that we can bring that down cost from $4 a gallon to where
it ought to be, a $1 a gallon or, frankly, less, but we would
have to get rid of Federal taxes to bring it down, I think,
below that level.
So, Mr. Chairman, this is an issue that I am excited about,
I am concerned about. We need to change. We can do this as
Democrats and Republicans and make the world a better place,
but we have to change policies, and that is within our power to
And I thank the Chairman and yield back.
Mr. Conyers. Well, I am glad this subject has attracted the
gentleman's attention. Thank you very much.
Mr. Cannon. I would tell the Chairman that I have lived in
shale oil Utah for my whole life, but $4 gas has finally got
the attention of the American people, and I hope that we can be
common in our views about it here.
Thank you, Mr. Chairman. I actually yield back this time.
Mr. Conyers. Thank you.
I am pleased to recognize, from Florida, Debbie Wasserman
Ms. Wasserman Schultz. Thank you, Mr. Chairman.
You know, saying that Americans don't understand how oil
impacts the price of gas, it is that kind of patronizing
attitude that has shaken the confidence of the American people
in their government.
With all due respect, the whole point of this hearing is so
that we can identify ways that we can dramatically reduce the
cost of gas or even maybe reduce the cost of it a little bit,
because I am a mom with three young kids who just filled up my
minivan the other day for $68.
That is real money. I mean, it might not be real money to
the five people right in front of us, because $68 is like a
nickel, based on the income that you all earn. But we cannot
continue to expect to drill our way out of the cost of gas
And I am a Floridian, and I oppose drilling off the coast
of the outer continental shelf. But we need to understand
several things. Since 2000, the amount of drilling that we have
done has actually increased dramatically, exploded over the
last 4 years.
Has the price of gas done down because of that? No. In
fact, as drilling has increased, the price has just kept going
The Federal Government has given oil companies more
drilling permits than they know what to do with. Since 2003,
the Federal Government has consistently issued far more permits
than the oil companies have acted on.
Are we tying their hands from continuing to drill? No. We
are certainly not. Of the 42 million acres of Federal land that
is currently being leased by oil and gas companies, only about
12 million acres are actually being produced.
Oil companies don't need new areas to drill. They need to
use the ones we have already given them. And for all the talk
from Republicans about how the Democratic Congress has stopped
the drilling and that we have said no throughout the process,
there hasn't been one acre closed to more drilling for oil or
So if you could drill it under the Republican Congress, you
can still drill it under the Democratic Congress.
And at the end of the day, what I would love to hear during
the course of this hearing is a solution that does not involve
I also find it baffling that we continue to give you
subsidies and forgive royalty payments for an industry that
makes record profits, that is the most profitable industry in
And on top of that, I have to tell you, it is very
difficult to stand in front of our constituents, where you are
an industry that is reaping record profits, while charging
record prices, and it becomes difficult to answer the question
that inevitably comes up that you are not manipulating the
prices, which there is a strong suspicion that you are.
So those are the kinds of things that I would like to hear
from you today.
And thank you, Mr. Chairman. I yield back the balance of my
Mr. Conyers. Thank you, Debbie.
Darrell Issa, California?
Mr. Issa. Thank you, Mr. Chairman. And thank you for
putting me after the gentlelady from Florida.
Her comment is true. America, over decades, has been
habitually being a NIMBY nation. Well, we ask you to go to
Kazakhstan for joint ventures, Venezuela, and many countries,
some of them, quite frankly, less reputable when it comes to
keeping their promises, some of which have nationalized
resources, some of which, like Russia, fail to reinvest in
their natural resources so that although today they have record
profits, there is no likelihood of record profits in the
I am not ashamed to be a Republican. I am proud to be a
Republican. I am proud to be for all energy solutions and for
all reasonable energy savings, and I am happy that we are
having this discussion today, because, in fact, whether or not
there has been any manipulation in process, I think, those of
us at the dais have to be part of the solution to make sure
that there is surplus of opportunities and options to compete
with real energy alternatives.
You in front of us represent one energy source or one group
of energy sources. The truth is that this Congress has, in
fact, taken many areas of potential new development off limits,
when we had $9 or $10 or $20 a barrel oil.
Perhaps some of those didn't make sense. I, for one, have
watched T. Boone Pickens reinvent himself and become the
smartest guy going, because he went to Canada, where it takes
$30 or $40 a barrel to lift or to extract, if you will, from
the sands, and he now, of course, is making a killing.
He is making a killing because prices have gone well above
where they were in the past and where they would be today if,
in fact, we had a glut rather than a shortage around the world.
So I, for one, want to hear what we can do to enable you to
have better access here, which I believe, unlike the gentlelady
from Florida, a State like mine that has simply said we don't
want it in our backyard, more available.
I also would like to and, with my questions, will ask about
each of your company's worldwide efforts to find and extract
oil from around the world. I don't expect you to give us all
the answers on wind energy, although many of your companies
have invested in that.
I do expect you to have a plan to reinvest the profits that
you are earning today into future energy. I am confident you
will, in fact, have a plan to do that, that unlike the
gentlelady and the gentlemen, in some cases, on this dais, that
you will show us where these funds are not simply being sent
out to stockholders, although well deserved, because many of
them waited for a long time for these windfall profits, but, in
fact, reinvest it in future energy.
For that, I hope the Chairman will be as receptive as I
Mr. Chabot. Would the gentleman yield?
Mr. Issa. And I would yield to the gentleman from Ohio.
Mr. Chabot. I thank the gentleman. I will be very quick.
The gentleman made the comment about America being a NIMBY
nation, and NIMBY, of course, is ``not in my back yard.'' I
would just note, when it comes to ANWR, which is in Alaska, the
overwhelming number of Alaskans are in favor of drilling in
I yield back.
Mr. Issa. Thank you, and reclaiming my time.
It is very clear that some people in America are not in
anyone's back yard. That is not true of Hugo Chavez, who will
drill where he needs to drill. It is certainly not true of the
Chinese, who were today in preparation for drilling off of
Cuba's coastline, far closer to the gentlelady from Florida's
district than, in fact, any of you are allowed to drill.
So, Mr. Chairman, I do look forward to it. I do believe
that we have to be vigilant against price manipulation. I also
think we have to recognize that in absence of sufficient supply
and too much demand is, in fact, what we also have an
obligation from this dais to deal with.
With that, I would happily yield back.
Mr. Conyers. Thanks, Darrell.
Tom Feeney, Florida?
Mr. Feeney. Thank you, Mr. Chairman.
Congress has had some 45 hearings recently on gas prices
and energy applications.
I would say that the essence of these hearings has proved
two of my favorite maxims. Number one, no situation is so bad
that Congress can't make it worse, and, two, that Congress is
constantly trying to repeal the laws of supply and demand and
economics as though we could reverse gravity by passing a law.
And I would predict that the more hearings we have and the
more policies based on the attitude of the liberal leadership,
the higher prices of gas will go.
I think it ought to be liberal leaders in Congress that are
answering questions about how our policies have led to $138 a
Any of you that have had a third grade economics class or
the first week of economics in high school or college can talk
about the fundamental laws of supply and demand.
We can't really impact or stop India or China or much of
the developing world that 40 years ago was walking around, they
were rich if they had a bicycle. The demand for energy is
increasing worldwide and there is simply nothing that the
American Congress can do about that.
What we can have an impact on is supply. What have we done
for 35 years? Energy includes a basket of viable ways to
produce energy that we need in our personal lives, our
families, for businesses and for prosperity.
Yet, for 35 years, we have said that not one nuclear power
plant can be built to provide energy to Americans. All of our
nuclear experts went to France. I hate to point out that France
has a better common sense policy toward energy than the United
States, but all of our technology and experts went to France.
They now get 80 percent of their energy needs from clean,
renewable and affordable nuclear power. We have got 26 percent
of the world's coal supply right here in the United States, and
yet we have largely said we are not going to build any new coal
plants, even though liquefied or gasified coal is cleaner than
We have done this to ourselves. We have stopped any new
drilling in the Gulf. The oil in shale, as Congressman Cannon
pointed out, in ANWR, we have deliberately done everything we
can to reduce the supply of domestic energy.
And, yes, it is great to talk about long-term needs that I
support, wind and solar and biofuels are all great potential
one day opportunities, but in the short run, we have done this
to ourselves with policies.
And, finally, I would like to say a word about the
speculators that supposedly are driving up the cost of gas at
the pump. Speculators are nothing but sophisticated bettors and
they are betting on what is going to happen in the future to
supply and demand.
They are watching the United States Congress crush
ourselves in every way that we produce a new policy of taxes or
regulation or killing supply, and they are betting that this
Congress will take $4 a gallon gas to $8 or $10 or $12 a gallon
gas, and I would say if we don't change directions
dramatically, the speculators are right.
They are not responsible. They are betting on the
misperformance and the negligence of the United States
With that, I will yield back the balance of my time.
Mr. Conyers. Thank you very much.
We welcome John Peterson of Pennsylvania sitting with us.
You have given us an idea, Tom, that I have been talking
about with Mr. Chabot and Mr. Smith. Maybe we should hold a
hearing someday and we will be the witnesses and let those we
have invited ask us the questions, which has what has started
out this morning.
We have finished now. We have got three quick votes. We
will stand in recess and we will resume.
Thank you for your patience.
Mr. Conyers. Our witnesses are Steve Simon, Senior Vice
President of Exxon Mobil Oil; Bob Malone, Chairman and
President of BP America; John Lowe, Executive Vice President,
ConocoPhillips; Peter Robertson, Vice Chairman of the Board of
Chevron; and, our lead-off witness, Mr. John Hofmeister, U.S.
President, Shell Oil Company, who we note has been active with
the National Urban League, who is stepping down soon and who we
wish well in his future endeavors.
Please start us off.
TESTIMONY OF JOHN HOFMEISTER, U.S. PRESIDENT,
SHELL OIL COMPANY
Mr. Hofmeister. Thank you, Chairman Conyers, Congressman
Chabot and Members of the Task Force. I appreciate the
opportunity to testify today.
In addition to my formal written statement, I welcome the
chance to share some additional thoughts.
This is an era of remarkable capital expenditures for major
new projects and infrastructure, strong investments in
technology and the aggressive pursuit of energy alternatives.
We are setting records in one of the most expansionary
periods the industry has known. Yet, in the face of this
sustained record spending, the relentless increase in the price
of a barrel continues.
As repetitive and uninteresting as it may sound, the
fundamental laws of supply and demand, I believe, are at work.
Oil exporting nations are managing their natural resource
development and production to supply their local and global
markets in their own self-interest.
While all oil importing nations buy oil at global prices,
some, notably, India and China, subsidize the cost of oil
products to their nation's consumers, feeding the demand for
more oil, despite record prices.
They do this to speed economic growth and to ensure a
competitive advantage relative to other nations.
Meanwhile, in the United States, access to our own oil and
gas resources has been limited for the past 30 years,
prohibiting companies such as Shell from exploring and
developing resources for the benefit of the American people.
According to the Department of the Interior, 62 percent of
all onshore Federal lands are off limits to oil and gas
development, with restrictions applying to 92 percent of all
In addition, the outer continental shelf moratorium on the
Atlantic Ocean, the outer continental shelf moratorium on the
Pacific Ocean, the outer continental shelf moratorium on the
eastern Gulf of Mexico, congressional bans on onshore oil and
gas activities in specific areas of the Rockies and Alaska, and
even a congressional ban on doing an analysis of then resource
potential for oil and gas in the Atlantic, Pacific, and eastern
Gulf of Mexico prevent us from bringing new supplies to the
American people at a time when they desperately need new
The Argonne National Laboratory, in addition, produced a
report in 2004 that identified 40 specific Federal policy areas
that halt, limit, delay or restrict natural gas projects.
I urge you to review it. It is a very long list. If I may,
I offer it today, if you would like to include it in the
*Note: The December 2004 report, ``Environmental Policy and
Regulatory Constraints to Natural Gas Production,'' has been made a
permanent part of this record and is archived at the Task Force. The
report may also be viewed on the Internet at:
Mr. Conyers. I do and so ordered.
Mr. Hofmeister. When many of these policies were
implemented, oil was selling in the single digits, not the
triple digits we now see. The cumulative effect of these
policies has been to discourage U.S. investment and send U.S.
companies abroad to produce new supplies.
As a result, U.S. production has declined so much that
nearly 60 percent of daily consumption now comes from foreign
Alternative and renewable energy sources play a role and
will grow substantially, and Shell is playing a key part in the
expansion of such technologies.
But nonetheless, leading experts forecast that by 2030, we
are still expected to import more than half of our oil.
The problem of access can be solved in this country by the
same government that has prohibited it. Congress could, if it
chose, to lift some or all of the current restrictions on
exploration and production of oil and gas.
If the nation set a goal, Mr. Chairman, of increasing
domestic production by 2 to 3 million barrels a day, by opening
up new sources for exploration and production, in addition to
recent laws you have passed to increase the production of
renewable fuels and to increase miles per gallon in the
vehicles that we drive, we could demonstrate to the world that
we are in control of our own destiny.
If we did this, it would be unnecessary for our national
leaders to ask the rulers of other sovereign nations to produce
more oil for U.S. consumers and risk the discomfort of an
Instead of continuing the 30-year pattern of limiting
access, let's implement a national policy that expands access
where appropriate, and Shell is prepared to participate in such
In addition to more access, we do need more refining
capacity. As you know from my written testimony, Shell is a 50
percent participant in the $7 billion expansion of the Motiva
Refinery in Port Arthur, Texas.
This project will expand production of finished products by
more than 300,000 barrels per day and, when completed, will be
one of the largest refineries in the United States and in the
Refining capacity is particularly critical when it comes to
the demand for diesel, aviation fuel and heating oil, all
products that we in the industry refer to as the middle of the
At home and around the world, demand for these middle
distillates is growing faster than the demand for gasoline. Due
to the sustained demand for diesel mobility and air travel,
prices for these products are also rising faster than other
There is simply no way for us to keep up with demand or get
ahead of it without producing more oil and more refining
capacity. Higher taxes would only serve to diminish the
expansion capacity of this critical capital investment, and I
urge you to resist such punitive policies.
We are making significant capital investment to produce
more energy and more kinds of energy to meet global demand.
Enormous amounts of capital are required and will continue to
be required to fund our huge scale projects and cutting-edge
This year, Shell will spend more than $28 billion, the
largest capital expenditure in our history and perhaps in the
oil and gas industry, and this investment includes significant
investments in wind, solar, hydrogen and biofuels.
In conclusion, Mr. Chairman, the United States has the
natural resources, it has the technology, the financial
capital, the human capital, and the desire to be more energy
It consecrates the future of new alternatives and more
traditional hydrocarbons. It can also address the CO2
reductions that we need for the future. It can continue to
assure a quality of life for its citizens. It can deliver more
affordable energy and affordable ways to U.S. consumers.
By addressing our challenges by considering them as short-
term, medium-term and long-term opportunities, the U.S. can
move beyond its current dilemma and build a new era of
sustainable, affordable energy security.
I look forward to your questions.
[The prepared statement of Mr. Hofmeister follows:]
Prepared Statement of John Hofmeister
Note: The attachments submitted with the prepared statement of John
Hofmeister, are not reprinted here but are on file with the Task Force
and can be viewed on the Internet at:
Mr. Conyers. Thank you so very much.
We have all of our resumes, accomplishments and present
activities that will be in the record.
Mr. Robertson, welcome.
TESTIMONY OF PETER J. ROBERTSON, VICE CHAIRMAN OF THE BOARD,
Mr. Robertson. Good morning, Mr. Chairman, Ranking Member
Chabot and Members of the Committee.
My name is Peter Robertson. I am Vice Chairman of Chevron
Corporation, and I am here today proudly representing our
I appreciate the opportunity to discuss the energy issues
facing consumers. We know Americans are frustrated and
concerned about prices at the gas pump. They are looking for
answers, and rightly so. They deserve answers from us and
answers from Congress.
Last week, the average price of gasoline was $3.72 a
gallon, up $0.62 from a year ago. Increased crude oil costs
made up all of the increase and now account for 71 percent of
the price, or $2.65 a gallon.
Global issues affecting the supply and demand of crude oil
are driving prices up to new records. The world is consuming
oil at an ever increasing rate and it is projected to continue.
There is dramatically reduced spare supply and no room for
error. Any disruption or perceived threat of disruption sends
oil prices up. Oil prices have doubled over the last year due
to this highly volatile environment.
So what are we doing about rising oil prices? We are
reinvesting our record income at record rates in future energy
supplies, including renewables, and we market energy efficiency
This year, we are spending $7.1 billion to develop U.S.
energy projects, triple what we spent in 2004. In the precious
5 years, we spent nearly $20 billion in the U.S.
When it comes to refining and gasoline marketing, we are
spending $2.3 billion this year on our American facilities.
Recent upgrades to our U.S. system have added 1 million
gallons per day and we are working to add more.
We now produce more than 6 billion gallons of gasoline each
year, a large number, but that is less than 6 percent of the
U.S. refining capacity, and, in fact, we own just five of the
150 U.S. refineries.
And when it comes to selling gasoline at the street corner,
we are the fourth largest U.S. retailer, but our market share
is less than 7 percent.
There are 168,000 retail sites across the country. We have
fewer than 10,000 sites, most of which are owned and operated
by independent businessmen and women.
Given the number of players involved, there can be no doubt
competition for sales is fierce. Consumer demand has fallen in
the first 2 months of this year.
U.S. gasoline production has been at record levels for over
the first 4 months. Gasoline inventories have recently been
pushed to their highest levels in a decade. The market is well
supplied. That is why the current high price situation is so
Americans are right to ask. With ample supplies of gasoline
and weak demand at home, why are prices at the pump continuing
The tension is with crude oil supplies. America is the
world's largest consumer. We important 10 million barrels a
day, which is double our domestic production.
We are in competition for these imports with developing
economies around the world, many of which subsidize their
domestic fuel prices. This puts more pressure on limited spare
To ease this tension, massive investment is needed around
the world. This is where companies such as Chevron play a
American energy companies are large compared to most U.S.
businesses, but relatively small compared with national oil
companies competing with us for supplies.
These companies have control over most of the world's known
reserves and many enjoy the unqualified support of their
Punitive measures, such as windfall profits taxes, will
hamper our ability to invest in badly needed supplies. They
will weaken our competitiveness in this volatile atmosphere and
increase our dependence on foreign supplies.
Our solutions need to focus on the basics of crude oil
supply and demand. When it comes to demand, we need less. We
need to value energy as a previous resource and use our
ingenuity and advanced technology to use energy more wisely
across the economy.
When it comes to supply, we need more of all forms, oil,
natural gas, biofuels and other renewables. Last year, the
National Petroleum Council study reinforced this need to deal
with supply and demand. It emphasized strategies for achieving
American energy security through smart policies and
We strongly urge you to implement its recommendations. We
know that high prices are forcing consumers to make hard
choices on how they use energy.
We are making hard choices to mobilize more people and more
money to increasingly remote locations in the world for more
supplies. Chevron employees understand the enormous
responsibility that they have to deliver energy reliably. I can
personally attest to their strong commitment.
Congress has recently made some hard policy choices on
renewables and energy efficiency that will make a difference.
But we can't expect other countries to expand their resource
development to meet our increasing needs as we limit our
development without good reason.
We welcome the opportunity to work with you to ensure the
responsible development of this country's substantial untapped
potential resources in a way that respects the environment and
delivers badly needed energy supplies to Americans.
[The prepared statement of Mr. Robertson follows:]
Prepared Statement of Peter J. Robertson
Chairman Conyers, Ranking Member Chabot, Members of the Committee.
My name is Peter Robertson, and I am vice chairman of Chevron
Corporation. I am here to represent the more than 59,000 Chevron
employees (of whom 27,000 work here in the U.S.) and more than 1.5
million stockholders who put their trust in our company each day. I am
proud to be a part of an industry so vital to every American's way of
life and to the development and growth of economies around the world.
Given the many challenges our country faces on the energy front, I
appreciate the opportunity to appear before you today. I will address
the factors behind rising oil and gasoline prices, discuss some
realities of the highly competitive global energy market, and outline
what Chevron is doing to ensure reliable supplies of energy to U.S.
Although Chevron has been firmly rooted in California for almost
130 years, our operations and customers span the globe and extend
across the entire energy spectrum. Globally, we produce approximately
1.7 million barrels of crude oil per day--less than 2 percent of global
demand. Chevron's U.S. production of approximately 410,000 barrels of
crude oil per day represents about 8 percent of U.S. total.
We refine, transport and sell petroleum products. Chevron is the
sixth-largest refiner in the U.S., producing about 5.8 percent of the
country's refined products. And we blend ethanol into almost 40 percent
of the gasoline we sell in the U.S.
Chevron is a leading producer of renewable energy. We're the
world's largest producer of geothermal energy (operating 1,250
megawatts), and we're pursuing next-generation biofuels and other
alternatives with a number of important strategic partnerships.
Chevron is unique among major oil companies as a leading provider
of energy efficiency services and clean energy solutions in the nation.
Our subsidiary, Chevron Energy Solutions, has a strong track record of
providing solar power to large commercial clients across the country.
To date, it has handled more than 800 projects, helping clients lower
their energy consumption and costs by nearly 30 percent on average.
Chevron strives to be a strong partner in the communities where we
operate. Our company supports more than 11,000 large and small
businesses throughout the country. Last year alone, we spent $10.8
billion with our business partners in the U.S. and supported 2,000
charitable organizations across 43 states and the District of Columbia.
It is precisely Chevron's size and scope that allow us to
successfully compete for the energy resources the world and America
Strong global demand, weak U.S. dollar have driven up oil prices
As we meet today, the question on the minds of most Americans is,
``Why are gasoline prices so high?'' The short answer? Because global
crude oil prices are so high.
The price of oil has risen recently to above $125 a barrel--a
record level and double its price at this time last year. Given that
the largest portion of the cost of gasoline is crude oil, gasoline
prices have risen to record heights. According to the Department of
Energy, a gallon of regular gasoline retailed on average for $3.72 in
the first week of May, with the price of crude oil accounting for about
$2.65 of this amount. Federal, state and local taxes averaged 47 cents
per gallon, making the combined effect of crude costs and taxes $3.12
per gallon or 84 percent. (See Appendix chart #1). While the price of
crude oil has soared, it is important to understand that the market
forces of demand, supply and competition have prevented gasoline prices
from keeping pace. That average gasoline price for the first week of
May rose 20 percent over the price for the same week last year--a
relatively small amount compared to the jump crude has experienced.
Consumers and businesses feel the effects of high crude oil and
gasoline prices from the supermarket to the airport. Chevron is both a
producer and a user of energy, and we are concerned about escalating
oil prices just as any other energy consumer is. To address these
concerns going forward, it is important to understand the many factors
affecting the price of oil--and, therefore, the price of transportation
There are fundamental factors affecting the current price of oil,
including rising demand, the reduction in the supply system's spare
capacity to deal with unforeseen disruptions, the value of the U.S.
dollar and the associated flight to commodities, and rising risk--both
above ground and below ground.
We have reached a point where worldwide demand is straining the
global energy system. Demand in non-OECD countries--what we typically
think of as developing nations--is experiencing robust growth, pushing
up overall global demand despite essentially flat or slightly lower
demand in OECD countries. In fact, growth in non-OECD regions has
accounted for over 80 percent of the rise in oil demand since 2000,
including rapidly increasing demand throughout Asia, particularly in
China and India. The expansion has been driven by exports and
infrastructure investment, and has consumed commodities at an
unprecedented rate. It is important to highlight that in many important
energy-consuming non-OECD countries government treasuries have
subsidized price (Appendix chart #2)--a factor that has contributed to
additional stress on supplies and price.
The Middle East is also in the middle of a substantial investment
cycle, a process that has kick-started oil product demand growth in the
face of rising oil prices. Thus far, non-OECD oil demand growth has
shown few signs of softening despite the U.S. economic slowdown.
It is this economic growth overseas, especially in India and China
that has helped hundreds of millions of people to rise above the
poverty level to a better quality of life. These basic human
aspirations and the resulting energy demand growth are forecasted to
continue. Global energy demand is projected to increase roughly 50
percent by 2030, with demand in the Asia-Pacific expected to grow 90
percent over the same period (See Appendix chart #3). And, according to
the Department of Energy, demand in the U.S. is also forecasted to grow
by 16 percent over the next 20 years.
The accelerated increase in demand since 2004 has reduced the
global spare capacity of crude oil, creating a tighter relationship
between supply and demand and heightened concerns in markets around the
world (See Appendix chart #4). Falling or flat U.S. production is a
contributing factor and adds to these pressures. According to the
Department of Energy, U.S. crude oil production has fallen
approximately 40 percent since 1985, while U.S. consumption has grown
more than 30 percent to more than 20 million barrels per day today. In
real barrels, U.S. oil production is now approximately 5 million
barrels per day--down from approximately 9 million in 1985. The
narrowing of spare production capacity in the world means that even
when a relatively small amount of resource is at risk of disruption due
to a variety of factors, it can affect the price of oil.
This heightened market sensitivity is exacerbated by other risks.
``Below ground risk'' is increasing as energy is harder to find and
more expensive to produce. ``Above ground risk'' is also occurring
around the world. At home and abroad, access to new supplies has been
restricted, making it increasingly difficult for the energy industry to
invest and expand operations. And calls for increased taxation only
serve to shrink the capital base available for energy development. As
the recent National Petroleum Council study pointed out, our country's
greatest concern relative to future supplies stems not from a lack of
hydrocarbon resource but, rather, from the risks to our ability to
expand production in a manner timely enough to meet growing demand.
Policies restricting access to new areas with resources in the United
States combined with naturally declining mature crude oil and natural
gas fields have increased U.S. reliance on imports from international
sources. (See Appendix chart #5).
Demand and supply pressures on oil prices are compounded by the
weakening of the U.S. dollar. The higher oil price is in part a market
adjustment that reflects the weakening purchasing power of oil
exporting countries that sell their oil in U.S. dollars but buy goods
with stronger currencies such as the euro. Additionally, the weak
dollar--and concern by stock investors over the subprime issue and its
impact on the stock market--has contributed to a flight to commodities
by investors seeking better returns (See Appendix chart #6). Oil has
gone up along with many other commodities such as gold, corn, copper
and even coal.
In the U.S., consumers have begun to respond to the high fuel
prices by using less. Recent figures from EIA suggest that petroleum
product demand in the U.S. has fallen 1.4 percent over the first two
months of the year, compared with the same period last year. Gasoline
production at U.S. refineries was at record levels over the first
quarter of 2008, leaving inventories at their highest levels in a
decade. Capacity increases at existing refineries have added the
equivalent of 10 new refineries over the past decade. Overall refining
capacity has increased by 20 percent since 1985 even though there are
57 fewer refineries (See Appendix chart #7). That retail fuel prices
still remain high underscores the fact that many factors are in play,
and, unfortunately, there are no short-term fixes to today's price
Finally, it is important to note that the U.S. transportation fuel
markets are not only well supplied but also highly competitive. We are
the sixth largest U.S. refiner and operate five of the nation's roughly
150 refineries. Our market share is less than six percent. Marketing
operations are similarly competitive. Chevron is the fourth largest
U.S. branded marketer operating under the Chevron and Texaco brands. We
have roughly 9,700 of the country's 168,000 branded stations. And it's
important to note that 95 percent of our stations are operated by
independent business people, who must compete aggressively against at
least 40 other companies.
Energy companies are making very little money on retail gasoline
sales despite the high price environment. Energy company earnings from
the first quarter of 2008 tell the tale. Chevron's U.S. downstream
operations--that part of our business responsible for refining,
marketing and transportation of gasoline and other refined products--
effectively broke even. That portion of our business lost money over
the last six months of 2007.
Over the years the Federal Trade Commission has scrutinized our
industry carefully. Summarizing its oversight of the industry in 2004,
FTC concluded: ``In sum, mergers have contributed to the restructuring
of the petroleum industry in the past two decades but have had only a
limited impact on industry concentration. The FTC has investigated all
major petroleum mergers and required relief when it had reason to
believe that a merger was likely to lead to competitive harm. The FTC
has required divestitures in moderately concentrated markets, as well
as highly concentrated markets.'' \1\ (See Appendix chart #8)
\1\ Federal Trade Commission, ``The Petroleum Industry: Mergers,
Structural Change and Antitrust Enforcement,'' August 2004
Energy challenges are immense--so is the infrastructure
needed for supplies
To understand today's energy reality, I would emphasize that the
energy system is global, vast and complex. For each minute we spend
here today, the world will consume the equivalent of 7 million gallons
of oil-equivalent. For decades it also has delivered energy to over a
billion people around the globe efficiently and reliably. The
infrastructure that produces energy in one part of the world and
delivers it to another is highly interconnected--physically and to the
global markets that set oil prices. Each depends upon the other.
Although the United States is a key producer and the leading global
consumer, we are only one part of this global system and cannot be
isolated or immune from issues that either shape or upset global market
There has never been a more urgent need to be realistic about the
energy system's interdependence and its size and scale. We also need to
recognize the magnitude of resources--both financial and
organizational--needed to keep it running. Today's energy
infrastructure requires substantial ongoing investment to sustain
production, tap new sources and meet growing demand. In fact, in its
2007 Energy Outlook, the International Energy Agency has projected that
the world will require $22 trillion in new energy investments by 2030,
with $7 trillion needed to produce the resources--the crude oil,
natural gas, coal and biofuels--needed to meet demand. Nearly half of
these investments will be in developing countries.
As we strive to meet demand, we are overcoming increasingly extreme
and remote environments while responding head-on to the challenges
posed by climate change. Our industry has evolved over the last 100
years from drilling with relatively simple wooden derricks that barely
scraped the earth's surface to complex offshore platforms that produce
oil from reservoirs located miles below, where pressures can exceed
20,000 pounds per square inch and temperatures can surpass the boiling
point. One new crude oil project on the frontiers of the Gulf of Mexico
can cost more than $5 billion and take more than 10 years to bring
onstream. A recent expansion of production at the Tengiz field in
Kazakhstan which added less than one percent to global oil supplies
took more man hours of labor than the construction of the Panama Canal.
We will need as many of these projects as we can get.
And costs are escalating. The competition for resources to meet
that demand has resulted in rising costs for our industry. Costs in the
upstream sector have doubled since the year 2000, reflecting higher
prices for everything from steel, drilling rigs and offshore vessels to
bulk materials, engineering, construction and labor. Similarly, the
capital costs for our downstream refining, processing and chemical
businesses are sharply higher.
Today's environment illustrates an industry truism: The era of easy
access to cheap oil is over.
There are significant challenges and paradigms about energy that
need to be resolved so that we can generate the kind of production at a
scale needed to meet U.S. demand. These challenges will take time,
money, new infrastructure and advanced technology to solve. For the
foreseeable future it also will take contributions from all energy
sources--traditional energy, renewables and energy efficiency.
Competing in the global marketplace requires scale and strength
Today's global resources are increasingly nationalized, and single
crude oil and natural gas development projects run in the billions of
dollars. The search for the next source of energy and delivering it to
markets on six continents--whether oil or next-generation fuels from
renewable sources--takes enormous capital, specialized expertise,
advanced technology and human energy that characterizes Chevron.
From a global perspective, sovereign states and their national oil
companies own the majority of the resources consumers need. Chevron
ranks 18th in terms of its access to oil reserves. (See Appendix chart
#9). U.S. energy companies need the scale that is necessary to partner
and compete with these large national oil companies to gain access to
critically needed energy resources that fuel America's cars, heat
America's homes and power America's businesses.
The U.S. is advantaged by having large, well-capitalized oil and
gas companies that can partner and compete with this group of national
oil companies. And, policies that disadvantage U.S. companies' ability
to compete in the global marketplace--such as proposals to levy
addition taxes on the industry--diminish our ability to provide new
sources of energy.
Chevron is aggressively investing to develop new energy supplies
We are actively responding to the energy demand of the United
States and countries around the world--investing aggressively to
develop energy supplies to meet today's and tomorrow's needs. Our
activities span a diverse portfolio of energy interests, including
traditional oil and gas, renewables, alternatives, energy efficiency
services, and research and development in future energies. Between 2002
and 2007, Chevron invested approximately $73 billion back into the
business to bring new energy supplies to market--investing what we
earned. Some $22 billion of that sum was invested in our U.S.
Our capital program for 2008 is close to $23 billion, an increase
of nearly $3 billion over our 2007 investment, and nearly triple what
it was in 2004. Globally, Chevron currently has 40 major capital oil
and natural gas projects in the planning, engineering or development
stage, each with a net Chevron share of the investment over $1 billion.
These projects are critical to supplying the energy that the world
needs and will be important to closing the gap between supply and
demand, which is key to addressing the challenge of high prices. Out of
this queue of 40 major supply projects, eight are located in the United
States. And there are many other upstream projects under $1 billion
that will have significant production once they come onstream.
A number of these projects are situated at the forefront of
development and employ leading-edge technology. As alluded to earlier,
factors such as size, organizational capability and the ability to
assume the inherent risks in developing technology and undertaking
large investments are essential assets when competing in today's global
energy environment. Even though Chevron is relatively small compared
with its nationalized competitors, it is a strong competitor. This is
an industry in which size, technological capabilities and financial
strength are the new ``price of entry,'' and large-scale and frontier
energy developments are the norm versus the exception today and in the
Let me highlight an example to illustrate what we do. We are
working on several deepwater crude oil and natural gas projects in the
U.S. Gulf of Mexico. One of these, known as Tahiti, offers a typical
case study in the risks facing this business today in terms of timing,
scale and cost. We acquired the Tahiti leases in the 1990s. In 2002, we
used leading-edge technology to drill in 4,000 feet of water and found
an estimated 400 million to 500 million barrels of recoverable
resources. It will take seven years to build the infrastructure
required to produce the oil and gas more than a 100 miles offshore.
When Tahiti finally comes online next year, we will have invested $4.7
billion--and dedicated personnel and resources for over a decade to
manage exploration, permitting, engineering and development--before
realizing $1 of return on our investment. Once in production, Tahiti is
expected to produce for up to 30 years. Tahiti is expected to add
125,000 barrels of oil and 70 million cubic feet of gas per day to the
U.S. domestic supply.
Today in the United States, the major oil and natural gas projects
we have under construction have a total peak production capacity of
420,000 barrels per day of oil-equivalent. All these projects are
expected to be in production by 2010.
We are also aggressively developing and applying new technologies
to extend the life of existing fields. This year we expect to spend
nearly $1 billion on the sophisticated technology and ongoing
development activities required to produce as many barrels as possible
out of our 100-year-old Kern River field in California. This investment
in our base business is a very important. Aside from sustaining our
capability to provide oil today, these efforts help us understand how
complex oil reservoirs work--knowledge and technology that we can apply
around the world so that our partners also can enhance their oil
recovery from known resources. In fact, one of the reactions to high
oil price has been a renewed focus on existing fields industrywide, a
trend that is helpful in the near term and should be encouraged.
Chevron is investing in critical downstream refining and
We are also investing in our refineries and marketing business to
continue to improve our ability to supply the products U.S. consumers
need. We are investing $2.3 billion in 2008 in our U.S. downstream
assets. Since 2002, we have invested $5.2 billion and we have developed
additional production capacity of more than 1 million gallons of
transportation fuel production per day. Our investment in U.S.
downstream refining and marketing assets in 2007 accounted for almost
half of our 2007 global downstream capital expenditures, even though
our U.S. operations only accounted for about a quarter of our
downstream business earnings. We also are investing in refineries
outside the United States, such as Pembroke, Wales, which can produce
gasoline to meet U.S. and California specifications.
Chevron's refinery investments have focused on achieving several
goals, including upgrading our capability to provide more
transportation fuels from more diverse crude oil feedstocks, improving
reliability and energy efficiency, enhancing environmental performance
of our facilities, and producing cleaner burning fuels.
At present, we are working on major projects at each of our big
three U.S. refineries. We are advancing through the permitting process
for projects at our El Segundo and Richmond refineries in California.
At Chevron's Pascagoula, Mississippi, refinery, construction began this
year on a new gasoline production unit. The project will improve
equipment reliability and utilization and allow the refinery to
optimize product yields. Gasoline production at the refinery is
expected to increase by approximately 10 percent, or about 600,000
gallons per day, upon completion of the project in mid-2010.
Focusing on the longer term, we have recently announced a research
and development project to further advance refining technology. Known
as VRSH, which stands for Vacuum Resid Slurry Hydrocracking, this
technology will help us produce transportation fuels from heavy crude
oil otherwise used for other lower-grade petroleum products. We spent
almost five years working on the project in a lab setting testing the
technology. We announced in March that we are beginning work on a pre-
commercial plant at our Pascagoula refinery that will take two years to
construct. We will learn more about the technology for a few years
before we will be able to confirm whether we can build one of these
plants at full scale. Once that decision is made, it will take another
several years after that to complete. This kind of step-by-step process
is needed to ensure we are making the right decisions. They take time.
We are committed to remaining a reliable supplier to our customers,
but it is important to remember that investments are sensitive to local
permitting decisions and market forces. For example, we hope to soon
finalize the plans for the Richmond refinery project The process of
obtaining these permits has already taken more time than constructing a
new state-of-the-art refinery we are investing in with partners in
India or completing a major refinery expansion in at our joint-venture
refinery in Yeosu, Korea.
At a more fundamental level, government policies--such as the
recently passed energy bill with its very ambitious program for
renewable fuels--have created new uncertainties over how much
additional U.S. refining capacity may be needed to meet future U.S.
demand. Nonetheless, we are aggressively investing in the critical
energy infrastructure this nation needs to continue to reliably supply
fuels to customers.
Diversifying energy and fuel sources
At the same time that we are investing at the forefront of
traditional energy such as oil and gas, we also are pursing advances in
renewable technologies that are needed to help diversify supply and
meet the challenges of tomorrow. To add to domestic energy resources,
Chevron and many other companies are making investments in renewable
energy. Since 2002, Chevron has spent more than $2 billion to develop
renewables and energy efficiency services. Between 2007 and 2009, our
spending on renewable technologies and energy efficiency solutions will
be an additional $2.5 billion.
Chevron is investing in new technology to unlock the enormous
potential of cellulosic ethanol. In 2006, we formed a biofuels business
to advance technology and pursue commercial opportunities related to
the production and distribution of ethanol and biodiesel in the United
States. We recently announced a joint venture with Weyerhaeuser
Corporation to pursue the research necessary to commercialize
production of biofuels from nonfood sources. Catchlight Energy will
work to develop technology that will lead to commercial biofuels
And more research is needed. We have strategic biofuels alliances
with Georgia Tech, UC Davis, Texas A&M, the U.S. Department of Energy's
National Renewable Energy Lab and the Colorado Center for Biorefining
and Biofuels. We also are participating with AC Transit in the San
Francisco Bay Area (California) on a zero-emission hydrogen bus
Chevron is taking aggressive steps to increase energy efficiency
The energy challenges we face, globally or in the United States,
cannot be met by addressing only the supply side. It is also important
for all of us to realize that the most readily accessible source of new
energy is conservation and efficiency. At Chevron, we embrace
conservation as an important business strategy, and we are in our 17th
year of a focused effort to increase our own energy efficiency. Since
1992, we have increased energy efficiency by 27 percent.
And through Chevron Energy Solutions (CES), we are delivering
energy efficiency projects that benefit federal, state and local
governments; the public; and the environment. CES has completed over
800 projects involving energy efficiency and renewable power in the
United States. These projects have accounted for over $1 billion in
energy and operational savings, helping clients lower their energy
consumption and costs by nearly 30 percent on average.
Chevron Energy Solutions has implemented energy efficiency, energy
management and related energy improvements at government facilities
across the United States. These projects include U.S. military bases
such as: Beale Air Force Base, California; Department of the Navy,
Marine Corps Logistics Base, Georgia; Department of the Army, Picatinny
Arsenal, New Jersey; and the Department of the Army, Corpus Christi
Army Depot, Texas. CES also has developed energy efficiency, solar
power and clean energy projects for the U.S. Postal Service, including
its Processing and Distribution Center in Oakland, California, and Mail
Processing Facility in San Francisco, California. Another California
solar project at Contra Costa Community College near San Francisco is
the largest of its kind at an institution for higher learning in North
America. The project, when completed, will generate 3.2 megawatts of
solar power and will save the college $70 million in energy costs over
The National Petroleum Council Study: Urgent action is needed
There is no single or short-term solution to satisfy the world's
growing appetite for energy--or to prevent the United States from being
affected by the global energy dynamic. We are in a new energy era, one
defined by increased demand and constrained supply.
We need a range of realistic solutions, and we need them at scale.
We literally need all the energy we can develop and to use energy
more wisely. This includes oil, natural gas, coal and nuclear power. It
also includes renewables. And, just as important, it includes a focus
on energy efficiency. The U.S. Energy Information Agency forecasts that
over the next 25 years oil, coal and natural gas will provide roughly
the same 86 percent of the world's total energy mix as they do today.
The energy industry and other parties are making investments in all
these areas, and it is important that they continue. All are needed to
provide important additions to our energy supply portfolio. And all
will play an important role in meeting increased energy demand.
At a time when more supply is needed, the United States has been
reluctant to access some of its own resources. Chevron and others have
been talking about the constrained supply-demand dynamic for the last
several years, urging greater access to U.S. resources, onshore and
offshore--especially given the time it takes for projects to come
onstream. Instead, we have been increasing our demand on exporting
countries because of policy decisions made here at home. Any serious
measures toward energy security must seek to reverse this equation. As
the world's largest consumer of energy, actions we ask of other
producers must be matched at home.
Energy underpins every aspect of our society and our growing
economy. The scale and breadth of the U.S. energy system is unsurpassed
in the world, as is our energy demand, which is forecast to soon to
need 1 million barrels of oil an hour of supplies. A sustained,
reliable supply is essential, and that is achieved by bolstering
supplies and moderating demand. The Energy Independence and Security
Act of 2007 had important measures to moderate demand. However, it
missed taking the additional step we believe is also urgently needed--
improved access to ``off-limits'' oil and natural gas resources that we
will need 10, 20 and 30 years from now.
Last summer, the National Petroleum Council (NPC) issued a sobering
study called ``Facing the Hard Truths About Energy,'' which outlines a
comprehensive, integrated approach to U.S. energy security. The NPC
study is a broad-based consensus effort representing the views of an
impressive range of experts and stakeholders. Input was sought from
more than 1,000 other stakeholders, in the U.S. and abroad; there were
350 participants with backgrounds in all aspects of energy including
efficiency, economics, geopolitics and environment; 65 percent of
participants were from outside the oil and gas industry, including
nongovernmental organizations, academia, government, environmental and
The NPC study highlights the need for an integrated national
strategy given accumulating risks to the supply of reliable, affordable
energy. The study highlights a number of ``hard truths'':
Coal, oil and natural gas will remain indispensable
to meeting total projected energy demand growth.
The world is not running out of energy resources, but
there are accumulating risks to continuing expansion of oil and
natural gas production from the conventional sources relied
upon historically. These risks create significant challenges to
meeting projected energy demand.
To mitigate these risks, expansion of all economic
energy sources will be required, including coal, nuclear,
renewables, and unconventional oil and natural gas. Each of
these sources faces significant challenges--including safety,
environmental, political, or economic hurdles--and imposes
infrastructure requirements for development and delivery.
``Energy independence'' should not be confused with
strengthening energy security. The concept of energy
independence is not realistic in the foreseeable future,
whereas, U.S. energy security can be enhanced by moderating
demand, expanding and diversifying domestic energy supplies,
and strengthening global energy trade and investment. There can
be no U.S. energy security without global energy security.
A majority of the U.S. energy sector workforce,
including skilled scientists and engineers, is eligible to
retire within the next decade. The workforce must be
replenished and trained.
Policies aimed at curbing CO2 emissions will alter
the energy mix, increase energy-related costs and require
reductions in demand growth.
The NPC study sets forth five core strategies to assist markets in
meeting the energy challenges to 2030 and beyond. The United States
1. Moderate the growing demand for energy by increasing
efficiency of transportation, residential, commercial and
2. Expand and diversify production from clean coal, nuclear,
biomass, other renewables, and unconventional oil and natural
gas; moderate the decline of conventional oil and natural gas
production; and increase access for development of new
3. Integrate energy policy into trade, economic,
environmental, security and foreign policies; strengthen global
energy trade and investment; and broaden dialogue with both
producing and consuming nations to improve global energy
4. Enhance science and engineering capabilities and create
long-term opportunities for research and development in all
phases of the energy supply and demand system.
5. Develop the legal framework to enable carbon capture and
sequestration (CCS). In addition, as policymakers consider
options to reduce CO2 emissions, provide an effective global
framework for carbon management, including establishment of a
transparent, predictable, economy-wide cost for CO2 emissions.
The study further recommended that markets should be relied upon
wherever possible to produce efficient solutions. Where markets need to
be bolstered, policies should be implemented with care and
consideration of possible unintended consequences.
The study is a catalyst for action. And action is needed now on all
of the recommendations.
Changing the conventional wisdom on energy
We welcome serious dialog about measures that can be taken to help
the consumer deal with these rising energy and fuel prices and develop
a comprehensive energy policy.
Let me reiterate that the NPC study has given us sound, sensible
and achievable solutions. To successfully implement these
recommendations, we need to change our conventional wisdom about energy
development and its use.
First, we need to value energy as a precious resource. Energy
efficiency is the most immediate and important action that each of us
can take to contribute to rising energy prices. The United States must
become a nation of energy savers. In short we need a ``Made in
America'' solution enabled by everything from human ingenuity, to
``smart'' buildings, to advanced vehicles and transportation systems.
Increased energy efficiency and conservation will help reduce demand
for energy and will reduce pressures on the system. Markets are
indicating U.S. consumers are already taking action. Congress has a
critical role to play to engage the U.S. public and put the United
States at the forefront of responsible energy use.
Second, we need all the energy we can get from every available
source. We must continue to bring traditional energy supplies to
market, and invest in the critical energy infrastructure this nation
needs, even as we are developing alternatives sources of energy.
Third, on the supply side, we need your help to open up the 85
percent of the Outer Continental Shelf that is now ``off limits'' to
environmentally responsible oil and gas exploration and development. We
cannot expect other countries to expand their resource development to
meet America's needs when our government limits development at home.
Along with access, it is also important to streamline permitting
processes to enable new resource development, additional recovery in
existing fields and continued investment in critical downstream
infrastructure to progress in a reasonable timeframe.
Fourth, I would encourage careful evaluation of policies that can
lead to unintended consequences and create inefficiencies in the
gasoline supply system. Today we have 17 ``boutique'' fuel requirements
across the country, requiring us to blend unique gasoline products for
different states and different localities. More requirements on fuels
are being added through renewable fuel mandates and proposed climate
policies. For example, we are under a mandate to include rising levels
of corn-based ethanol in our gasoline products and, over time, add
significant quantities of cellulosic ethanol. At the same time that we
are accommodating these new mandates, policymakers have proposed
legislation to reduce greenhouse gas emissions that again is
disproportionately burdensome on the transportation fuels sector. We
urge you and your colleagues to reflect on how to advance these
important national policies without inadvertently disrupting our
ability to provide the gasoline and transportation fuels that the
United States needs. Rationalization of these multiple requirements
will create greater efficiencies in the fuel supply system.
Finally, we urge you to reject punitive measures on our industry.
Regardless of intent, these will diminish our ability to invest in the
long term solutions critical to maintaining this country's energy
infrastructure and supplies, as well as our ability to develop diverse
energy resources for the future. As reported recently by the
Congressional Research Service, a similar measure in the 1980s resulted
in lower domestic production and increased dependence on foreign
sources.\2\ Put simply, actions drawn more from emotion than sound
policy will hurt everyone.
\2\ (Salvatore Lazzari, ``The Crude Oil Windfall Profit Tax Of The
1980s: Implications for Current Energy Policy,'' Congressional Research
American energy companies operate at the frontier of geography,
geology and technology. As the world's largest energy consumer, and as
a country blessed with rich natural resources, Americans need our
ingenuity and your leadership. With your help we can continue to
develop the critical energy supplies and infrastructure needed to
supply this nation and support this economy. Our collective actions
today will demonstrate leadership on issues that are within our
control. They will bolster us today, prepare us for tomorrow and set in
motion a wave of innovation and responsible development for many years
to come--to help us weather the powerful forces we cannot control.
How we as a country deal with our energy future is nothing less
than an urgent matter of our energy and national security
Ultimately, polices should recognize the interdependence of the
United States within the global energy system, while at the same time
capitalizing on our country's own extensive energy endowment. These are
not insignificant challenges, and they will require leadership and
collaboration. We look forward to working with you to address these
Chevron will continue to do its part.
Mr. Conyers. Thank you so much.
TESTIMONY OF JOHN E. LOWE, EXECUTIVE VICE PRESIDENT,
Mr. Lowe. Good morning, Chairman Conyers and the Committee.
We share the public's concern about rising energy prices
and appreciate the opportunity to present our views on what is
driving the increase, what our company is doing to respond, and
what we believe Congress can do.
Crude oil represents over 70 percent of the current cost of
gasoline. So higher crude prices are driving higher gasoline
So why have crude oil prices increased so dramatically?
There are numerous factors, the biggest contributor being a
long period of strong global economic growth, particularly in
Limited access to resources, both here and abroad, also
constrains the growth in supply. In addition, higher taxes,
service cost inflation, little excess production capacity, and
high geopolitical risk also contribute.
Adding to this are the investor funds flowing into oil
futures as a hedge against credit risk, inflation and dollar
I cannot overemphasize the access issue. Access to
resources is severely restricted in the United States and
abroad and the American oil industry must compete with national
oil companies who are often much larger and have the support of
We can only compete directly for 7 percent of the world's
available reserves, while about 75 percent is completely
controlled by national oil companies and are not accessible.
ConocoPhillips is working to bring more energy to the
market. Over the past 6 years, we have reinvested, on average,
106 percent of our income. In 2007, we earned $12 billion, but
reinvested $13 billion, and we have over $15 billion in
investments planned this year.
This investment includes finding added supplies of oil and
gas, expanding refining capacity and continuing to research and
bring renewable and alternative fuels to the market.
Here in North America, we are drilling exploratory wells,
developing the Canadian oil sands, and building infrastructure.
But we want to do more, such as explore the vast areas of the
U.S. that are off limits due to drilling moratoriums.
These areas could more than double the nation's oil and gas
Downstream, we are increasing our refining capacity and
ability to process lower quality crudes. Unfortunately, our
efforts here in the U.S. have been met with continuing
At our Wood River, Illinois refinery, the 10th largest in
the United States, we are experiencing long permitting delays
via the appeals process that are blocking our expansion plans.
In California, a project to make ultra low sulfur diesel
fuel has been threatened by permit challenge for 4 years.
We are working hard to bring renewable fuels into the
market by looking at ways to process them at traditional
refineries and researching new technologies.
Fifty-five percent of our U.S. gasoline volumes contain
ethanol. E-85 and biodiesel are being marketed at our branded
facilities. We are producing renewable diesel fuel and
researching next generation biofuels, like cellulosic ethanol,
and we are developing better materials for the lithium ion
batteries and electric vehicles.
So what can Congress do to help address energy concerns?
Congress can enact a balanced national energy policy that
encourages development of the conventional fuels that power our
economy, clears the permitting logjam, encourages alternative
sources, including all forms of biofuels, and removes the
current tariff on imported ethanol, encourages high energy
efficiency, and accelerates technological innovation.
Meanwhile, we urge you not to pass measures that have
public appeal, but would be counterproductive, such as tax
increases that diminish our investment capabilities, reduce the
attractiveness of high cost domestic production, or
disadvantage the U.S. oil and gas companies.
This has been tried before with extremely negative results,
reducing supplies, eliminating jobs, and resulting in higher
The nation cannot afford to make that mistake again.
The U.S. is in a global race for energy. We are competing
against national oil companies that are far larger and that
enjoy preferred access and governmental cooperation.
We must move beyond today's adversarial relationship and
start working together to find real solutions. U.S. oil
companies should be viewed as the key to the energy solution,
not as scapegoats, but as assets in this global energy race.
We must be allowed to compete on level ground for the
benefit of our country.
Mr. Chairman, that concludes my statement. Thank you.
[The prepared statement of Mr. Lowe follows:]
Prepared Statement of John E. Lowe
Mr. Conyers. Thank you very much.
We are pleased now to recognize Rob Malone, Chairman and
President of BP America.
TESTIMONY OF ROBERT A. MALONE,
CHAIRMAN AND PRESIDENT, BP AMERICA
Mr. Malone. Thank you, Mr. Chairman, Ranking Member Chabot,
Members of the Committee. Good afternoon.
We know that high energy prices are having an adverse
effect on our economy and on our workers and families across
this nation. Not a week goes by that I don't receive letters
from consumers about the impact that they are feeling from high
Unfortunately, I cannot and we cannot change the world
market on which this nation now relies for 60 percent of the
oil it consumes every day. But what we can do is to work
together with this Congress, with the Administration and with
governments and consumers to move toward greater energy
security and a lower carbon energy future.
Today's high prices are linked to the failure both here and
abroad to increase the supply of oil and gas and renewables and
to reduce demand through conservation and energy efficiency.
The oil market is tight. Geopolitical risk and concern
about future supply have had a big impact on price. We are
working hard to expand and diversify U.S. energy supply. We are
the nation's largest producer of domestic oil and gas and one
of the nation's largest energy investors.
In the last 5 years, we have invested $31.5 billion in
development of U.S. energy supply, almost dollar for dollar of
our net income.
We expect to spend $30 billion over the next 5 years to
maintain production of natural gas from the Rocky Mountain
area, to renew critical infrastructure in Alaska, to continue
development of the deepwater Gulf of Mexico, and to increase
gasoline production at two of our Midwest refineries.
We are nearly doubling the capacity of our Frederick,
Maryland solar plant and, by the end of this year, we expect to
have 1,000 megawatts of U.S. wind power capacity online,
increasing to 2,400 megawatts by the end of 2010.
We are already one of the largest blenders of ethanol in
the nation. However, over the next decade, we will invest more
than $500 million in the search for a new generation of
biofuels that contains more energy, has less impact on the
environment, and which is not made from a food crop.
Together with my colleague here from ConocoPhillips, we
have recently announced the largest private sector investment
ever in the United States, the Denali, Alaska gas line project.
Our investments across the entire energy spectrum are huge,
but the hard truth is that even with major improvements in
energy efficiency and the rapid growth of solar, wind and
biofuels, the United States is going to need more oil, more
natural gas, more coal and more nuclear power in 2030 than it
The United States, with 5 percent of the world's
population, is consuming 25 percent of daily world oil
production. The U.S. has to produce more of the energy it
consumes and it has a responsibility to use the energy wisely.
On the supply side, we support incentives for alternative
energy. But taxing one form of energy to encourage production
of another will reduce our ability to keep up with the growing
U.S. energy demand.
The results will be less investment, less production,
tighter energy markets, and potentially even higher prices at
This nation should be encouraging production of all forms
of energy, especially oil and gas. But adopting measures that
limit access to U.S. resources, that dampen investment in
infrastructure, discourage trade with our Canadian neighbors is
going to make it increasingly difficult and make our economy
more vulnerable to market influences.
My company is serious about bringing new sources of oil and
gas to the U.S. market. We are also serious about building a
sustainable, profitable alternative energy business that is
capable of delivering the clean and affordable power that
My company is ready to work with you and others to address
the energy and environmental needs of this nation through a
bipartisan and comprehensive energy policy.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Malone follows:]
Prepared Statement of Robert A. Malone
Mr. Conyers. Thanks so much.
Senior Vice President, Exxon Mobil, Steve Simon?
TESTIMONY OF J. STEPHEN SIMON, SENIOR VICE PRESIDENT, EXXON
Mr. Simon. Thank you, Chairman Conyers, Ranking Member
Chabot, and Members of the Task Force.
Energy is essential to the U.S. economy and is a topic on
many Americans' minds. They are raising important questions
about how our industry is helping meet their vital energy
I welcome the opportunity to respond to these questions and
to clear up some misconceptions regarding our industry and to
this end, I would like to make two points during my allotted
time, similar to those I made before the Senate Judiciary
First, the prices Americans pay at the pump reflect the
dynamics of an enormous international market for energy, which
means that in order for American energy companies, like Exxon
Mobil, to successfully compete, it is vital that we have
sufficient financial strength and scale.
The crude oil used to manufacture the fuel Americans
consume may have been produced in the United States or in any
one of more than 35 countries. Within this vast global
marketplace, competition is fierce. Exxon Mobil is the largest
U.S. oil and gas company, but we account for only 2 percent of
global energy production, only 3 percent of global oil
production, only 6 percent of global refining capacity, and
only 1 percent of global petroleum reserves.
With respect to petroleum reserves, we rank 14th.
Government-owned national oil companies dominate the top spots.
For an American company to succeed in this competitive
landscape and go head-to-head with huge government-backed
national oil companies, it needs financial strength and scale
to execute massive, complex energy projects requiring enormous
To simply maintain our current operations and make needed
capital investments, Exxon Mobil spends nearly $1 billion a
day. Over the past 25 years, we have invested $355 billion in
new energy projects, which is more than we earned during the
Over the next 5 years, we plan to invest at least $125
billion more. Our profitability, in absolute terms, is large.
But it must be viewed in the context of the massive scale of
our industry and our dependence on high earnings in the current
up-cycle to sustain the huge investments required over the
The second point I would like to make addresses the
concerns your constituents and our customers have about where
their gas dollars are going.
Last year, the average price in the United States of a
gallon of regular unleaded gasoline was around $2.80. On
average, in 2007, approximately 58 percent of the price
reflected the amount paid for crude oil.
Consumers pay for that crude oil and so do we. Of the 2
million barrels per day Exxon Mobil refined in 2007 here in the
United States, 90 percent were purchased from others. Last
year, we spent over $40 billion ourselves buying crude oil and
feedstock on the open market to fill our U.S. refineries.
Fifteen percent of the average price Americans paid at the
pump last year reflected the amount collected in Federal, State
and local taxes. The remaining 27 percent reflected refining,
marketing and transportation.
For our refining and marketing business, that 27 percent
would be more than 23 percent cost and less than 4 percent
earnings, which translates to earnings of only about $0.10 per
gallon of product sold. That is about one-quarter of the amount
claimed by taxes.
Now, since last year, the increase in gasoline price and
more can be attributed to the rise in the cost of crude oil.
Product prices have not risen as much as crude oil. So industry
margins have been reduced.
In fact, our U.S. refining and marketing earnings have
actually been cut by more than half compared to last year to
approximately $0.04 a gallon sold.
Our margins are tight because our industry is very
competitive. The Federal Trade Commission and other government
agencies have repeatedly confirmed this fact.
When energy prices are high, the urge to point fingers at
oil companies is strong. But undercutting the ability of
American companies, like Exxon Mobil, to compete in a huge
global marketplace only makes it harder for Americans to secure
the energy they need at competitive prices.
We should instead work together to strengthen U.S.
competitiveness and meet the needs of the American people we
[The prepared statement of Mr. Simon follows:]
Prepared Statement of J. Stephen Simon
Mr. Conyers. Thanks so much, Mr. Simon.
Sheila Jackson Lee?
Ms. Jackson Lee. I believe this process is constructive and
I hope, as we proceed with our questions, that each of you will
find our inquiry going down a pathway that would lead us to
My first question is very simple. I indicate my interest in
this when we first started and I had my opening remarks, and I
will just simply ask each of the gentlemen here to say yes or
no, and that is the invitation for a roundtable discussion that
is outside the realm of these very important congressional
hearings in Houston on the question of solutions, which I
believe is key to really explaining to the American people how
we can work together.
Mr. Hofmeister. Congressman, provided we could do it in the
next 35 days. Otherwise, I can't. I am sure my successor would
be interested, as well.
Ms. Jackson Lee. Mr. Robertson?
Mr. Robertson. We would be pleased to participate and if I
can do it, I would like to be there.
Ms. Jackson Lee. Mr. Lowe?
Mr. Lowe. ConocoPhillips actually did a 35-city
conversation on energy last year. We would be delighted to
Ms. Jackson Lee. Thank you.
Mr. Malone. We would be happy to participate.
Ms. Jackson Lee. Mr. Simon?
Mr. Simon. We would welcome the opportunity.
Ms. Jackson Lee. Thank you.
Mr. Simon, I am going to start with you, because there is a
question of buying product on the market, the international
market, and I don't take to calling names to our international
partners, but Exxon had a very strong presence in Venezuela, a
market that is much closer than the North and South America.
What happened with that and what is the status of the
product coming from Venezuela?
Mr. Simon. Well, as I think you know, Congresswoman, our
assets in Venezuela were expropriated and we are currently in
arbitration regarding the value of those assets.
We are hoping for an amicable solution to that and
constructive discussion, and we will see how that plays out.
Ms. Jackson Lee. Does that mean now that the working
entities that you had in Venezuela are no longer operable? You
are no longer receiving the product?
Mr. Simon. The Venezuelan government--PDVSA, the government
company there, is operating those facilities today.
Ms. Jackson Lee. And there was no--putting aside the
arbitration--no way that you thought you could effectively
negotiate a compromise in the new attitude of the new
government or the existing government.
Mr. Simon. We worked very hard to do so, but, thus far,
have been unsuccessful. But as I said, we are still hoping for
an amicable solution.
Ms. Jackson Lee. And how many barrels were you getting out
of that production area?
Mr. Simon. We were bringing into the United States
somewhere around 100,000 barrels a day.
Ms. Jackson Lee. Thank you very much, Mr. Simon.
Mr. Hofmeister, would you explain how you put the
partnership together for Motiva and how you overcame the
regulatory maze that I hear members of the panel speaking to?
Mr. Hofmeister. Congresswoman, there is a long history of
relationships between Saudi Aramco and, at that time, Texaco,
and towards, I would say, about the 1996-1997 timeframe, Shell
Oil Company entertained discussions with both Texaco and Saudi
Aramco to form a series of joint venture companies in order to
reduce costs and in order to bring, frankly, more product to
The relationship between Saudi Aramco and Shell has
continued in the aftermath of the sale of the Texaco assets to
Shell in the early 2000 period.
Ms. Jackson Lee. Motiva came online when?
Mr. Hofmeister. Motiva was formed, I believe, about 2001. I
would have to check the date to be precise. But today it is a
50-50 joint venture between Saudi Aramco and Shell Oil Company.
Ms. Jackson Lee. The focus of my question is how you
managed--did you get through the regulatory construct quickly
or not quickly? Would you be prepared to do another refinery,
since that is one of the issues that we are discussing?
Mr. Hofmeister. If you are referring to the refinery
Ms. Jackson Lee. Yes.
Mr. Hofmeister [continuing]. The Motiva Refinery in Port
Arthur, the State of Texas was very helpful and very useful in
helping to speed up the process and the Federal regulations,
also, that we had to deal with----
Ms. Jackson Lee. So it can be done.
Mr. Hofmeister. It can be done and it was done. We now have
all permits and we are beginning construction.
Ms. Jackson Lee. If you had to estimate, how many more
refineries do you think--if we looked at a balanced energy
policy that didn't rule out fossil fuels, what would be an
optimum in terms of moving the technology forward and creating
increased proficiency in our refineries? How many more would we
Mr. Hofmeister. Well, I can really on speak for Shell in
that regard and I think with the $7 billion, $3.5 billion Shell
share, that will take care of our expected demand for some time
Ms. Jackson Lee. So you wouldn't build another one at these
Mr. Hofmeister. Not at this point. But we never stop
looking at options and depending upon our market share, in
which we would decide to--instead of buying, on a third party
market, finished products, we always keep options open for
Ms. Jackson Lee. Mr. Chairman, I had a question for Mr.
Malone. I didn't know where we were.
Mr. Conyers. Okay.
Ms. Jackson Lee. Thank you.
Mr. Malone, BP has been known--has a long history in
promoting conservation and biofuels, and, frankly, I believe
that recognizing the need for heavy crude, if the energy
industry would embrace its name, which is energy, which is
diverse and doesn't have a definition to it, and begin to
promote these alternative fuels, and, I must say, that I know
some of the testimony did not reflect.
But we have passed legislation in this Congress, the 110th
Congress, that is focused on R&D, that has tried to turn money
back in to research development to improve the status of our
energy policy, if you will.
What has BP done currently to promote not only
conservation, but this alternative fuel, and how much more can
we expect from the energy industry, including BP, on giving us
the roadmap to alternative fuel?
Mr. Malone. I am not going to try to speak for the entire
industry, but I think you have heard that all of us have some
degree of work that we are doing in alternatives.
As I said in my statement, the incentives that were
included in the energy bill have allowed us to actually bring
on additional wind generation capacity.
It would not be economical if it had not been for those
encouragements, because we are building a market. We are going
to have to get a lot of wind generation to make that profitable
But an example is Texas went one step further and also put
an encouragement in by requiring renewable energy into their
system, and, right now, is now the largest wind producer in the
So it is usually a combination of Congress and the States.
So in wind energy, we are seeing it working.
Solar is a lot more difficult. We have been in the business
a long time. Actually, our biggest solar market out of our
Maryland plant is California, where, again, a combination of
Federal and State has allowed that market to grow.
On the biofuels side, again, we are a big blender, but what
we have got to look for and what we are spending money on is on
research into the next generation of that biofuel and, as I
stated, it doesn't compete.
And one other thing I would mention is we are working in
California at the capability to generate hydrogen from the
bottom of the barrel and it would be clean hydrogen, where we
could sequester the CO2 in existing oil fields, increase the
production from the field, sequester the greenhouse gases and
produce clean energy from hydrogen.
Ms. Jackson Lee. I thank the Chairman and I thank you for
allowing me these questions, and I will even hang around for an
abbreviated second round.
But I yield back, Mr. Chairman.
Mr. Conyers. Steve Chabot?
Mr. Chabot. Thank you, Mr. Chairman.
It is my belief that the greatest question in the economy
right now, whether we go into a recession and if so, how deep
it is, is the energy crisis that we have in this country now.
And they say you will reap what you sow and it is my belief
that what Congress has sown is the inability of the necessary
exploration and drilling in areas like ANWR and the outer
continental shelf that has been mentioned by myself and others
previously, and that was terrible policy in not allowing this
country to go into those areas.
And one of the key problems that we face right now, and I
would invite any of the members of the panel to address that
issue relatively briefly, how significant is walling off those
areas, specifically ANWR and the outer continental shelf?
And I will start with you, Mr. Hofmeister.
Mr. Hofmeister. I think, Congressman, the first thing that
has to be understood is that for 30 years, we have been
building business plans that have not included major potential
resource development projects in the Atlantic, Pacific, eastern
Gulf of Mexico, as well as, as you say, ANWR.
So we have had 30 years of training to look elsewhere. And
so we don't have a good handle on what is possible in the outer
continental shelf, which is why I think it is long past time to
at least map and understand what are the resources that are
there so the nation could then make very informed decisions.
I think that the drilling that we are currently doing on
existing leases, many of which are marginal leases, is not
yielding sufficient new energy, new oil into the economy to
make up for persistent decline in existing fields.
That then drives us to very expensive projects in the
deepwater or ultra deepwater Gulf of Mexico, where we are
allowed, which costs us an awful lot more money, which then, of
course, gets built into the whole cost equation, which goes to
So my point of view is this persistent denial of access is
costing American consumers right out of their pocketbook.
Mr. Simon. Congressman, can I add to that? I think there
are estimates and in the estimates I have seen is about 30
billion barrels of oil and about 125 trillion cubic feet of gas
that are declared off limits.
When you look at that and put it into perspective, that is
enough oil to back out our current level of imports for more
than 8 years and enough natural gas to heat 15 million U.S.
homes for a period of over 100 years. This is the only
government in the world who denies its citizens access to known
recoverable significant quantities of oil and gas.
Mr. Chabot. Thank you.
Mr. Robertson. Congressman, we have the most dynamic,
technologically advanced energy companies in this country and
our production used to be 9 million barrels a day. It is now 5
million barrels a day of oil in the United States. We now
import 10 million barrels a day.
We are, as has already been said, exploring the most
difficult places in the world. We have heard from some of the
Committee Members this morning about some of the forms of
energy that exist in the United States, whether it be coal,
whether it be oil, whether it be gas, whether it be other forms
And with the determination to address some of these
permitting and some of these access issues, that production
decline could be turned around significantly.
It takes long periods of time, but our domestic resources
are very important and we have the capability to produce more
in this country.
Mr. Chabot. Excuse me. We have got votes on the floor. I
only have a couple more questions. So let me get to the others
very quickly, and I will ask Mr. Lowe and Mr. Malone on these.
One of the solutions that this current Congress believes to
be helpful in this effort is to raise taxes. What effect does
that have on exploration for additional oil and how much of the
tax increases, were they come, ultimately just get passed along
to the consumer?
Mr. Malone. Well, as I said in my oral statement,
Congressman, I think the important thing right now is my
company is investing ever dollar it makes back into energy
development in the United States, and the simple result of that
is if you take a dollar away from me here, I am not going to
have it to reinvest in energy here in the United States.
Mr. Chabot. Mr. Lowe?
Mr. Lowe. I would just echo the same comment, that it is
going to reduce supply, which is going to end up ultimately in
higher prices for the consumers.
Mr. Chabot. Mr. Chairman, I think in the interest of time,
since we have votes on the floor, I am going to yield back,
because I know the red light is ready to come on here.
Can we finish?
Mr. Conyers. If you need any more time, we will go ahead.
Mr. Chabot. Since we do have just a moment here, Mr. Cannon
is very excited about shale and, obviously, they have got a lot
How about when we come back? Because we are going to run
out of time here. We have only got 4 minutes, I think, to get
to the floor.
Mr. Conyers. We will recess and any of the witnesses who
want to join us at the deli in the B level, Attorney Raut will
show you how to get there.
We will be right back.
Mr. Conyers. The Chair recognizes the gentleman from Ohio,
Mr. Chabot. Thank you, Mr. Chairman. And I will try to be
relatively brief, since I started my questions prior to the
And we want to apologize to folks here for having a break,
but obviously this happens during the course of one of these
hearings, the votes that we have.
Mr. Lowe, you had mentioned in your testimony that you were
attempting to--going back a little bit--clearly having
sufficient refinery capacity, if we have enough crude to be
able to refine it in a product we can actually put into our
cars in a timely manner, is important.
And it is my understanding that you are trying or, in fact,
are still trying to expand the capacity of one of our
refineries and I think you mentioned, in the permitting
process, you have had lawsuits filed against you and that has
been a holdup to being able to expand this refinery, to be able
to put out more product.
Is that correct, you did say that?
Mr. Lowe. Yes, sir. Actually, at a number of different
refineries, we have had significant issues with permitting. The
one that I specifically mentioned was Wood River, Illinois,
where it is a very important project to expand the capacity to
produce significantly more clean fuels, and it really ties in
with the Canadian oil sands development.
So this refinery will be capable of running those heavier
Canadian oil sands. It has been about 2 years now and we still
haven't gotten the permits.
Mr. Chabot. And who or what organizations are filing such
lawsuits to prevent you from expanding to be able to put out
more gasoline that we can put in our cars?
Mr. Lowe. These are primarily environmental groups, who I
think their primary interest is to block the development of the
Canadian oil sands.
Mr. Chabot. Now, as I was mentioning here when we broke for
the vote, Mr. Cannon, for the second time that I have seen him
quite animated about the future of shale oil and the potential
to be able to go after that, and it sounds very interesting to
I am just wondering--he also mentioned that one of the
problems has been the government and the example he used, I
believe, was that it takes 7 years to develop the plant and
move ahead, and yet they give them an 8-year lease.
So it makes no sense to make that investment if you are
going to be shut down potentially after a year.
How real is that and is that something that we ought to be
looking at in the future, that we are looking at in the future?
Anybody that has any experience with this.
Mr. Robertson. Well, shale is a real resource. I mean,
there is supposed to be about a trillion barrels or something
like that, which is bigger than a lot of the Middle Eastern oil
put together in the three States that he mentioned.
Chevron and Shell both are working on projects with the DOE
on different forms of producing that shale in an
environmentally acceptable manner, focusing on an in situ
process where we put chemicals or heat or whatever into the
ground to produce this material without tearing up the surface,
like we used to do in mining projects and those kinds of
So this is real. It is too big of a resource for the United
States to ignore. It is going to take a determined effort over
a period of time, but our companies are working on that today.
So we just need to make sure that there are no barriers to
us continuing to go forward with this project. It is a
multiyear project, but we need to start now. It is a huge
opportunity for the United States.
Mr. Chabot. And we have talked a lot about gasoline here
today, which is critical, because a lot of people being hurt
right now at the high prices at the pump.
But we haven't talked too much about diesel and, obviously,
trucks are what take our products around the country and as
diesel has been going up, all consumers are going to see this
reflected in the price of goods that we purchase, whether it is
at the grocery store or the furniture store or anywhere else,
and diesel is even higher than gasoline at this point.
What are the prospects for diesel in the near term and
perhaps long term?
Mr. Hofmeister. Thank you. I think the point that many
people do not realize is that if you have a 42-gallon barrel of
crude oil, you cannot produce 42 gallons of diesel from that.
In other words, the way the cracking process works on the
molecules, you can get, at best, with the right kind of crude
and the right kind of production process, maybe 50 percent can
be turned, at the most, turned into diesel or aviation fuel.
More likely, you will get about a third.
We like to talk about a barrel in terms of three thirds, a
bottom third, a middle third and a top third. And what is
pushing up the price of diesel today is not just U.S. demand,
but global demand, where Europe, for example, has a
concentrated strategy to convert their fleet of private
automobiles, not just their trucks, to diesel-run products.
Asia, all the construction, all of the major activities
that are expanding economies in Asia are consuming diesel, as
well as aviation fuel.
So there are only two ways to get more diesel into the
marketplace. The first thing is to get more barrels. If you
don't get more barrels, you don't have the opportunity to
create that third or whatever it is into diesel, and then you
need manufacturing or refineries in order to produce it.
In the U.S., we tend to concentrate the design of our
refineries around gasoline more than diesel, because that is
what the market has demanded.
So for this country, we would have to do some considerable
retrofitting of refineries in order to produce more diesel. In
the new expansion I have mentioned in Port Arthur, Texas, we
are actually designing it in such a way that we can reconfigure
quickly for more diesel as the market wants it.
Mr. Chabot. Thank you. And, finally, one last question.
Mr. Hofmeister, I will address this to you, as well.
This Congress has put a lot of confidence on ethanol to get
us out of this mess that we are in for a lot of reasons that
have been self-imposed, as far as I am concerned and as I have
But ethanol is the thing that people are relying upon and,
obviously, it has been driving up the cost of food stuffs and
animal feed and everything else and we are paying for that in
But is it a fact that the energy that is expended to
produce a gallon of ethanol is virtually the same as the
ethanol that you ultimately get out at the end of the process?
Mr. Hofmeister. Well, I think it depends on the type of
ethanol you are producing. Corn ethanol is one of the least
efficient forms of ethanol, as we do our own research in this
area, in that the co-efficiency of energy in for energy out is
fairly close to a one-to-one relationship.
Mr. Chabot. Let me stop you there, if I can. So are you
saying, in essence--is it generally gasoline that you are using
or is it another type of fuel?
Mr. Hofmeister. If you compare the BTU content of what you
get out of a gallon of ethanol with the BTU energy content to
make that gallon of ethanol, it is fairly close to a one-to-one
Mr. Chabot. So the energy expended to produce the energy
that you get out the other side, what you are going to put in
your car, is almost the same. Is that correct?
Mr. Hofmeister. That is correct. What many people don't
recognize is that the ultimate BTU content of a gallon of
ethanol is considerably less than a gallon of gasoline.
So it could be as much as 25 percent less than a gallon of
Mr. Chabot. So it could even be less.
Mr. Hofmeister. So you actually have to use more ethanol to
get the same energy usage that you would--25 percent more
ethanol to get the same energy usage as you would from the same
gallon of gasoline.
Mr. Chabot. Does that make any sense?
Mr. Hofmeister. Well, the reason Shell is pursuing all of
its research in what we call second generation or cellulosic
ethanol, we prefer not to put investment dollars into corn
ethanol. We will let others do that.
But we believe that there is a much richer energy content
to be had from ethanol that might come, for example, from algae
or from wood chips or sawdust or other kinds of grasses that
are not in the food chain.
So we have major projects ongoing with third parties to
test the validity of that science.
Mr. Chabot. Thank you.
Mr. Chairman, I yield back the balance of my time.
Mr. Conyers. The Chair recognizes the distinguished
gentlelady from California, Maxine Waters.
Ms. Waters. Thank you very much, Mr. Chairman.
I thank you for using the Task Force to attempt to get some
of the questions answered that we have all been asking and try
and deal with the concerns of our constituents that we face on
a daily basis.
I have listened to the testimony of our presenters here
today, and I have been trying to read about what was done over
on the Senate side, and we ask the same questions.
We ask a lot about profitability and in all of this
testimony, we see where there are explanations of profitability
and, basically, what the presenters are saying to us is, in
essence, ``we make a lot of money and we spend a lot of
money,'' that we have to spend money on exploration and
investments in everything from refineries, trying to expand
them, to development of new sources of energy.
So we never really learn anything different when our
presenters are here.
Let me try and frame some of these questions a little bit
Exxon Mobil is represented by whom?
Mr. Simon. By Steve Simon.
Ms. Waters. Thank you very much, Mr. Simon.
It shows that $40.6 billion were your profits in 2007, the
largest corporate profit in American history.
Now, with $40.6 billion in profit, are you saying that
every time the price of oil per barrel increases, that you have
to keep increasing the price at the pump in some way?
Mr. Simon. Well, I think it helps to break that
profitability down to where people understand the components of
Ms. Waters. Okay, do that.
Mr. Simon. If I could, please.
Ms. Waters. Sure.
Mr. Simon. When you look at that $40.6 billion, if you put
that on a cents per gallon basis, on a global basis, it would
be about $0.10 per gallon.
Ms. Waters. So what did you spend that money on?
Mr. Simon. Well, if I could just finish my point here and
then I will come back to that.
Ms. Waters. Sure.
Mr. Simon. When you come back to the United States and then
you look at the cents per gallon on the piece of the business
where we produce products, last year, it was $0.04 per gallon
and this year it is $0.014.
Now, in terms of where we are spending that in the United
States, one thing we are doing is we are expanding our
refineries to meet the demands of our customers and your
Ms. Waters. Of the $40.6 billion, how much did you spend on
Mr. Simon. In the last 5 years, we have spent about $3.5
billion on refining here in the United States.
Ms. Waters. In 2007, your profits were $40.6 billion. How
much did you spend on refinery expansion in 2007?
Mr. Simon. In 2007, it was probably about $1 billion, $1.5
Ms. Waters. Okay, all right.
Mr. Simon. Now, again, that is here in the United States
and you have got to be sure that you are talking about
profitability here in the United States.
Ms. Waters. I am talking about $40.6 billion, wherever it
was earned. Was that earned internationally or here in the
Mr. Simon. About 75 percent of that profitability was
earned outside of the United States, so about 25 percent here
in the United States. And, again, then when you look at what
amount of that was earned the refining and marketing business,
it was about 10 percent last year.
Ms. Waters. Of the $40.6 billion, where you spent about
$1.5 billion on refineries, how else did you spend $40.6
Mr. Simon. Well, part of that goes back to the shareholder
in terms of dividends, paid back the----
Ms. Waters. What did you pay in 2007 in dividends?
Mr. Simon. In dividends in 2007, we paid about $7.6 billion
on a global basis.
Ms. Waters. And how much did you pay on product promotion
and advertisement, however that is framed in your company? I am
just trying to get an idea of how it works.
Mr. Simon. About $100 million.
Ms. Waters. Is that all, $100 million?
Mr. Simon. And that is everything in terms of advertising,
product promotion, yes.
Ms. Waters. I won't ask the amount of your compensation,
but do you receive bonuses?
Mr. Simon. If you looked at my total compensated granted
last year, it was $12.5 billion. If you include a 1-year
accrual of my pension fund, that would take it up to $15
Ms. Waters. In 2007, how much----
Mr. Chabot. Would the gentlelady yield?
Ms. Waters. Yes.
Mr. Chabot. He just said $12 billion.
Mr. Simon. No, million. Million. I am sorry.
Mr. Chabot. $12 million?
Mr. Simon. $12.5 million.
Mr. Chabot. Million.
Mr. Simon. And then $15 million.
Mr. Chabot. I thank the gentlelady for yielding.
Mr. Simon. Thank you very much, Congressman.
Mr. Chabot. It is all right.
Ms. Waters. I am sorry. Let me go back. I just want to deal
with 2007, because that is the $40.6 billion. Is that number
correct? Maybe it is not the right number, $40.6 billion.
Mr. Simon. $40.6 billion (sic) was the correct number.
Ms. Waters. And how much in compensation?
Mr. Simon. Out of that, I don't have that answer,
Ms. Waters. Okay.
Mr. Simon. But when you look at how much we invested, I
think is one of the things you are driving at----
Ms. Waters. What does investment mean? We don't know what
that means. We understand that you have to invest in ways that
will improve the profitability of the company, that you have
got to invest in, as you say, refinery expansion, you have got
to do a lot of things.
But we don't know, when you say investment, whether or not
the investments are realistic as it relates to how much you end
up with and how much you have to charge at the pump.
I mean, I could take $40.6 billion and invest it all, I
suppose, or somebody could. Not me, I couldn't.
But I want to know whether or not there is a percentage of
that earnings that is reasonable for investments or whether or
not when you come here and you talk to us and you tell us
investment, we don't get the picture.
What did you invest in?
Mr. Simon. Well, if you look at it over a longer period of
Ms. Waters. Yes.
Mr. Simon [continuing]. We have invested more than we have
Ms. Waters. Oh, so you are operating at a deficit.
Mr. Simon. When you look at earnings, we have invested more
than what we have earned over a longer period of time.
Ms. Waters. But we can't deal with that. You know why we
can't deal with that? Because I don't know what period of time
you are talking about. I don't know how much investment. That
is a nice general statement.
But the fact of the matter is we know you are not broke. We
know that the compensation of the executives is very high. We
know that you get your bonuses. We know that you spend a lot on
So we don't like to hear that you are broke and that you
have spent more money than you are earning. It just doesn't sit
well with us.
Mr. Simon. And I wasn't trying to----
Ms. Waters. It certainly doesn't sit well with me.
Mr. Simon. I certainly wasn't trying to imply that we are
But if you looked at last year and looked at--I said we
invested about $21 billion. Now, let me explain what that is.
That is investing in projects to bring on oil and gas
supplies around the world, to expand our refineries, to expand
our chemical plants and meet our chemical customers'
requirements. It all goes into that.
Ms. Waters. But it says profits. After all of that was done
in 2007, you earned $40.6 billion, after all of that was done,
Mr. Simon. $40.6 billion was the profitability. That is
Ms. Waters. That is right. So let's deal with that. You
earned $40.6 billion, but you continued to raise prices at the
Why is it necessary, when you have that kind of profit,
that you increase the price at the pump to our constituents and
to your customers?
Mr. Simon. Okay. Well, let's come back and talk about that,
which is what I was trying to do initially.
When you look at----
Ms. Waters. No, I know what you did. I don't want you to
tell me about the penny.
Mr. Simon. I am going to, Congresswoman, if you would give
Ms. Waters. No, you are not. I want to----
Mr. Simon. If you will give me an opportunity----
Ms. Waters. I want to know----
Mr. Conyers. Would you like another round of questioning?
Ms. Waters. Yes.
Mr. Conyers. We have already given you more time.
Ms. Waters. I appreciate that, Mr. Chairman, but let me
just say this.
I appreciate your generosity, and I am going to yield back
my time, because this is an exercise in futility.
And our constituents are angry, and they are knowing now
that we are not going to get any new information out of these
I thank them for coming.
Mr. Conyers. He is doing pretty well. I don't think it is
futile at all.
Ms. Waters. Let me yield my time before I step outside of
Mr. Conyers. You don't have any time to yield.
Ms. Waters. Thank you, Mr. Chairman. Thank you, thank you,
thank you very much. Thank you.
Mr. Conyers. But I would like to invite you to another
round of questions. You are just getting warmed up----
Ms. Waters. I appreciate that.
Mr. Conyers [continuing]. It sounds like to me.
Ms. Waters. I appreciate that. Thank you.
Mr. Conyers. All right.
Mr. Keller. Thank you very much, Mr. Chairman.
I want to thank all our witnesses for being here today.
Mr. Simon, I will begin with you for a few questions for
Exxon. Let me state that, preliminarily, I agree with much of
your testimony before the Senate.
Specifically, I agree that the principal component of the
price of gasoline is the price of crude oil. I agree that crude
oil is determined by the law of supply and demand and that
nothing we can do in Congress can alter that fundamental law of
supply and demand.
I agree with you that there are things we can do to help
influence it by drilling in ANWR and by providing more drilling
for the deepwater oil reserves.
I think those are good steps.
One of the things you just testified about, however, is
that you wanted to clear up some misconceptions and I want to
give you some straight talk about the two issues that, from an
appearance perspective, you may feel helpful you would like to
address, and I will give you both issues and then give you a
chance to fairly go through and give your side of both of them.
Let's first address the issue that you might want to
address from an appearance perspective.
Moms in Orlando, Florida are paying $3.75 a gallon today at
the local Exxon Mobil gas station. Exxon paid its former CEO,
Lee Raymond, $400 million in retirement compensation.
This situation is unacceptable. People in central Florida
are hurting and they want a hand, not a finger.
Now, you all are nice guys, you are respectful. I would not
dare suggest any of you, just like me, wouldn't give them a
finger. But I want to convey the anger and frustration that I
hear from them on a regular basis at town hall meetings and
give you a fair chance to respond to it.
The second issue that I would like you to address from a
perception perspective. You just testified today that Exxon's
profit margins are tight and that your long-term investments
It appears to some people that it is your profits that are
huge and your long-term investments in building new refineries
in this country are tight.
Specifically, Exxon just recorded a profit of $40.6 billion
in 2007, the single largest annual profit in U.S. history for
any U.S. company.
To put that in perspective, Wal-Mart is number one on the
Fortune 500 list. Exxon's profits are literally more than
triple those of Wal-Mart's in 2007.
At the same time, Exxon has not made any long-term
investments in new refineries in the United States in the past
32 years, beyond the expansion of existing ones.
So I want to give you a chance to respond to those. I have
some very detailed questions for you on the refineries.
But first, in fairness to you, do you have any response to
clear up any misconceptions that you feel are out there with
respect to what some believe to be exorbitant pay that you are
using this money for?
Mr. Simon. Well, it was our former Chairman. I think that
number, we have tried to clarify that. That number itself, when
you look at the $400 million, about 10 percent of that was
associated with the 1 year and the rest of it was what was
earned over many years, and a lot of that did not pay out until
I would, however, say we recognize that is a large amount
of money. It is determined by independent directors. It is not
management that makes those determinations. And we pay our
executives based upon that and that is where you look at
competition and what others with comparable responsibilities
and authorities are paid.
It is a lot of money, I know that.
Now, let's come back and talk about----
Mr. Keller. Do you stand by that? Do you think that is a
fair level of compensation, $400 million for one individual?
Mr. Simon. Well, again, let's put it into perspective. That
wasn't $400 million in 1 year. About 10 percent of that was in
About 70-75 percent was not paid out until 5, 10 years into
the future for that period and a lot of it was what was earned
over a long career in terms of a pension payout, which was
about 98 million.
Mr. Keller. But you understand, if you were at my gas
station in Orlando and you saw a single mom there with her kids
and she just paid 80 bucks to fill up the minivan, it would
probably be a hard conversation for you to have to say, ``Look,
we paid our CEO 400 million bucks. We just posted the largest
profit in American history, and I need a hug here, because our
margins are tight.''
Mr. Simon. I understand. I understand that fully. Again,
that was a few years back. It, of course, has not an impact on
this year--on last year's profitability.
But I recognize the point.
The point I would talk about is when you look at the
profitability on the gasoline that we sell at the pump, and
let's talk about that, again, when you look at the United
States and the refining and marketing business last year, it
was $0.04 on the dollar.
Now, you compare that $0.04 on the dollar of revenue, as
compares to about $0.078 cents on the Dow Industrial, so it was
about half of that.
I recognize it is a big impact on consumers, but, again,
when you look at what is driving that, it is not the
profitability on that that is driving the higher price.
It is the cost of the raw material that we have to buy in
order to produce those products. We buy 90 percent of the raw
materials that we use to produce those products on the open
Mr. Keller. Well, Mr. Simon, my time has expired. So in
fairness to others who haven't asked their questions, let me
say this and wrap up, and I will defer to the Chairman.
I raise those two issues, the executive pay and the failure
to build a new refinery in 32 years, because you wanted to
clear up some misconceptions, and I have got about 12 or 13
more questions about the refineries, to give you a fair chance
to address the refinery issue, too, as well as to talk about
So I just want you to know we want to be fair to you in
raising these issues and when we come back to a second round of
questions, we will be happy to ask you those questions and let
you feel you got a fair shake and got your side out on those,
Mr. Simon. I really would appreciate the opportunity to
Mr. Keller. Absolutely, and I promise you we will get to
that in my first question when we get back.
Thank you, Mr. Chairman, yield back.
Mr. Conyers. Betty Sutton?
Ms. Sutton. Thank you, Mr. Chairman.
Were any of you or colleagues that you work with and
communicate with participants in the energy task force meetings
conducted by Vice President Cheney at the beginning of the Bush
administration and if so, could you just share with the
American people what role you played or they played?
Mr. Simon. In Exxon Mobil's case, no, ma'am.
Ms. Sutton. No one was there.
Mr. Malone. In BP's case, yes, there was a meeting with the
Vice President. Whether you would call it the task force
meeting, our chief executive met with Vice President Cheney.
It was a general discussion, I am told, I was not there,
around world oil production.
Ms. Sutton. And when was that?
Mr. Malone. Early 2001.
Ms. Sutton. Thank you.
Mr. Lowe. No one from Phillips or ConocoPhillips was there.
Mr. Robertson. No one from Chevron participated in that.
But at the time when the new Administration came aboard, we
wrote a letter to the President of the United States and sent a
copy to some Members of the House and every Senator on both
sides of the aisle with our recommendations for energy policy,
and, frankly, a lot of it is playing out exactly the way we had
Mr. Hofmeister. I was working overseas during the early
years of the Bush administration, so was not a party to any.
We looked into the history of Shell's involvement with the
White House and we do know that, on a periodic interval, my
predecessors would brief various members of the White House on
energy matters, but were not part of a task force.
Ms. Sutton. I have a question. Mr. Simon, you had the
opportunity to talk to Representative Waters about the profit
and the breakdown.
Today, I think it was, there was a story in the Washington
Post, and I just want to see if this is accurate.
It says that Exxon Mobil made a $40 billion--I understand
it is $40.6 billion--profit last year, repurchased $31.8
billion of stock. Is that correct?
Mr. Simon. I am sorry. Thirty?
Ms. Sutton. $31.8 billion of stock.
Mr. Simon. Right.
Ms. Sutton. Gave out $7.6 billion in dividends. Is that
Mr. Simon. That is correct.
Ms. Sutton. Paid its top five executives $76 million. Is
Mr. Simon. I have not checked that number. I don't know if
that is correct or not.
Ms. Sutton. What do you think? Is it in the neighborhood?
Would you know if it is in the neighborhood, $76 million?
Mr. Simon. I would have to check, Congresswoman. I just
don't have the answer to that.
Ms. Sutton. Were you asked this question by the Senate?
Mr. Simon. The question I was asked by the Senate was what
was my compensation and I answered that earlier in this
hearing, as well.
Ms. Sutton. Right. That was $12.5 million.
Mr. Simon. $12.5 million granted in compensation, including
stock and everything else, last year. And then there was an
additional increment if you allocated back 1 year accrual of my
pension and that would take it to $15 million, but that doesn't
pay out until after I retire.
So I did not mention that. I mentioned the $12.5 million in
terms of my compensation granted last year.
Ms. Sutton. Do you have any idea how many people with Exxon
Mobil make more than you?
Mr. Simon. I would have to check on that.
Ms. Sutton. No idea. How many people are in positions above
Mr. Simon. Well, I am the number two in the company in
terms of I am a director, and we have got one other director,
and, of course, that is our chairman.
Ms. Sutton. And it says that the top five executives, $76
million. If you could get back to me----
Mr. Simon. I would.
Ms. Sutton [continuing]. With the answer to that question,
I would appreciate it.
And that you invested roughly $10 million in renewable
Mr. Simon. No, that number is not correct. And if you would
give me the opportunity, I would like to talk about our
Ms. Sutton. What I would like to know, and not just from
you, but from all, because I heard a lot of discussion about
the investments that you are making in new energy projects,
what is the percentage that you are investing in renewable
Mr. Simon. Could I?
Ms. Sutton. You can start.
Mr. Simon. When you look at what we are doing in order to
do what I think to be our mutual objective of reducing the
amount of fossil fuels that we consume and mitigating
greenhouse gas emissions, when you look at what we are doing to
accomplish that objective, it is somewhere around $2 billion
over the last 4 years.
Now, that is a three-pronged strategy. One is to improve
efficiency in our own operations, refining and chemicals
operations, where we are improving efficiency at two to three
times the rate of the average of industry, and there we are
putting about $1.5 to $2 billion over the last 4 years into
The other prong is how do we help our customers to utilize
our products more efficiently. And when you look at what we
have developed right now, if applied in the U.S. vehicle fleet,
would save about 5 billion gallons of gasoline and that would
be equivalent to removing 8 million cars off the road.
When you look at our own operations, it was equivalent to
removing about 2 million cars off the road when you look at
what we have done since 1999.
Ms. Sutton. But, Mr. Simon, all I am asking for is the
percentage that you are investing in renewable energy in the
projects that you are talking about putting investment in.
And if you could just get back to me with that number, too,
that would be great.
Mr. Simon. All right, I will.
Ms. Sutton. Mr. Malone?
Mr. Malone. Last year, it was about 10 percent of our
capital, $750 million. This year, it will exceed that. It will
be something in excess of 10 percent.
Mr. Lowe. ConocoPhillips' investments are primarily in the
research phase. Spent about $150 million last year. But if
those research things, such as carbon capture and storage, if
those come to fruition, those would be multibillion dollar
projects. But they are in the research phase at this point.
Mr. Robertson. In the renewables area, Chevron is the
largest geothermal energy company in the world. We just
announced a joint venture with Weyerhaeuser to develop
cellulosic non-food ethanol. So that is a serious project.
We have a company that sells energy efficiency and shows
customers how to become more energy efficient by putting in
either good practices or putting in solar panels or fuel cells
or whatever fits that particular customer, and their experience
has been reducing energy costs by 30 percent.
On those three areas, ethanol, second generation ethanol,
geothermal energy and energy efficiency, we will spend $2.5
billion over the next 3 years. We spent about $2 billion over
the last 5 years.
Ms. Sutton. And you guys can't tell me what percentage it
is that you are putting into these projects based upon all the
money that you are saying that you are investing?
Mr. Robertson. I can tell you that we are going to spend
this year $23 billion. I can't tell you what we are going to
spend in capital beyond that. But I can tell you that we are
going to spend $2.5 billion on alternative energy and when and
if some of these things prove out, like cellulosic ethanol, we
are quite prepared to spend a lot more on it.
So we are at a phase in that work, that it is not an issue
of how much money you spend on it. It is an issue of what you
spend it on to try and develop some technology that will work.
So we are not constrained by money in terms of these
Ms. Sutton. So encouraging you to spend it there----
Mr. Robertson. We are going to spend it. We are going to
spend it and we are serious about the non-food ethanol. We are
serious about the geothermal. We are serious about energy
efficiency. That is the biggest opportunity we have.
On average, in over 800 projects, Chevron's energy
efficiency customers, universities in California, military
bases, post offices, they average, over 800 projects, 30
percent energy savings.
That is a lot bigger source of fuel for the economy by
saving energy than most of these other things that I have
Ms. Sutton. Sir?
Mr. Hofmeister. Shell has spent approximately $1 billion
over the last 5 years on renewable energies. We believe that
that is a prudent amount given the maturity of the technology.
For that $1 billion, there is a negative return on
investment, which actually prompts us to think very seriously
about how quickly we could spend more.
We do believe we can commercialize in time and this year we
are continuing to spend. On a percentage basis, it is very
small, it is less than 1 percent.
And at the same time, we are learning about what we need to
do if we were to spend more in the future.
Ms. Sutton. I really appreciate that you used the
percentage, less than 1 percent. Thank you.
And, Mr. Chairman, I will yield back and wait for the next
Mr. Conyers. Thank you so much.
I am pleased now to recognize Chris Cannon, the gentleman
from Utah, who apparently has cooled down quite a bit now.
Mr. Cannon. I try to always have a cool exterior, but the
inner furnace is always pumping, and especially when we are
talking about these kinds of points.
To follow up on the gentlelady's questions about where we
are spending money, can we start, Mr. Hofmeister, with you and
go down the panel and could you tell me how much money, if you
know, that you have spent on shale oil development as a subset
of the unconventional?
Mr. Hofmeister. Congressman, I would have to confirm that
number. I don't have it at my fingertips.
I think it is public record that between oil sands in
Canada, Alberta, Canada, and oil shale, we are spending in the
billions in order to develop projects.
But the Colorado effort is currently a research effort, so
it is in the hundreds of millions. But I would have to check to
confirm the number.
Mr. Cannon. Thank you. Hundreds of millions is actually
quite a good number for this purpose.
I know that the chairman has also been investing in
technology and recognizing the difference between production,
which could be very large numbers, the question is just how
much have you put into shale oil technology development, if you
have a sense.
Mr. Robertson. I can't tell you the answer to that. I can
tell you that it is a significant research project that is
going on using chemistry to try to figure out how to breach
this stuff cleanly, and we have a joint project with the DOE
and we are a large shale oil owner and have been for many
So we have put a lot money into the technology development.
I will get back to you happily with the number.
Mr. Cannon. My sense is it has been hundreds of millions of
dollars, just having looked at some of the material that you
have out there.
Mr. Robertson. It is probably in that range, but it is
certainly not a lot more than that.
Mr. Cannon. We don't really want to nail anything down
here, just to get a sense that this is an important project.
Mr. Robertson. It is a very important project to Chevron
and it has been for many years.
Mr. Cannon. I love the idea that you are not using brute
force, but rather some----
Mr. Robertson. I think in many places, that is something
that is happening. We are partners with Shell in a project up
in the oil sands in Canada, but the next generation of projects
up there, too, will be in situ projects.
We use steam flooding around the world to produce oil
through wells. In the future, we will be finding ways to put
heat into the ground to produce oil sands through wells and,
similarly, in the shale, it will be different technology,
different chemistry, but essentially we will be putting
something into the ground to be able to push that through
So the technology is moving forward and we are deeply
involved in this important project.
Mr. Cannon. Mr. Lowe, before you go ahead, let me just
point out that we keep hearing this statement and it is quoted
in the Desert News, I think, today. There is a statement Nick
Rahall, the Chairman of the Resources Committee, ``We simply
cannot drill our way to lower prices at the pump.''
But, of course, that is true if you think of drilling as a
traditional function, but if you think of it in the
unconventional sense, I think that that actually changes that
So I appreciate your reference to the kind of drilling that
you would be doing, Mr. Robertson.
Mr. Lowe, is ConocoPhillips doing any oil shale
Mr. Lowe. The oil sands, in particular, but also the oil
shale are a very important part of our growth story in the
We acquired most of our shale position when we acquired
Tosco, which was mainly a refiner, but Tosco actually stood for
``The Oil Shale Company.''
Mr. Cannon. Do you have any sense of what the commitment
has been historically----
Mr. Lowe. Sorry. I know that we invested a lot of money
back in the 1970's. It is mostly in the research side up to
this point, and it continues today.
Mr. Cannon. And let me just point out that that investment
is vastly important, because we take that base of understanding
and add the new technology that has developed over the last 30
years and it changes the nature of the calculation of what is
available at what cost.
Mr. Malone, do you have a sense of what BP has done?
Mr. Malone. I am not aware of any development opportunities
that we have in the shale oil. But in the oil sands in Canada,
we just announced a joint venture with Husky Oil, $5.5 billion.
We will bring oil to our Toledo refinery, Toledo, Ohio
refinery and we will invest in the refinery, as well. It should
be 600,000 gallons a day additional gas.
Mr. Cannon. Well, we appreciate that. That is a big chunk
of new resource coming in, which makes a big difference.
Mr. Simon, could you tell us a little bit about what Exxon
Mobil is doing?
Mr. Simon. Yes. What we have done at this point is, again,
mainly in the research area, although we have a technology that
I know my colleagues wouldn't agree with that we think is
superior in terms of developing shale oil resources.
That is an important resource. It should be made available
and let us all of us apply our technologies and see how it
Mr. Cannon. Let me just ask one final question. My
governor, John Huntsman, has recently submitted a letter to the
Senate asking that it lift the moratorium on the development of
Utah oil shale, which, of course, is on BLM land, and I am
thinking about introducing a bill that would allow the
President to cut through the permitting process by drawing
together groups of people that understand what needs to be done
or what the environmental problems could be.
Is that something that your companies or those of you who
are interested in oil shale would invite and if so, would you
actually pursue development of oil shale properties?
Let me start with Mr. Hofmeister again.
Mr. Hofmeister. I think, Congressman, it would be a
tremendous improvement which would enable us to get to a
commercial decision on such projects in a much faster
Mr. Robertson. I am not familiar with the details, but the
way you described it, it sounds like something we ought to
Mr. Cannon. May I ask, would your company pursue
development if the permitting period was shortened?
Mr. Robertson. Our company is pursuing, obviously, the
technology, the development of the technology and as soon as we
can make that commercial, we would certainly pursue it, yes.
Mr. Lowe. Certainly, we are in favor of access and we are
very much in favor of having a clear permitting process.
Mr. Malone. As I said, we don't have an active, but we
never say never. And at one time, our predecessor company was
in White River oil shale there in Utah.
At the current oil price, we couldn't make it economical.
But we are always watching.
Mr. Simon. Certainly, anything I believe that would open up
that and allow access to it and allow commercial applications
of whatever technologies we have would be very welcome,
Mr. Cannon. Thank you.
Mr. Chairman, I recognize my time has expired, but if I
could make one more comment.
That is, Mr. Malone referred to the White River mine. That
cost $330 million, as I understand, to develop in 1977, over $1
billion today to duplicate that.
When I came to Congress, the first thing I did was to try
and stop BLM from shutting that mine down. It is now up and
available, but it is taken over 2 years to get the permits that
we thought were going to happen in 6 weeks.
The permitting process has become a terrific problem and an
impediment. The way we solve the problem of $4 a gallon oil is
by making more resource available, which can deliver oil at a
That is the only way we are going to do it and, in fact, we
have those resources. And I wish we could also talk about coal
to liquid, but that probably goes beyond the course of this.
So I thank you, Mr. Chairman, for your indulgence and yield
Mr. Conyers. Thank you.
The distinguished gentlelady from Florida, Debbie Wasserman
Ms. Wasserman Schultz. Thank you, Mr. Chairman.
Mr. Simon, I want to direct my questioning mostly to you.
As I mentioned in my opening remarks, I paid $68 at the
beginning of this week to fill up my minivan that I drive my
family around it, and $68 isn't real money to someone who makes
$12.5 million, but it is certainly real money to working
families in America who are struggling to make their mortgage
payments and pay for their groceries and make sure that they
can afford to pay the copayments on their health insurance, if
they even have health insurance.
And so when faced with the insensitivity that it appears
the oil industry has for the plight of Americans who are
struggling to fill the gas tanks of their minivans, it is
really hard for me to understand and it is difficult when I
stand in front of my constituents at a town hall meeting and
they throw at me that the oil industry is making record profits
and that you are charging record prices.
It is difficult for me to explain to them how you are not
manipulating the price of gas and manipulating the price that
is paid at the pump.
So, in fact, I probably want all of you to answer this
question. But I can't say that there is evidence that you are
manipulating the price, but I believe that you probably are.
So prove to me that you are not.
Mr. Simon. Well, Congresswoman, I can assure you that we
are not doing anything to manipulate prices. Now, how I can
convince you of that, I am not sure, other than to say----
Ms. Wasserman Schultz. Well, you have got to go beyond your
word and show me.
Mr. Simon. I give you my word and I would also comment that
the FTC has investigated our industry more than any other that
I know of, on the average of about three times per year over
the last 35 years, and have never found in one of those any
evidence of anticompetitive behavior.
I fully understand, and I know it is hard for you think
that I empathize with the consumer, but we do and I do and we
are doing all we can to try to put downward pressure on the
We can do that in two ways.
Ms. Wasserman Schultz. What are you doing to put the
downward pressure? Because you are not expanding capacity.
Mr. Simon. Yes, we are, Congresswoman. I did want to make
that point. When you look at what industry has done, let me
talk about industry first and then let me talk about what we
have done as a corporation.
The industry, over the last 10 years, has brought on the
equivalent of one new refinery every year by incrementally
expanding existing capacity.
Ms. Wasserman Schultz. How many has your company brought
Mr. Simon. We have expanded capacity at a rate 40 percent
above the industry average.
Ms. Wasserman Schultz. How many refineries have you opened
in the last 10 years?
Mr. Simon. We have not opened any new refineries, but we
have brought on the equivalency of new----
Ms. Wasserman Schultz. Why not?
Mr. Simon. We don't need new refineries, Congresswoman.
What we can do is we can take what we have and incrementally
expand that and do that at a lower cost and do it much more
rapidly than we could by bringing on a new refinery.
Ms. Wasserman Schultz. Well, the third grade economics that
was referred to earlier, I have two third graders and there is
not a whole lot of economics that they are learning, but the
law of supply and demand is pretty basic.
And it is hard for me to understand how the prices keep
going up and up and up if you are expanding capacity in a great
enough proportion to bring down the price. I assume you are
Mr. Simon. When you look at what has happened between last
year and this year, price of the product has gone up. When you
look at what is behind that, our profitability in the refining
and marketing business has gone down.
Why is that? Because crude price has gone up about 80
Ms. Wasserman Schultz. Your profitability has gone down,
but you made $40.6 billion last year.
Mr. Simon. The profitability in the refining and marketing
business here in the United States, which is making those
products you are talking about, has gone down. It is about 40
percent this year of what it was last year.
Why is that? It is because the price of the raw materials,
crude oil, has gone up about 80 percent. The products you and I
are talking about, when you look at diesel fuel, it is gone up
about 52 percent and motor gasoline up only 60 percent.
Ms. Wasserman Schultz. Mr. Simon, how many gas stations
have you opened in the last 5 years in America?
Mr. Simon. I wouldn't have that number. But when you look--
Ms. Wasserman Schultz. I am talking----
Mr. Simon. But when you look at the number of gas stations
in this country, about 165,000, the number that we own and
operate and, therefore, set the price in is only about a half a
percent of that.
Most of those outlets are owned by independent businessmen
Ms. Wasserman Schultz. So while we open up more--but they
are affiliated with your company. I mean, they might be owned
and operated by the independent businessmen and women, but they
have your company's name on them.
Mr. Simon. They are branded. They are branded Exxon Mobil
and, frankly, our market share has actually dropped since the
merger. It is dropped from 14 percent down to 10 percent.
Ms. Wasserman Schultz. Before I yield back, so the bottom
line here, which is indisputable, is that you have opened no
refineries. You say you have expanded capacity in the existing
Yet, the price has continued to go up. Your profits
continue to go up and you have absolutely--and if you could get
back to me with the number of gas stations that you have opened
in the last 5 years in America, I would appreciate it.
You have expanded the asset point exponentially. So we are
making the gas--the place you can get gas more available, but
we are not making more gas available, and the price is going up
and your profits, as well as your salaries of your top tier
executives are going up.
That is inherently unfair and it causes the Members of
Congress in front of you to stand in front of our constituents
and have to defend how it is we are going to address the rising
cost of energy, and you have no solutions.
I yield the balance of my time.
Mr. Simon. But I did mention that our refinery capacity has
expanded, Congresswoman, whether we brought on new refineries
Ms. Wasserman Schultz. But it isn't doing us any good,
because the prices are not coming down.
Mr. Simon. Oh, I think it has done some good. As mentioned
before, the price----
Ms. Wasserman Schultz. Really? What?
Mr. Simon [continuing]. Of products relative to crude oil
has come down. But the raw material behind it----
Ms. Wasserman Schultz. The only thing that matters is that
it costs almost $70 to fill up a minivan.
Mr. Simon. I understand that.
Ms. Wasserman Schultz. That is the price that matters.
Mr. Simon. And that is because of the raw materials that we
have to buy in order to produce those products.
Ms. Wasserman Schultz. Well, you need to be more a part of
the solution than you have been, and you can say that you have
been, but it isn't working. So it is time to go back to the
Yield back the balance of my time.
Mr. Conyers. The distinguished gentleman from California,
Mr. Issa. Thank you, Mr. Chairman.
And thank you, Ms. Wasserman Schultz.
I couldn't have asked for it to be better set up for the
debate that was really going on here. I am listening and
saying, ``Okay, we have established through years of hearings
that it is incredibly expensive and just about impossible to
open a new refinery.''
We established during the Jimmy Carter era there was this
incentive to open a bunch of small, inefficient refineries and,
over the years, they have gone away in favor of larger, more
And we have established that there is a risk of these large
refineries because they are better targets for terrorists. They
have other fundamental problems. But that is the world that we
Let me understand. That was the world we lived in with $29
oil. That was the world we lived in $2 ago in gas and oil
prices. Isn't that true?
Okay. So all of those truisms of 30-40 years of bad or no
energy policy haven't changed. I just want to make sure that I
understand that 7 minutes-plus was used to berate you, Mr.
Simon, on what I think was a very unfair tact, because you
don't control retail prices.
We have had hearings to make it very clear. As a matter of
fact, we have had hearings about the question of whether the
interchange fees from credit card companies are more profitable
than your gas revenues at the retail.
So having gone through that, let me move on to a couple of
other areas and I will give you a break, Mr. Simon. Quite
honestly, I think you need the glass of water and a little
Mr. Malone, British Petroleum, I was in Baku when the
pipeline was opened.
Would you tell us a little bit about your global
activities? In other words, how much new capacity as a world
company have you brought on outside the U.S. which goes into
the same pool of available oil and then how much have you been
able to bring on net inside the U.S. during that same period of
Mr. Malone. Thank you, Congressman. We have been bringing
on projects all over the world. You mentioned the one in Baku.
Mr. Issa. I am going to Kazakhstan tomorrow night. Trust
me, I am very interested in the place that brought on more than
one ANWR in the time we have been arguing about voting on it.
Mr. Malone. We have also been extremely active off the west
coast of Africa. Angola, in particular, has been a real
opportunity for us. Of course, development continues in the
North Sea, just about geographically all around the world.
We have been investing at the rate of about $19 billion a
Mr. Issa. Right. And shorten it down. You brought on, if I
understand correctly, more outside the U.S., where you had
opportunity, than you have been able to in the U.S. on a net
Mr. Malone. Yes. Our production has been declining in the
U.S. We are now just roughly a half a million, 500,000.
Mr. Issa. Mr. Lowe, same sort of a question. I know that
you spent some time and energy in a number of markets that
became off limits or unavailable to you.
If I remember right, you were involved in Syria, hoping to
develop those oil wells that have never been properly
developed. But how do you view U.S. versus the rest of the
world and how much would you say you have brought on net in
Mr. Lowe. Well, I think one of the items that does seem to
get lost in all this is we deal with a depleting resource and
so it is very challenging, particularly here in the U.S., where
the depletion rates oftentimes are double digit.
So your production is going down, all other things being
equal, by 10 percent or more a year. And so it is very
difficult to keep production anywhere near flat here in the
We are the largest producer in Alaska. Production continues
to go down there.
Mr. Malone mentioned earlier the Denali, Alaska pipeline.
That would be a $30 to $40, possibly even higher than that,
billion investment to bring that natural gas down to the lower
So the scale of our businesses is very large, very
challenging to keep our production flat, let alone grow it.
Mr. Issa. And, Mr. Robertson, you are California-based.
California, if I understand it, is about a million barrels a
day of production, about 2 million barrels a day of
How much opportunity have you had in California to have
access to any new fields at all in order to try to take that
reducing amount that is being produced in California and get it
Mr. Robertson. Congressman, not much in California. Our
biggest investments in California are in the same old place, in
the San Joaquin Valley, where we have put an enormous amount of
money. In fact, just in the last few weeks, we produced the two
billionth barrel from an old field that was started up in 1899
called Kern River.
We have put billions of dollars into that field over the
years. But the new access has been almost nothing.
Globally, we are going to be increasing production. We
have, over this 5-year period, we are in the middle of
increasing about 3 percent a year in terms of our production.
Decline rates are about 4 percent. That means you have got
to have about 7 percent. We produce about 2.6 million barrels a
The opportunities we have in the U.S. are primarily the
deepwater Gulf of Mexico. We have had some major projects, one
coming on this year, one coming on next year.
Just one of those is a $4.7 billion project in 5,000 feet
of water. So the places where we can invest in the United
States, we are. We would love to invest more in the U.S.. Two
thirds of our capital is outside the United States. We would
love it to be a lot more in the United States, but the
opportunities just haven't been there.
Mr. Issa. That is a decision that we can make from the
Mr. Robertson. That is a decision that can be incredibly
changed by policy in the United States.
Mr. Issa. Mr. Hofmeister, Shell is certainly known as a
global leader in many ways, known less as a U.S. company than
as a global leader.
How do you find opportunities in the U.S. versus elsewhere
when it comes to us being part of the solution of new
Mr. Hofmeister. Well, fortunately, Shell was a leader in
the deepwater Gulf of Mexico and continues to produce in the
Gulf of Mexico and invest in those areas where we have leases.
So we see the Gulf of Mexico as a continued growth
opportunity. More recently, we have taken a very, very big bet
on offshore Alaska, with multiple leases in the Beaufort Sea
and the Chukchi Sea.
Regrettably, we are seeing tremendous legal action trying
to stop every move we make in trying to get to a drilling
season, which, of course, is limited in the amount of time we
have to drill, and this is not an area that is off limits.
So Chukchi Sea and Beaufort Sea are not off limits, but
there are others who are trying to prevent it from occurring by
testing in the courts whether the EIS that has been done by the
Department of Interior is adequate for the purposes of our
But our growth primarily is coming from outside the U.S. at
Mr. Issa. Well, I would like to thank you for continuing to
try to produce in the U.S. I think that is important.
Hopefully, we will recognize that we are part of the problem
unless we allow you the opportunity to be part of the solution
inside the U.S.
And I yield back, Mr. Chairman.
Mr. Conyers. Thank you very much, Darrell.
Sheila Jackson Lee?
Steve Cohen of Tennessee?
Mr. Cohen. Thank you, Mr. Chairman.
Gentlemen, I missed some of this and I might have missed
it. I would like to see--I read the Congressional Quarterly
today. Mr. Coral Davenport said that, I guess it is Mr.
Robertson there, that you might have earned as much as $50.6
million last year.
Is that anywhere near accurate? Are you Tiger Woods?
Mr. Robertson. That is nowhere near accurate. What I earned
last year I got in my pay and bonus. I got $2.5 million.
Mr. Cohen. Where would they have gotten----
Mr. Robertson. In addition to that, I got some stock
options and some performance shares, the value of which depends
entirely on the performance of the company 100 percent.
They were valued last year in the proxy statement at $5
million. So if you add those two together, I got $7.5 million
Mr. Cohen. Where do you think he got 50 or she got $50.6
Mr. Robertson. I have no idea.
Mr. Cohen. It is a lot of money without playing golf well.
But thank you, sir.
Mr. Simon, you did pretty good, too, last year, if I
How much did you say you made last year, was it $12
Mr. Simon. $12.5 million in terms of compensation granted
last year, although some of that pays out over time. And then
if you were to take a 1-year accrual of the pension fund, it
would actually take it up to $15 million.
Mr. Cohen. And how much did you make the previous year?
Mr. Simon. The previous year, I don't remember.
Mr. Cohen. Would it have been that much?
Mr. Simon. It could have been that much, and it could have
Mr. Cohen. It would have been less. How much less would it
Mr. Simon. I don't know. I would have to get back to you on
Mr. Cohen. Could it have been $6 million?
Mr. Simon. I don't believe it was that low, but I just
Mr. Cohen. So it may be double.
Mr. Simon. It wasn't that low, no.
Mr. Cohen. Could it have been double? Six is not double.
Mr. Simon. No, it would not be double.
Mr. Cohen. Not double.
Mr. Simon. No.
Mr. Cohen. Would it be 40 percent more?
Mr. Simon. No, I don't believe so. But, again, I will get
back to you on that.
Mr. Cohen. But it was more.
Mr. Simon. It was more.
Mr. Cohen. How much more did you work this year than the
Mr. Simon. I worked probably about the same this year as I
have other years.
Mr. Cohen. So why did you make more money?
Mr. Simon. The money that I get is, again, not determined
by management inside our corporation. It is determined by a
committee of independent directors.
They look at my responsibilities and my accountability----
Mr. Cohen. I understand all that.
Mr. Simon [continuing]. And then compare that with others
on the outside and then----
Mr. Cohen. I got that.
Mr. Simon [continuing]. We pay competitively.
Mr. Cohen. I got that. But this is what confuses me. You
are saying that the price of oil is determined by supply and
demand and you said that you are 80 percent less profitable. Is
Mr. Simon. Not on a total worldwide basis, no, I didn't say
Mr. Cohen. Is that just on American?
Mr. Simon. That is talking about within the U.S. on
refining and supply, which is part of the business that makes
the products that we are talking about.
Mr. Cohen. So where are you making all this record profit?
Mr. Simon. Most of the profitability that we make is
outside of this country. This year, in the first quarter of
this year, about 81 percent of our profitability was outside
the United States.
Last year, of that $40.6 billion, 75 percent of it was
outside the United States.
Mr. Cohen. And then that is just on the sale of gas?
Mr. Simon. No. That is in terms of producing oil and gas,
also, running our refineries, producing product, selling those
and, also, our chemical operations.
Mr. Cohen. If the profit percentages--the profit percentage
must have gone up, obviously. So profit at Exxon Mobil is not
based on supply and demand.
Mr. Simon. I think the profit of Exxon Mobil is based on
supply and demand, because the market is what determines the
price that we get for the commodities that we sell.
Mr. Cohen. Well, it does, but it doesn't--the profit
margin, isn't that something different? I know that you sell
different to the public, but your profit is figured
differently, isn't it?
Mr. Simon. No. The profit, the way you determine profit is,
first of all, look at the price that you get for the products
that you sell.
Mr. Cohen. Right.
Mr. Simon. That is determined by supply and demand and then
you look at the cost of producing those products. You subtract
the cost from the revenues and that gives you the profit.
Mr. Cohen. But couldn't you sell your gas at a lesser price
and still be higher than your cost? And by setting your price
where it is, producing record profits, you are setting the
price at the pump and not supply and demand setting it.
Mr. Simon. No, I don't agree with that, Congressman,
because, again, the price that is established for the products
that we sell is established by the marketplace.
Let's take this year and let's look at the profitability on
a gallon of gasoline. This year, first quarter, it was $0.014
for every dollar that we collected in revenue.
Now, that is down from last year and it is down because the
cost of raw materials has gone up that we had to buy to produce
those products and the price of the products that we sell have
not gone up as much as crude oil. So the margin has actually
been squeezed year to year.
Mr. Cohen. But your profit is up.
Mr. Simon. The overall global profit this year is not up.
It is about, I would say, roughly where it was last year. Last
year, $40.6, first quarter of this year, $10.9.
Mr. Cohen. But if you charge less for gasoline, you
wouldn't be making a $40.6 billion profit. You could maybe make
a $20 billion profit, if you charged less.
Mr. Simon. Gasoline is only a small component. When you
look at what we make on refining and marketing, this year, it
is about 4 percent of what our first quarter profitability was.
Last year, about 10 percent when you look at what the
downstream piece was here in the U.S.
Mr. Cohen. So what are you making the money on, lottery
Mr. Simon. No. It is producing and selling oil and gas.
When you look here in the United States, we produced about
300,000 barrels a day of crude oil. We actually run 2 million
barrels a day.
And of that we produce, we only take 1 million of that and
run it in our own refinery. So what we are doing is producing
oil and gas and we are selling most of that on the open market.
For example, we run about 5.5 million barrels per day in
our refineries around the world. We produce 2.4 million barrels
a day of oil and only half of that goes into our own
So most of the refineries that we operate around the world,
we are buying raw materials on the open market.
Now, the biggest piece of our profits is producing oil and
gas and selling that oil and gas on the market.
Mr. Conyers. Does the gentleman need additional time?
Mr. Cohen. I would like just another minute or 2, if you
The gentleman from Shell, is it Mr. Hofmeister?
Mr. Hofmeister. Yes, sir.
Mr. Cohen. How much money did you say you all put into
renewable energy sources in solar and wind last year?
Mr. Hofmeister. I said $1 billion over 5 years.
Mr. Cohen. One billions dollars over 5 years.
Mr. Hofmeister. It varies from year to year.
Mr. Cohen. How many of the other gentlemen on the panel are
putting anywhere near that much into those areas?
Mr. Robertson. I think I just described it. I think I said
$2.5 billion over 3 years.
Mr. Cohen. Over 3 years.
Mr. Robertson. In geothermal energy, non-food cellulosic
ethanol and energy efficiency services for our customers.
Mr. Cohen. Mr. Simon, the report in Mr. Dana Milbank's
story this morning said that your company put $10 million into
renewable energy last year. Is that accurate?
Mr. Simon. No, that is not correct. That was one piece of
one project. But what we are doing is trying to accomplish what
I think you are driving at and that is how do we reduce the
amount of fossil fuels that we consume, lessening our
dependence, and how do we reduce greenhouse gas emissions.
And what we are doing primarily is focusing on 60 percent
of the equation and that is oil and gas. Oil and gas is going
to continue to be the dominant source.
How do we use that more efficiently in our own operations
Mr. Cohen. How much did your company invest in renewables
Mr. Simon. In what you would call renewables, it would
probably be about $100 million.
Mr. Cohen. And that is compared to $2.5 billion over 3
Mr. Simon. Because, again, we have looked at all current
technologies of renewable fuels. These are current
technologies. We have not identified any that have any
appreciable impact in terms of adding supplies or reducing
greenhouse gas emissions.
The $100 million I am talking about is looking at that next
generation and we are funding all of the opportunities and
leads that we have there and we think we have some very
Mr. Cohen. Mr. Lowe and Mr. Malone, are your companies more
in line with the two gentlemen to your right or with Exxon
Mr. Malone. Well, last year, we invested, in 2007, $750
million, 10 percent of our capital. This year, we will invest
$1 billion, something in excess of 10 percent.
Mr. Cohen. And, Mr. Lowe?
Mr. Lowe. Ours is primarily on the research side, about
$150 million last year.
Mr. Cohen. Thank you.
Do any of you have any solace or any hope you can offer the
American public for what they are going to be paying for your
record profits this year?
Mr. Simon. I would say there are two things that we can do.
One is work on supplies, and we have already talked about that.
Mr. Cohen. What do you mean work on supplies?
Mr. Simon. Get access to supplies. And the other aspect is
how do we produce more product and we are looking at expanding
our capacity. We have already expanded it considerably already
in terms of refining. And when you look at the industry, it is
projected that about the equivalent of five new refineries will
be coming on stream between now and the year 2012.
And to put that five into perspective, that is about three
refineries more than is required to meet projected demand
The point is the market is working. I know it is painful,
but the market is working and it will work to the ultimate
benefit of the consumer if we don't put additional tax burdens
on the industry, let the market work, and don't put in place
additional mandates for subsidies.
Mr. Cohen. Anybody have any better hope for the consumer
than just the market is working and $4 is good?
Mr. Hofmeister. Congressman, in my opening statement, I
said if this nation, led by the Congress, the Administration,
set a goal of producing 2 to 3 million more barrels of oil a
day in the near future, over, let's say, the next 10 to 15
years, plus the renewable fuels mandate that we have from last
year's energy bill, plus the efficiency standards of the miles
per gallon improvement, we could knock this issue of ever
higher futures on its head.
Futures are based upon the prediction of more supply and by
the United States of America coming to grips with the fact that
it was now beginning to address the issue it has not addressed
in years gone past, we could say to the world we are not going
to come ask you for more production, we are going to do our own
That, in my opinion, would give immediately relief to the
American consumers, knowing that this government was focused on
solving the problem together with the industry.
Mr. Cohen. The solution is getting away from gasoline and
getting into hybrids, getting into something that we don't have
to depend on the folks in the Middle East or anybody else and
be concerned about both the consumers and their pocketbooks and
the planet, and that is not going to work by simply more
drilling and more drilling and more drilling.
You can't drill yourself out of this problem, because the
problem is bigger than that. And it goes back to my opening
statement about the land belonging to the--is a title to the
farmer, but the reality is society rests upon the land, so all
people own it. That was Jefferson.
And an analogous situation could be made to oil and there
are some ways that people think about--you might have title to
the oil right now, but really, since society rests on it, you
have a duty to the rest of the folks on this planet.
And the profits you all are making are unconscionable and
to continue--and I have listened to all this and maybe I didn't
do that third grade economic course, but I think there is
something wrong when you all are increasing your profits so
much and your salaries so much and all you tell us drill,
drill, drill, drill, drill.
You all are gouging the American public and it needs to
stop and you are going to look for windfall profits tax and
anti-gouging and competition and antitrust and there is a whole
lot of other ways that this can happen, because it is obvious
you all don't have the American public at heart whatsoever.
Mr. Simon. I disagree with that, Congressman. I do think we
have the American public's interest and we are doing all we can
to produce as much supplies as we can, to put downward pressure
on prices for the American consumer and other consumers around
Mr. Conyers. Well, I have had a discussion up here. There
are five of you and five of us.
Steve Simon, I would like to invite you to my next town
hall meeting. Who would you like to bring, since I have got the
top guy here?
Mr. Cohen. I would like to bring you back again.
Mr. Conyers. Not for a gas price town hall meeting. Who
among these witnesses would you like to bring with you?
Mr. Cohen. I am going to pass.
Mr. Conyers. Well, you have never been reluctant about
anything before since I have known you in the Congress. I don't
I think there would be a great advantage to have one of
these executives with you at the next town hall meeting. I will
bet you get more people out than you have gotten out lately.
Mr. Cohen. Mr. Chairman, you are probably right and I guess
the best person would be Mr. Hofmeister, because he is doing
more with solar and renewable energy and I think that is what
the people in my district want to hear about, and they wish
that each of these individuals, particularly Exxon Mobil, which
I have to admit I have got stock in and I have had it forever,
but you should be doing more in alternative energy and trying
to see if the public is served.
And I just really can't believe that the profit is just
supply and demand. The profit is taking advantage of a
Mr. Conyers. Do your stockholders meetings go like this,
Mr. Simon. They go a little bit smoother, Mr. Chairman.
Mr. Conyers. Ms. Sutton, who would you nominate to join you
Ms. Sutton. Well, I would just like to comment that my
colleague from Tennessee, when he mentioned that he would like
Mr. Hofmeister because they were doing more with renewables,
and you were out of the room when he said that they were using
less than 1 percent of their investment money in renewables.
So if they are doing more and it was less than 1 percent,
that is a bit of an issue.
But I think I would invite any of them, all of them. All of
you come. Come to the 13th district, talk to my constituents.
And I would also like to invite my colleague from across the
aisle who said that the American don't understand.
Mr. Conyers. Could I ask Sheila Jackson Lee whom among
these distinguished witnesses she would like to bring to her
next town hall meeting on the price of gas?
Ms. Jackson Lee. Every one of them, Mr. Chairman. I believe
they each have a perspective that should be heard and when I
pose my questions, I hope I will get some of that perspective
out as relates to this hearing.
Thank you, Mr. Chairman.
Mr. Conyers. And now we recognize Ric Keller for his choice
and his questions.
Mr. Keller. Thank you, Mr. Chairman. They are all welcome
at my event. With this affluent gentlemen, I don't have to pay
for valet parking. So I can save some money here.
But I would love to have them here, because I think even
though they are on the hot seat today, they have been very cool
under pressure and respectful and I admire that.
Whatever we may think about the board of directors'
decision at Exxon to pay $400 million to one individual at a
time when people are hurting, Mr. Simon, your salary today,
based on $12.5 million, is $34,246, and most folks out there
watching this probably think you earned it and we appreciate
you being here under these trying circumstances.
I raised a couple of issues that I gave you a chance to
clarify. Executive compensation, I think you had a chance to
deal with that issue. And I promised that I would come back and
talk about refining. You remember that line of questioning.
Would you agree with me that refining capacity has not kept
pace with demand for gasoline?
Mr. Simon. When you actually look at it, Congressman, and
you look at it over the last 10 or 5 years, the refining
industry has expanded capacity commensurate with demand growth.
Mr. Keller. Do you think refining capacity has kept pace
with the demand for gasoline?
Mr. Simon. Yes, I do. Yes, I do.
Mr. Keller. You are familiar with the National
Petrochemical and Refiners Association, which includes Exxon
Mobil as a member.
Mr. Simon. Yes, I am.
Mr. Keller. The executive vice president, Charlie Drevna,
of the National Petroleum and Refiners Association said,
``Consumer demand just continues to grow, and we can't grow as
fast at the refining level.''
Do you disagree with that statement, as a member
Mr. Simon. Let me make a comment and then you decide
whether I am disagreeing or not.
When you look at what we have done in the refining
industry, we have grown capacity at about 1.1 percent per year.
Demand has grown 1.1 percent per year.
So what we have got now, and I will say this, is we have
got a much tighter supply-demand situation in refining than we
have had for many, many years, and it started about 2003.
If you go back before 2003, we had a big surplus in the
refining industry and now it is tight.
Mr. Keller. You just proudly told us that you are going to
put online the equivalent of five new refineries through
expansion of the next 5 years. If refining capacity has kept
pace with the demand for gasoline, why in the world you would
be expanding these refining----
Mr. Simon. I didn't say Exxon Mobil. I said the outlook and
this is the EIA's outlook, is looking at what all everybody is
planning and looking at what is going to be coming on stream,
the equivalent of five new refineries for the industry are
projected to come on stream between now and the year 2012.
If you look at projected demand growth, that is three
refineries more than what we need. We will return to the same
kind of environment in refining over the next several years
that we had prior to the year 2003.
Mr. Keller. Well, thank you. And since you cited the EIA--
and for those watching this, that is the government's Energy
Information Administration, and I happen to have an article
from cnnmoney.com and I will quote it for you, April 17, 2007,
from that very organization, ``There have been calls every year
this decade for new refining capacity, yet no new projects
initiated,'' said Jeff Sundstrom, a spokesman for AAA, the
``Refining capacity has not kept pace with demand for
gasoline. Numbers from the government Energy Information
Administration proved Sundstrom correct. In 1995, American
drivers burned about 17 million more gallons of gasoline a day
than the country produced, according to the government's Energy
Information Administration. The difference was made up for by
imports. By 2005, the latest figures available, the gap had
widened considerably to about 36 million.''
So we have the government's Energy Information
Administration saying refinery capacity has not kept pace with
demand for gasoline. We have the National Petroleum and
Refiners Association, for which you are a member, saying
refining capacity has not kept pace with demand for gasoline.
We have the government's Energy Information Administration
saying refining capacity has not kept pace with demand for
gasoline. We have you saying that you are going to expand
capacity, and yet everything is fine because refining capacity
has kept pace with the price of gasoline.
And it is just dumbfounding me, and you are more of an
expert than I am, to hear the conflict.
Mr. Simon. Well, again, when I was talking, it was total
product. It is true that imports of motor gasoline have gone
up. That is true. They are low cost imports out of Europe, much
cheaper than what we could produce here in the United States by
That is part of our supply chain. But when you look at
total products, refining capacity has grown commensurate with
Mr. Keller. When was the last year that Exxon built a new
refinery as opposed to expanding an existing one?
Mr. Simon. Well, over 35 years ago. But we don't need to
build a new refinery.
Mr. Keller. So 1973.
Mr. Simon. Prior to that even.
Mr. Keller. Okay. You haven't built a new U.S. refinery in
35 years. Have you asked for a permit to build a new U.S.
refinery in the last 35 years?
Mr. Simon. Not to my knowledge, because we haven't needed
to. We can take what we have and expand it more than what is
needed to keep pace with demand.
Mr. Keller. President Bush has said that new refineries
need to be built and he proposed to allow the oil companies to
build these new refineries on old military bases.
As of today, isn't it fair to say that you have declined to
take him up on his offer?
Mr. Simon. I do not agree that we need a new grassroots
refinery in this country.
Mr. Keller. As of today, you have not taken the President
up on his offer to build a new----
Mr. Simon. No, we haven't.
Mr. Keller [continuing]. U.S. refinery.
Mr. Simon. No, we haven't.
Mr. Keller. Okay. You are proud of the fact that you have
expanded existing refineries. And I want to be fair to you, if
you want to tell us what you are proud about in terms of the
last few years and what you have done and where you see us
going in the future.
I think that is only fair, and I will be happy to defer and
listen fully to your answer.
And then I will yield back the balance of my time.
Mr. Simon. As I mentioned before, when you look at what the
industry has done, it has expanded capacity commensurate with
demand for total product. When you look at what our corporation
has done, we have expanded capacity at a rate 40 percent higher
than the industry in terms of distillation capacity.
I am proud of that. I think our employees are doing
everything they can to produce as many products as we can for
the American consumer and I think they are doing a very good
job of that. I am proud of it.
Mr. Keller. Thank you, sir.
Mr. Chairman, my time has expired. I have more questions on
refineries, but I will yield back in respect to the other
Mr. Conyers. Thank you very much, Ric Keller.
Sheila Jackson Lee?
Ms. Jackson Lee. Thank you very much, Mr. Chairman. This
has been a very interesting discussion.
But I hope the witnesses who have been here before, been
before a variety of Committees over the last couple of months,
can understand the enormity of the frustration and, frankly, I
think, the challenge.
And maybe the disappointment is that as we continue to
listen, we are still sort of striking in the darkness to look
for a real answer that, as you walk out of this room, this
Committee can come together and say there is one focal point
that we need to do for immediate relief, and I think that is
the distinction, gentlemen, between the questioning of our
colleagues who have shown some degree of frustration, because
you have not answered the immediate question.
And I pose the immediate question in the context of a
hypothetical that I saw rendered on one of our cable stations
that indicated that suppose there was a Hurricane C which
wreaked havoc in the Gulf. We lost many of our drilling rigs
and we wound up with a $12 per gallon cost of gasoline.
It would jeopardize our national security, certainly our
economic security, and it would be a crisis. And, frankly, all
of you would be called upon to respond in a crisis mode.
Well, with not with Hurricane C, but we are in a crisis
mode, by definition of many Americans, and it is not all your
fault, because certainly the dollar is weak and it adds to the
cost, I imagine, in the national cost, as well as the cost to
But what I am trying to press you for is immediate answers,
and I would suggest responding to this. Why couldn't there be a
moratorium in gasoline prices, for example, from June to
October, moratorium on gasoline taxes, and the expense of that
tax be paid by the profits that you have earned?
What would harm your overall bottom line profits? I assume,
as a private entity, that would be something that your board
would need to approve. Shareholders range from my good friend
to the right to retirees and others who probably look to you
for the fiduciary responsibility of ensuring they can stay
above the water during their retirement.
But you are not giving the American people, if you will,
direct and immediate relief.
So I pose that question to you as I show you that the
Minerals Management Service of 2006 says that we have about 79
percent of land open to leasing, and, therefore, a smaller
percentage not. So it seems that we have a sufficient amount of
our leasing properties available for drilling.
And then this is another one that is prepared that says
that as we look at the prices of gasoline, they actually lead
to higher profits, and that is, of course, what provoked the
American people when it comes to asking Congress to find a
Now, let me pursue just another point before I yield to you
This is an Antitrust Task Force and you have already seemed
to refute the idea that there is collusion. But let me give you
a definition. Collusion is a will for subversion of a normal
operation of free market and could result in serious harm to
consumers, suppliers and the economy.
It virtually always results directly in inflated prices to
consumers and denial of choices in the marketplace. Indeed,
that is its purpose.
Now, for non-lawyers, they saw and heard this being read,
the word collusion. They make a simple assessment that I am
being hurt, there is inflation, I am paying a higher price for
gasoline, there must be collusion.
So I think what we are trying to generate here today is
some small measure that refutes the collusion theory requiring
investigation by the Department of Justice, a collaborative
effort with us.
And, Mr. Lowe, I am really going to start with you, because
I look at your list here, and I agree with everything that you
have said. I wear somewhat of a different hat from the region
that I come from, and I am somewhat at a loss as to what
Congress has not done.
And I will read it quickly, and I have asked several
questions and so I beg your indulgence.
But Mr. Lowe has, in his statement, encouraging
conventional supplies, optimizing biofuels production,
encouraging alternative and unconventional sources, lowering
the carbon intensity of energy supplies, improving energy
efficiency, and encouraging technology innovation.
What has Congress not done? That is what I understand. We
have tried to do everything that we could.
And I would say to you, and I will yield to you for your
answers on this, but one thing we have to get away from is the
Republicans have the answers and the Democrats don't. And I,
frankly, believe that that is what you have been operating on
for a number of years and there is a new day in Congress.
Your representatives who are here in this room barely see
us. We don't even know their names, hardly, and I will qualify
those that I do, BP and Shell.
But any others, we don't know. There is no interaction.
There is no sense that we are in this together, that there are
those of us who look different from you who know energy, care
about it and want something good to happen.
You don't respect us. So I don't think there is a coming
together and a meeting of the minds, because you are not
broadening those who you are discussing this issue with.
Shell got a wide view from your roving tour. ConocoPhillips
did the same thing. I assume you saw the man and woman of
America and got an earful, but also probably found some common
So I am going to yield to Mr. Simon first on the question
that I posed originally as refuting this question of collusion
and the idea that you don't have enough places to drill.
According to our Federal resources here or documentation,
you are drilling in a large part of this country. And then why
we seem to have a policy that is single in answer.
And then don't forget my gasoline taxes, if you would.
Mr. Simon. Well, thank you very much, Congresswoman.
When you, first of all, talk about collusion, let's examine
a little bit about the industry. Let's take refining, first of
all. There is 55 different refinery companies. There are about
145 individual refineries in the United States.
We are one of the largest refiners. We have seven
refineries. We have 11 percent market position and that is
actually down from where it was at the time of the merger.
So usually, in a concentrated market, that would not be the
Also, when you look at independent marketers, their market
share has actually grown from 8 percent up to 25 percent.
Ms. Jackson Lee. Mr. Simon, the American people don't
really define it that way. They look at the fact that you have
got Exxon Mobil, BP, ConocoPhillips, you have got Chevron, you
have got Shell, and after that, then you get second tier, maybe
there is somebody else that I missed, and there are domestics.
They look at you as an entity that is now merged, two huge
companies, and they ask the question whether the small numbers
that have now gone down in size from 20 years ago are not
actually engaged in making sure that the prices are being set
at a certain amount.
Mr. Simon. And that is what I am trying to get across here.
I understand the perception, but the facts are not that. In
other words, we have actually lost market share, not gained it,
since the merger.
When you look at the retail side of the business, there are
165,000 retail outlets. Exxon Mobil owns and operates and,
therefore, sets the price in only a half a percent of those.
Our market share, again, has gone from 14 percent down to
10 percent. We have lost market share and so have all of the
Ms. Jackson Lee. But does losing market share impact on
still the opportunity to set prices, even though you have lost
market share? That is the perception that the American people
New energy companies, merged energy companies, prices go
Mr. Simon. But the concentration of the industry, when you
compare the concentration of our industry versus others, it is
one of the lesser concentrated industries in the United States.
It has been repeatedly investigated by the FTC and not a single
one of those investigations, which have been 100 over the last
35 years, an average of about three per year, not a single one
of those have found any evidence whatsoever of price collusion
or anticompetitive behavior.
Ms. Jackson Lee. Here, today, you have offered us a
presentation that doesn't seem to pinpoint, in an effective
way, I appreciate your response, as to why this price keeps
accelerating, short of the idea that the industry agrees with
the price set.
Now, I am not suggesting that it would be proven. I am
saying that it would be suggested and it seems to be that there
are a smaller number of companies and the price has gone up.
But let me let you move on quickly to your other questions
so the others could answer about the gasoline tax and calling a
moratorium and having the energy companies pay for that tax
moratorium from, say, June to September out of your profits.
Mr. Simon. Did you want me to address the drilling aspect?
Ms. Jackson Lee. If you can do it quickly.
Mr. Simon. When you look at that chart you had, that is--
unfortunately, I wish we were developing more, but oil isn't
everywhere we have leases.
Where there is oil, we are developing that. These are
mature, well established areas, where the prospects are a lot
lower and, therefore, you don't find the oil everywhere.
We need access to those areas that are promising, lesser
developed, where we know there is good prospect for oil and
Ms. Jackson Lee. You didn't answer the gasoline tax.
Mr. Simon. When you look at the gasoline tax, again, you
asked the question why the prices are going up.
Ms. Jackson Lee. No. What I would like to ask is the
question of whether or not you would absorb that in a
moratorium on gasoline taxes, would you absorb that through you
Would you be willing to do that if you were asked on behalf
of the American people?
Mr. Simon. What you would see, Congresswoman, if you
eliminated that tax, you would see a drop in the price. But
what would happen then is you would have an increase in demand.
That price would go back up and I think it is impossible for
any of us to say that the price wouldn't recover to where
supply and demand would get back in balance.
Ms. Jackson Lee. I would say this. I would venture and be
willing to try it in the instance, let the market play as it
would in that instance, and then come back again in September,
since it would be a moratorium only briefly, and reorder it.
But I think some relief is owed and the question is whether
you would be willing to pay those taxes so that the highway
trust fund is maintained.
Mr. Simon. No, we couldn't pay those taxes. When you look
at our profitability, it is $0.014 this year on a dollar,
whereas taxes are somewhere up around $0.15.
Ms. Jackson Lee. Well, your profits show that they are a
little larger than that. But let me yield to Mr. Malone.
Mr. Malone. Let me not try to repeat, because I agree with
a lot that Mr. Simon said.
On the issue of collusion, most of our retail outlets are
not owned by us. They are owned by independent individuals.
Ms. Jackson Lee. I am aware.
Mr. Malone. I would also reinforce that we have
investigations even going on now and have had continuously and
they have yet to ever find that there was an issue on the
There is a point I would like to bring up, because I think
it keeps getting lost in this. If you would just say today
gasoline is $4 a barrel----
Ms. Jackson Lee. A gallon.
Mr. Malone. A gallon, excuse me.
Ms. Jackson Lee. We would like the $4 a barrel.
Mr. Malone. Is $4 a gallon, my apology. If you take that a
barrel of oil is 42 gallons, right? At today's price, just to
buy that barrel is about $3.20 a day to buy that barrel of oil.
Roughly, the retail outlets, we talked about this
yesterday, $0.08 to $0.10. So now you are at about $3.30.
Taxes, State, Federal, local, are about--let's use $0.50. You
are now at $3.80.
That is built into this system. At $3.80, we are going to
have to get that barrel of oil on a ship, a train, a boat, a
plane, get it to our refineries, refine it, and then distribute
it and market it.
And this is getting lost that the big piece is the $3.30 a
gallon due to the rise in the price of crude oil. It is an
On your question about a tax holiday, we believe, first of
all, street price is not set by us and even if there was a
moratorium, I can't say that the retail outlets wouldn't keep
the price up, because it is a commodity.
Let's say they did bring the price down. I think it would
be very short-lived and that we could actually see a run on
those kind of stations. Soon, the supply is gone and it is
going to come in from overseas. It is just the supply-demand
economics are at play here.
On the access, I will only make one point and, that is,
when Congress opened up the deepwater Gulf of Mexico, and you
and I have talked on many different times, I just want to use
the example that the price of oil was so low that it was not
economical for many of us to go into the deepwater Gulf of
Congress provided royalty relief. It encouraged us to go in
at very low prices. We are just bringing on one of our
platforms, a multibillion dollar platform and it is coming up
with--we have partners in this--7,000 feet of water and 5 miles
we go down below the surface.
It is a multibillion dollar one. We are now flowing about
150,000 barrels a day and it should flow as much as 250,000.
Access to where the source of oil is does work and there
have been times government has helped. We don't need the
subsidies, royalty relief in the Gulf of Mexico. In fact, they
Ms. Jackson Lee. Are you at capacity in the Gulf of Mexico?
Mr. Malone. No. I am building more platforms.
Ms. Jackson Lee. Is the energy industry at capacity in the
Gulf of Mexico?
Mr. Malone. No. We are all out there trying to develop.
Remember, we are pushing the frontiers of technology.
Ms. Jackson Lee. And we agree with this and I don't know
why we are complaining about supplies and access, because there
you are in the Gulf and there is more that can come on line.
Mr. Malone. That same Gulf, that same geology appears to go
right around Florida and up the east coast and right around----
Ms. Jackson Lee. And as you well we know, we will not be
able to drill there without consensus in those areas. Where we
have consensus is off the Gulf, and I say come one, come all.
But the point that is being represented is that we don't
have enough, but we are not at capacity in the Gulf off of
Texas and Louisiana.
Mr. Malone. I would be happy to--I know what we are doing
on our leases. I can't speak for anyone else. We are utilizing
our leases and developing across our lease base and we would
love to see more available to us.
Ms. Jackson Lee. Mr. Lowe, you had a whole list and you say
we are not doing--and we are doing all of that. And why
wouldn't ConocoPhillips want to give relief to the American
people by taking some of their profits and paying down on the
gasoline taxes from June to September?
Mr. Lowe. I will try and address each of your points.
ConocoPhillips has essentially exited--we are in the process of
exiting the retail gasoline business. So that has been our
strategy and we are really in the finalization of that.
On the access issue, I would say that there is plenty of
evidence that the companies represented here are starved for
access. ConocoPhillips, just in the past 6 months or so, the
last 3 bid rounds, Chukchi Sea and the 2 Gulf of Mexico bid
rounds, has been high bidder on more than a $1 billion worth of
leases and we have been outbid by our peers on well over $1
billion of other money that we were willing to put at stake.
So we are starved for access. We are not making that up. It
is a fact. We do need more access to more prospective acreage.
On the gas tax, I would just echo the comments earlier that
the concern--I do believe that supply and demand works and that
we have seen a reduction in gasoline demand with the higher
prices and my concern would be that if we lower the prices,
that that would reverse itself, and we would actually
exacerbate the problem.
So that would be my concern on the gas tax.
If I could just mention one other thing. I participated----
Ms. Jackson Lee. I am smiling because I would want you to
give that gift to the American people and let them decide that
for a period of time. But let me yield back to you.
Mr. Lowe. ConocoPhillips did 35 of these what we call
conversations on energy. I did a number of them, Reno, Nevada,
Scranton, Pennsylvania, Richmond, Virginia, and it is a very
Ms. Jackson Lee. It didn't hurt you, did it? It did not
hurt you, did it? You came away okay.
Mr. Lowe. Absolutely, it was very educational, I think, on
both sides and I would actually appreciate the opportunity to
do one of your town halls. You are extremely thoughtful. I
think it would be very good for both of us.
And when you ask kind of, well, what aren't we doing, I
think my feeling is that there seems to be a lack of a
recognition of how big this business is and how much it is a
The U.S., people in America, we enjoy a great quality of
life and that quality of life has come a lot, foundational,
really from energy. Other people around the world want that
same quality of life and so we are engaged in a real
competition for energy.
So we are competing every day, whether it is crude prices,
whether it is natural gas prices. You see we have an empty LNG
port in the Gulf Coast because the price of natural gas in the
United States is well below what the natural gas price is in
Asia and Europe. And so we cannot compete for that natural gas,
the LNG, away from elsewhere in the world.
So we need to recognize that we are--it is a global
economy. This is a global business and we can do things here at
home to provide more access, to provide more supply, to also
work on the efficiency side.
We need to do everything and we need to work on that
Ms. Jackson Lee. Thank you.
Mr. Robertson? And while you are answering, Mr. Robertson,
what did you do in Venezuela?
Mr. Robertson. Well, let me start with Venezuela. We stayed
there. We negotiated an agreement that was acceptable to us and
so we remain a producer in the Boscan field and we remain a
producer in the heavy oil sands.
Ms. Jackson Lee. And how much product do you get out of
Mr. Robertson. We produce over 100,000 barrels a day in the
Boscan field and, to be honest, I don't remember how much we
produce in the Hamaca field.
Ms. Jackson Lee. But that gets to the United States or it
stays in South America?
Mr. Robertson. A lot of it comes to the United States. But
we have been in Venezuela since 1946, with a hiatus in between,
and we expect to be there for a long time to come.
I think in these hearings the last couple of days, I hope
one thing that has maybe become evident, is that the current
situation is not really about refineries in the United States.
It is not really about whether we have enough service stations.
It is not really about whether the market is well supplied with
It is well supplied with gasoline, inventory is up. There
is plenty of gasoline.
The problem is, again, what others have been saying, it is
in the crude oil feedstock. So that all of a sudden becomes as
bigger issue in the United States.
One out of every 4 barrels of oil in the world is consumed
in the United States. So we are competing with the world. One
of the things that I know is we have got 27,000 employees here
in the United States that are doing everything they know how to
continue to look for, develop and produce energy for people in
the United States, and we have got lots of other American
employees around the world in all kinds of difficult
circumstances, and you can start to list off the countries.
I mean, Venezuela, Nigeria, Kazakhstan, Australia, Burma, a
whole host of countries producing oil and gas, one-fourth of
which, on average, comes to the United States.
So we are in this competition with the rest of the world
and we can't get away from it. We are using one out of every 4
barrels that is produced in the world.
So we are part of that system and as a result of the fact
that many other--and it has been mentioned before--many other
economies are growing rapidly and in many of the large
population centers of the world, our products are subsidized. I
mean, not just subsidized, people are paying very, very low
prices for gasoline and diesel and those other products.
So they are not even seeing the market price signals today.
Those economies are moving forward and they are continuing to
use these products and we are competing with those people for
products in the United States.
So the issue is what can we do, and there are only two
things we can do. We can either reduce the demand, the use of
these products, and the American people, frankly, are reducing
the use of these products. We have been looking at data. The
first couple of months this year, U.S. gasoline demand was down
It is down, right now, looking at our service station
sales, probably down 6 or 7 percent. So the demand is going
The other thing we have to do or the other part of it is
increasing supply. I don't know whether you saw on ABC News
last night, there was a clip from the deepwater Gulf of Mexico,
showing what some of our folks are doing to bring on new
supplies in deepwater Gulf of Mexico, just like was described,
miles deep, incredible technology, incredible effort.
So we have got an enormous number of people working,
Americans working very hard every day to supply energy to the
American people and they are competing with the rest of the
world and they are doing a heck of a good job.
And what we need to do is allow them to do more of what
they are doing in the United States.
Ms. Jackson Lee. Would you pay for the gasoline taxes for a
period of time to give Americans immediate relief?
Mr. Robertson. I can't----
Ms. Jackson Lee. Representations of the witnesses is very
complex for anyone to understand. You try to decipher between
the retail upstream and downstream, and you are trying to
suggest you don't have any gasoline stations, so it is not your
You are not giving any relief. What would be the wrongness
of this moratorium and the energy companies paying for these
taxes out of their profits?
Mr. Robertson. With respect, I would say we are giving
relief in the sense that we are working every day to bring
supply and we are working every day with our energy efficiency
customers to make them more energy efficient and more
Ms. Jackson Lee. So if we reduce need or reduce usage, you
say that the gasoline per gallon would go down.
Mr. Robertson. I am saying that if demand in the world and
demand in the United States goes down, that will have an effect
Ms. Jackson Lee. And that is the crux of the issue, whether
the demand in the world will go down.
Mr. Robertson. Well, ours is a big part of the demand in
the world. So it will have an effect on price.
Ms. Jackson Lee. That would be the key, whether or not our
going down reflects on the overall world price.
Mr. Robertson. We are only part, but, again, we are 25
percent of the world's total demand. So if our demand goes down
dramatically, prices will----
Ms. Jackson Lee. But we have to wait that long, which will
be a long time.
Mr. Robertson. Well, I think the consumers have made a big
change in the last few weeks. Our service station sales are
down, as I said, 6 or 7 percent year over year. There is a
dramatic change in the United States.
Ms. Jackson Lee. Will we see a decrease then? Will it come
back to the consumer? Will we see a decrease over these summer
Mr. Robertson. It will certainly influence the price of
Ms. Jackson Lee. Do you think we will be down to $3?
Mr. Robertson. I have no idea. I can't tell you that. I can
tell you, on the gas tax, it was said already, I think reducing
tax for a short period of time, reducing the price for a short
period of time will increase the usage of the product and,
frankly, compound the situation, because that will increase
demand and increase the need in the United States for crude oil
and increase the price of crude oil, and that is not what
really, frankly, needs to happen here.
Ms. Jackson Lee. I don't know if the minivan drivers are
Mr. Hofmeister. Congresswoman, I don't think my company is
qualified to get into national tax policy. I think that is for
government to manage.
I do think, however, that a temporary suspension with a
spring-back that would affect families at the end of the summer
season would have as much negative impact on perception of what
has been occurring.
But really, if you want to reduce the price of gasoline at
the pump, the most dramatic step that this government could
take is to commit to the United States people that we will
solve this problem of restricting supply for once and for all.
This nation has for 30 years told us, ``Go away, oil
companies, go elsewhere, go to Kazakhstan, go to Brazil, go to
Africa, go to Nigeria, go anywhere but the United States,''
except in that 15 percent of the outer continental shelf where
we are doing everything we can to maximize production in that
If this nation said to the world and to its own citizens,
``We want a dramatic increase in the quantity of production
that is possible from America's own natural resources,'' it
would knock the futures market on its head.
It would be unprecedented and traders would immediately get
discouraged about bidding up the price, knowing that additional
supplies would be coming into the market in the coming years,
which would cause them to begin taking other positions rather
than simply bidding up the price.
It would tell the world the U.S. is serious about its own
supply. I think the tax idea is not a good idea.
Mr. Keller. Would the gentlelady yield?
Ms. Jackson Lee. I would be happy to yield.
Mr. Keller. One of the things my friend from Texas said is
that there needs to be a consensus about drilling in the outer
continental shelf, and I happen to be from Florida.
And I would just like to ask you a question so you can
speak to the Florida people on this issue.
I personally happen to be in favor of drilling for the
deepwater oil reserves, but you hear two objections from
Florida, and I would like each one of you to just briefly give
us your response.
Number one, they don't want to see the oil rigs. So I would
like to ask you how many miles off the coast to you have to be
in order to not see the oil rigs. Is it 20 miles, 30 miles, 50
miles? You tell me.
And then the number two issue is they don't want to risk
their tourism-based economy because of an oil spill that might
happen, albeit even though it is unlikely.
So I would like you to address whether there has ever been
such an oil spill by any of your companies that ended up with
oil on the beach and then what solutions or what comfort you
can give to the folks that there wouldn't be in the future.
So the three questions: how far does the rig have to be so
you don't see it? Has your company ever had a spill that
resulted in it coming on the Florida beaches? And, three, what
assurances can you give that that wouldn't happen in the
Mr. Hofmeister. I would just respond very quickly. I think
the curvature of the earth would be at 14 miles and most of the
drilling would be well beyond 14 miles, as far as I could tell.
The question of--I am not aware of any oil spills on the
beaches of the Gulf of Mexico that have come from any Shell Oil
wells. We went through the summer of 2005 with seven named
hurricanes. We shut down platforms seven times in one summer.
We had Katrina and Rita in the same year coming through
nearly the same region of the Gulf of Mexico and although we
took sustained damage and although the industry lost some 90
platforms, there were no spills on the beaches of Louisiana or
Texas or Alabama.
The technology that did not exist when the Santa Barbara
blowout occurred many years ago has improved dramatically to
the point that shut-in valves and the manner by which we design
rigs, design the sub-surface and the sea surface equipment,
including the pipelines, is such that it--while nobody could
ever say there would never be a spill, because we can't control
nature, it is hard to imagine such equipment failure that we
would have a spill.
Mr. Keller. Are you saying you couldn't see the rigs at 14
Mr. Hofmeister. That is my understanding.
Mr. Keller. Is that because they are mostly underwater?
Mr. Hofmeister. No. It is because the curvature of the
earth means that the height of the rig above the surface of the
water would be invisible.
Mr. Keller. Thank you.
Mr. Robertson. We haven't had a spill in Florida, to your
question. Just to build on a comment that was made, I think
during these hurricanes, 1,000 wells in the Gulf of Mexico were
destroyed, ripped up, torn up, bent over, and not one, to my
knowledge, leaked significantly.
So the technology is here to withstand serious natural
With regard to Florida, offshore, several years ago, we
actually did drill offshore of Florida, in an area called
Destin Dome, and did discover a fair amount of natural gas. In
today's values, it would have been a tremendous value.
We could not get permission to develop it, after spending
lots of money to get the leases and lots of money to drill
exploratory wells. We could not get the money to develop. We
eventually ended up having to turn the leases back.
So what is happening? We have rigs offshore in Angola and
the people there support rigs offshore. We are developing LNG
and we are going to bring it to a terminal in the Gulf Coast
other than Florida and we are going to put it in a pipeline and
send it to Florida.
Mr. Keller. Understood. So do you agree with the 14 miles,
you can't see it after 14 miles?
Mr. Robertson. I don't have a better answer than that. It
sounds about right.
Mr. Keller. Mr. Lowe?
Mr. Lowe. Our work that we have done is in synch with the
14 miles. I don't have any knowledge, I don't believe we have
ever had any spills that would affect the Florida coast, and I
agree with the updated technology on the impact to the
Mr. Keller. Mr. Malone?
Mr. Malone. Nothing to add, Congressman, to the others on
what they have said.
Mr. Keller. Has BP ever had a spill that ended up on the
Mr. Malone. No.
Mr. Keller. Mr. Simon?
Mr. Simon. Nor has Exxon Mobil. I would echo what my
colleagues have said. I would make one more point.
Mr. Keller. Yes, sir.
Mr. Simon. And that is that we are developing oil and gas
all around the world elsewhere in environments much more
difficult, much more challenging than we would find here in the
United States in a very environmentally responsible fashion and
we are absolutely convinced we could do it here, as well.
Mr. Keller. So to sum up, before I yield back to my good
friend and colleague from Texas, you make up five of the
largest oil companies in the United States. It is your
collective opinion that with respect to drilling off Florida's
coast, you wouldn't be able to see the rigs past 14 miles.
There has never been an oil spill from any of your major
companies landing on the Florida beaches, to your knowledge,
and you believe it can be done safely and secure and in an
environmentally friendly manner, because you went through
Hurricane Katrina, and even though that was so devastating, you
had no oil spills show up on beaches there, and you have also
had drilling in the past in places like Destin Dome without oil
spills and you are comfortable it can be done in the future.
Is that a fair summary?
Mr. Simon. Absolutely.
Mr. Keller. I yield back to my colleague from Texas and
Ms. Jackson Lee. I thank you. And I will include, because
the Chairman has been enormously generous.
But this hearing was to provoke, if you will, and to probe
the idea of collusion and the, if you will, fixing of prices
and it doesn't mean that we--some of us here were predisposed
to answers that would suggest that was happening.
But it is a hearing, as well, to find solutions and I would
argue that you have given some, but they are not sufficient to
give an immediate relief.
And I do believe that this will require more heads than one
and a bipartisan approach. The gentleman from Florida is a
Republican and I am on the other side, and I happen to agree
with him that there can be safe and secure drilling in places
that there is not.
But I can assure you that none of that will occur unless
there is continued explanation and interaction with this
bipartisan body politic here in the United States Congress
And though this is an aside, it has not occurred and I
believe we are going to change minds and really understand
whether prices are fixed, really understand whether there is
connection to your compensation to fix prices or high prices,
and this will have to be an ongoing dialogue even beyond a
Committee hearing, because the DOJ can investigate, we can call
for an investigation, but parallel to that, prices will
continue to rise.
So I hope that we will have these gatherings that the
Chairman has so generously offered to various Members, because
I happen to believe that a moratorium on gasoline prices is not
fixing prices, but it has a real perspective to it, and I have
gotten answers that say quite the contrary.
But I hope that out of this will come the opportunity to
really get down to how we can lower these prices, and I thank
the gentlemen for their answers.
I yield back.
Mr. Conyers. I thank the gentlelady.
Did Steve Cohen want a follow up or is he going to wait for
Mr. Cohen. I will always wait for Maxine Waters, Mr.
Mr. Conyers. That is a wise move. I commend the gentleman
for his soundness and experience in less than 2 years.
Ms. Waters. Thank you, Steve.
Thank you, Mr. Chairman.
First of all, let me just say this. To Mr. Simon, I
appreciate what is in your bio that indicates that you work
with the National Action Council for Minorities in engineering.
Mr. Simon. That is correct.
Ms. Waters. That is very important.
To Mr. Hofmeister, that you serve on the board of the Urban
And to Mr. Robertson, I guess I want to ask you, at some
point, what do you do with the U.S.-Saudi Arabian Business
But I want to say thank you for your volunteerism and your
contributions dealing with social issues and helping our
neighborhoods and with our nonprofits.
And I just want you to know this is not personal. Thank you
very much for being here.
Now, having said that, I want to get back to all this money
you are making and I want to talk with you about whether or not
there are acres of Federal land currently leased by oil and gas
companies, 42 million acres and only 12 million acres are
actually being drilled to proceed with oil and natural gas.
Someone may have asked this already, but is that a true
Mr. Simon. Ms. Waters, may I take that on?
But before I do, I would like to apologize for a number
that I gave you earlier that was incorrect on what we are
spending in terms of promotion and sponsorships and
I think I gave you----
Ms. Waters. That $100 million?
Mr. Simon.--$100 million. It is actually $270 million. So I
did want to correct that number.
Ms. Waters. Yes. I knew it was more than that. But I
thought maybe you just didn't have it at your fingertips at the
Mr. Simon. Well, thank you for giving me the opportunity to
Ms. Waters. Sure.
Mr. Simon. When you look at we currently have about 7
million acres under lease and on every one of those leases, we
either have evaluated or are evaluating or have specific plans
to evaluate, and every one of those that have prospects,
commercial prospects, we are developing or are in the process
The problem is a lot of the acreage that we have is mature
acreage. A lot of that will not have oil and gas prospects.
Ms. Waters. How long have you had this 7 million acres?
Mr. Simon. It varies. It varies depending upon the lease
terms. We wish we were successful----
Ms. Waters. Tell me, what is the amount of your oldest
Mr. Simon. I am sorry?
Ms. Waters. I want to know how long you have had the leases
and I want to understand, to the best of my ability, how long
have you had--you say they vary. Some of them you may have had
10 years, some you may have had 15 years.
What is the longest period of time you have had these 7
Mr. Simon. I am informed that they are 1998-1999 and they
are 10-year terms and most of them are toward the end of that.
Ms. Waters. So if you have had them around 10 years, you
have been exploring and researching to see what they could
Mr. Simon. And those that we have found that have prospects
for commercial volumes, we are developing. So those that aren't
are those that we have not found commercial prospects for and,
again, these are established mature areas where you would
expect to have a lower rate of prospects.
The access that we would like to get are those that are not
developed, undeveloped, where we know the prospects are much
greater than those that we have now in the mature developed
Ms. Waters. Such as?
Mr. Simon. Like the parts that are currently off limits.
Ms. Waters. So if your 7 million acres, only about 2 or 3
million are worth drilling.
Mr. Simon. If that, if that.
Ms. Waters. All together, they said there are 42 million
acres of Federal land currently leased for oil and gas
companies. Can each of you tell me how much of that 42 million
you have? You have got seven.
If we could just start with Mr. Hofmeister, is it? How many
acres do you have?
Mr. Hofmeister. I am sorry, Congresswoman. I would have to
get back to you with the number. I don't know at my fingertips.
Ms. Waters. Right down the line. How many do you have?
Mr. Robertson. I do not know how many acres we have. Many
leases that are producing have been around, we have had for 20
or 30 years, because we are producing on them. So there are
The Federal Government has rules. So you can't just hang on
to a lease forever. You have to have a plan. You have to be
doing something. And if it is a 10-year lease, when the 10
years expires, if you haven't done the work that you committed
to do, you lose it.
So on all the leases that we have, we are paying rentals.
So we pay to keep them and we don't keep ones that we don't
need and the government won't let us keep ones that we are not
doing some work on.
So it is an active program on all of them.
Ms. Waters. How many do you have, sir?
Mr. Lowe. A similar question came up yesterday and we are
actually working to try and find that information, but I don't
have that at my fingertips. I am sorry.
Ms. Waters. Yes, sir?
Mr. Malone. Onshore, I think I have been told about a half-
million acres, 95 percent of that acreage is in production. The
remaining 5 percent are in development, exploration and
I don't know the acreage in the deepwater Gulf of Mexico,
but of the 658 leases there, 114 are producing and the rest are
under exploration and development.
Mr. Simon. Congresswoman, I could add that we have 100
Federal lease blocks. Again, we gave you the acreage. And by
the end of this year, only one of those will likely be
producing and most of these will expire next year.
Again, we have not found prospects on. There is a small
handful that we still believe deserve study, but very little.
Ms. Waters. Again, you may have heard this information
before. It is stated that the areas with the vast majority of
oil and gas are already open to drilling. According to Federal
Government surveys, 82 percent of the gas in the outer
continental shelf and 79 percent of the oil in the outer
continental shelf is suitable for leasing.
And this was before Congress opened more space in the Gulf
of Mexico for drilling in 2006.
Mr. Simon. I am not sure what information you are talking
about there. My information is that about 85 percent of the
offshore is off limits and even onshore, about 75 percent is
either off limits or severely restricted.
So there is a significant amount of acreage that is
unavailable, off limits, and there has been estimated it is
about 30 billion barrels of oil and about 125 trillion cubic
feet of gas.
That is enough oil to back out imports for a period of over
8 years and enough gas to heat----
Ms. Waters. So you disagree with these information that I
have that 82 percent of the gas in the outer continental shelf
and 79 percent of the oil in the outer continental shelf is
available for leasing. That is not something you are familiar
with. You don't know that.
Mr. Simon. Unless we have got different definitions. I
can't identify with those numbers, I am sorry.
Ms. Waters. Okay. When I first started the questioning, I
asked about your need to--well, we are trying to find out the
real relationship between the cost of a barrel of oil and the
cost at the pump.
Whenever the oil increases, a barrel of oil increases, we
automatically get these increases and would have us believe
that it is absolutely necessary to do, because--and we don't
know whether or not there is a direct connection.
Ordinarily, in managing your budgets and managing your
income, you would say that when the price of commodities
increase and you have got to spend your money, you have got to
earn more money or you lose, you spend more money in order to
But I don't see that connection yet with the barrel of oil
and this increase at the pump.
Tell me one more time why it is, when the cartel--and let
me just ask whether or not--is Angola in the oil cartel?
Mr. Robertson. Angola is a member of OPEC, yes.
Ms. Waters. And Nigeria and Venezuela, they all are. Okay.
Tell me, when they have increased the price of a barrel of
oil, how does that increase get all the way down to the pump
past all of your profits?
You have $123 billion in profits collectively and you have
had, in 2007, that $40.6 billion that I keep getting back to.
And so what if they increase the price of a barrel of oil? You
still have big profits. Why do you have to--why does that
translate automatically into an increase at the pump?
Mr. Simon. Well, again, we have got different components of
our business. When you look at the piece of the business here
in the United States that produces those products, we have to
buy that raw material on the open market.
Ninety percent of what we refine here we buy on that open
market. And so we refine it and market and then we sell it. So
if the price of that raw material goes up, if we don't pass
that through, the profitability on that piece of the business
goes down, and, indeed, it has this year.
Ms. Waters. So instead of making $40.6 billion, what if you
made $25 billion? Would that be enough for you?
Mr. Simon. Well, we are going to----
Ms. Waters. Because I understand what you are saying. You
have got to go out on the open market and buy that raw
Mr. Simon. Right.
Ms. Waters. I understand that. You have got to refine it.
You have got to do all of these things. But in the final
analysis, after you do all of that, you had $40.6 billion.
Mr. Simon. That is correct.
Ms. Waters. And what I am asking you is this: in the name
of patriotism, why can't you just have $30 billion or $25
billion for that year that you make $40.6 billion?
You have bought all your materials. You have done all your
investing. You have explored. You have drilled. You have done
everything and you have got $40.6 billion left.
Why does that price at the gas pump have to increase?
Mr. Simon. Over the next 5 years, we are going to be
investing over $125 billion. If we are not strengthening our
balance sheet now, we are not going to be able to sustain long-
term investments of that level----
Ms. Waters. Give me the projection of your profits, just
like you give me the projection of your investments.
Mr. Simon. I don't have a projection.
Ms. Waters. But you can give me, you can tell me how much--
Mr. Simon. No, honestly----
Ms. Waters [continuing]. It is going to cost you to invest.
Tell me what your projections are for profits, given everything
that you know.
Mr. Simon. We are investing over $125 billion over the next
5 years, regardless of what our profitability is, because we
don't know what our profitability is going to be. We invest as
much in low profitability----
Ms. Waters. Let me just say this.
Mr. Simon [continuing]. As we do in high profitability.
Ms. Waters. Let me just say this. I cannot believe that you
don't have the ability to do projections on your profits, given
everything that you know and everything that you build in,
everything you speculate that you build in.
You guys are very, very good. You have some of the best
technologies for research and you do know and you do have
projections about what your profits will be in the next 5
So I don't want to hear about the investments over the next
5 years without hearing about your projections for profits over
the next 5 years.
Mr. Simon. Congresswoman, I can assure you we do not have
projections of our profitability over the next 5 years, because
we don't know what the price of crude oil is going to be. We do
not know that.
Ms. Waters. Yes. But what I am saying is you certainly
don't now, but you see how it has been increasing and if you
take the history of the increase and if it keeps going in that
direction, you should be able to say if this continues to
happen, this is what is going to happen to our profits and we
are going to either reduce our investments so that we can
maintain this huge profit that we have or we recognize that we
are not going to make as much money and we will continue to
I know that you do that.
Mr. Simon. But what we do is we have a long-term outlook
and we are not assuming that prices are going to stay where
they are today. I cannot tell you when they might come down,
whether they are going to go up higher.
But we have got a long-term projection. We are investing,
and we don't change that investment whether we are in good
times or bad times. If you go back to 1998 when crude was $10 a
barrel, we were investing as much in that year as we were in
the years before and after when crude was much higher.
We have a long-term outlook. That $125 billion that I
talked about, we will be doing that regardless of what the
profitability is over those next 5 years, because we are in a
10 to 15-year business here.
Ms. Waters. You can't, in my estimation, run a business
without projecting and without anticipating that you have to do
cutbacks, perhaps, depending on how much money you want to make
and how much you want to pay your dividends, you want to pay
your investors. You have got to do that.
And so to say to me our investments are constant and we
don't care if we lose all the money, all the profits, we are
going to continue to invest, now you know that does not make
Mr. Simon. No, and I agree with that.
Ms. Waters. And you can't do that.
Mr. Simon. I agree with that nor do we expect that we are
going to be losing money. But I am telling you that we don't
expect to be where we are now either and we map out that and we
look at it over a 10-year period.
We don't look at it next year or the following year. That
has nothing to do with what we are investing over those 5
Ms. Waters. How much money have you lost over the past 10
Mr. Simon. We have only lost money in the U.S. one time
Ms. Waters. No, no, no, no. I don't want to know. I am
talking totally. When I talk about----
Mr. Simon. We have not lost money. We have not lost money.
Ms. Waters. Of course, you have not.
Mr. Simon. No. I admit that.
Ms. Waters. So you have not lost money over the last 10
Mr. Simon. And or do we----
Ms. Waters. As a matter of fact, the profits continue to
climb. They didn't even dip in the past 10 years. They just
kept going up and up and up until you get to 2007 with $40.6
billion, and you cannot tell me how to reduce the price of that
gas at the pump.
Mr. Simon. Well, the way we can reduce the price of the
product is to work on raw materials and, also, to reduce the
demand for product. We either supply more or we reduce demand.
And the way we supply more product, again, is to have
access to bring on more so we can impact the price of those raw
materials and reduce demand. And it has been pointed out----
Ms. Waters. But even with the price that you pay for raw
materials, you made $40.6 billion in 2007.
Mr. Simon. We did not make $40.6 billion on the part of the
business where we bought the crude and processed----
Ms. Waters. But it doesn't matter, because in the final
analysis, whether you do your accounting so that you separate
out how much you are spending on one aspect of it, like your
raw materials, or in other ways, the bottom line is $40.6
billion. That is what you made. That is what your overall
Mr. Simon. No. And I understand where you are coming from,
but each one of our pieces of the business has to stand on its
own or we go out of that business.
We could be out of the refining business. We could be out
of the marketing business and just sell the crude and gas, and
Ms. Waters. Well, the business decision would be if you can
contract with somebody who can refine it for you cheaper, you
ought to do that and you would do that.
Mr. Simon. And if we could do that, we would. In fact----
Ms. Waters. You would.
Mr. Simon [continuing]. In some areas, in the retail
business now, we are actually moving distributors----
Ms. Waters. Why didn't you take that part of that $40.6
billion and expand refinery capacity?
Mr. Simon. We have expanded refining capacity at a faster
rate than demand has grown. There is no shortage of products
today in the United States.
Ms. Waters. Well, why don't you just keep on expanding your
refining capacity? That brings down the cost, is that right?
Mr. Simon. We are expanding our refining capacity at a rate
faster than demand is growing and if you look at the refining
and marketing business over the next several years, the outlook
is we are going to be back into a surplus situation here.
And so the refining and marketing business will be surplus.
What I cannot tell you is what is going to happen to the raw
material. But the outlook in refining and marketing is we are
going to be in a surplus situation. It is going to be a sloppy
market. That is the outlook.
Now, whether that materializes, I don't--that is our
outlook and that is other people's outlook. It is the price of
the raw materials that we have to buy to produce those
Ms. Waters. I understand that very, very much.
Let me say this. I am considered a liberal. I am one of the
persons who want to protect the environment, I want to do good
for a lot of poor people, I want to make opportunities
available, because I am one of those liberals who think the
government has a responsibility to come to the aid of the
Now, as I watch gas go up past $4 per gallon at the pump
and I watch people who are pawning their possessions in order
to purchase gas and people on fixed incomes who can't get to
work, who can't get their children to school, I am prepared to
talk about doing whatever it is necessary to keep that from
continuing to climb.
I am not going to be happy or sympathetic to the oil
companies at all while people cannot afford to pay $5 a gallon
for gas and you are making $40 billion, collectively, $123
billion in profits. You have got to know that.
And so Mr. Hofmeister says we can bring down the cost of
this if you just let us drill where we want to drill. What
guarantees are you going to give this liberal about how that
will reduce the cost of gasoline at the pump if we let you
drill where you say you want to drill?
What guarantees do you give me?
Mr. Hofmeister. Congresswoman, it has worked for 100 years
in our industry that wherever there was adequate supply, there
were reasonable prices. This price escalation is being driven
not just by U.S. lack of supply, but global lack of supply.
Ms. Waters. Point to the areas where you would like to
drill, how much you would get from that drilling, over what
period of time, and tell me how much that is going to reduce
the cost of gas at the pump.
Mr. Hofmeister. Well, we are actually pursuing areas where
we are allowed to drill and we are being stopped by lawsuits
from doing that.
Ms. Waters. I don't want to hear that. I am saying let's go
to your idea.
Mr. Hofmeister. Let's go first to the eastern Gulf of
Ms. Waters. How much can you get?
Mr. Hofmeister. Don't know yet. We have to have a seismic
analysis, a seismic survey, but we are not even permitted to do
Ms. Waters. Tell me where you know that there are gas
deposits or oil deposits that would reduce the cost of the gas
at the pump. Tell me where you know it.
Mr. Hofmeister. We have a general knowledge that off the
middle Atlantic states, there are prospective opportunities.
Ms. Waters. How much do you think you can get out of there?
Mr. Hofmeister. Don't know yet. We would have to do an
awful lot of analysis to be able to identify----
Ms. Waters. So after all is said and done, there is nothing
that you can tell us here----
Mr. Hofmeister. But in the meanwhile----
Ms. Waters [continuing]. About how you could guarantee a
reduction of the price at the pump if you were given the
ability to go and drill where you say there is oil deposits.
Mr. Hofmeister. On the contrary, I can guarantee to the
American people, because of the inaction of the United States
Congress, ever increasing prices, unless the demand comes down,
and the $5 will look like a very low price in the years to come
if we are prohibited from finding new reserves, new
opportunities to increase supplies.
Ms. Waters. Well, everything that I see shows me that there
are still areas under lease that have not been explored by you.
I see that you have the money to, as you say, increase refinery
capacity. You have the money for exploration and investment.
And I think that you could do a better job than you are
doing. Because the American people over the years keep
absorbing this price, they cry and they scream and somehow they
continue to absorb it, while wages are going down or at least
There is going to come a point in time when it is not going
to work and the American people are not going to be able to
absorb $5, $6, $7, $8, $9, $10 gasoline.
And guess what? This liberal, who would be willing to
entertain drilling in places that are protected now in the
interest of protecting my constituents and the American people,
don't feel so good if you don't take some steps now to
guarantee us that you could, in fact, reduce the price at the
And guess what this liberal would be all about? This
liberal would be all about socializing--would be about
basically taking over and the government running all of your
companies, and that, I tell you, is an extreme position.
Mr. Hofmeister. Venezuela is a nationalized--what was a
free market has been nationalized and we see what is happening
under the government's leadership in Venezuela.
Ms. Waters. Yes, but you are still working with them. You
are over there with them.
Mr. Hofmeister. We are.
Ms. Waters. And you are buying from them----
Mr. Hofmeister. We would like to work----
Ms. Waters. And you are supporting them.
Mr. Hofmeister [continuing]. With this Democratic
government in the United States.
Ms. Waters. So I don't want to hear--I don't want to hear
about Venezuela. They are your friend. You don't care what they
do as long as you are able to get that oil from them.
So don't talk about what they are doing. What I am telling
you is you don't want to see that happen in the United States.
You guys have got to get off of this. You cannot keep coming in
here with all of these profits and tell us you can't give us
any guarantees, even if the liberals are convinced that you
should go into some of the protected areas.
What do you expect us to do?
Mr. Simon. Congresswoman, I don't think any of us can
guarantee what is going to happen in the future. But what I
think we can guarantee you is that if we have access to those
supplies, it will put a downward pressure on prices, whatever
they are at that point in time.
I wish there were some silver bullets here. I wish there
were something that we could tell you today that if you did or
we did tomorrow would make a difference.
The issue we have got and the challenge we have got is that
ours is a long-term business. The things we are doing today
don't really show up until 5 or 6 years.
But what we can do is we can work to help our consumers to
use less of our product, to take some of the burden off of
them. And, for example, we are working on technology and we
already have technologies available right now that we can that
we can show to our consumers to help them use less of our
product, to take the cost burden off of them, and also put
downward pressure on prices.
If you applied those in the vehicle fleet today, it would
save 5 billion gallons of motor gasoline, and that is a
And these are things like this: when you look at we have a
new tire inner liner which, if applied, keeps tires inflated.
Over a billion gallons of gasoline every year are consumed
because consumers' tires are under inflated.
Ms. Waters. So how do you advertise that? How do you----
Mr. Simon. We are advertising. We are putting it in our op-
eds. We are working with tire manufacturers. We are sending
this out to our consumers. We also have advanced economy engine
Ms. Waters. Anybody on this Committee heard of any of this
Mr. Simon. Well, I haven't had an opportunity to say it
Ms. Waters. But if you advertised it, we should have seen
Mr. Simon. Oh, no, it----
Ms. Waters. We should have learned about it somewhere.
Mr. Simon. Well, it is advertised and we have Mobil One
advanced economy engine oil, which improves the efficiency and
that is now available and we started that in April. And if you
put these into effect, it can have a big effect.
That can have an immediate effect. These other things we
are talking about are extremely important----
Ms. Waters. How much money do you spend on advertising
Mr. Simon. Pardon me?
Ms. Waters. How much money do you spend on advertising
Mr. Simon. I have that now. That is that $274 million I was
talking about earlier.
Ms. Waters. Well, no, most of that goes to the----
Mr. Simon. I agree with you. I agree with you.
Ms. Waters [continuing]. The football games and stuff. You
know what I am saying. That $275 million doesn't include that.
Let me just say----
Mr. Simon. It is about $100 million that we are--but, I
Ms. Waters. Gentlemen, the proof of the pudding is in the
eating. All we know is this. You have a very complicated
business. You make a lot of money. The profits are there. You
are compensated well and you may well deserve it, I don't know.
But I know our constituents are hurting. They are hurting
and, again, you have been able to ride this wave of increases
for a number of years and people have absorbed those costs and
I know that in the background, people are thinking, well, you
know, if it goes up to $5, they will get used to it. If it goes
up to $6, they will find a way to deal with it.
But I don't think so. I don't think so. And I want to tell
you I don't see any effort to try and talk about how you either
reduce your profits or how you utilize the space that you
already have leased to do the investment to get the products
out of the ground.
I don't know how you use your influence sitting with the
Saudi Arabian Business Council to try to influence the oil
cartel. I don't know any of that.
But I know one thing. Whatever you are doing, you are not
helping the American people to be able to have access to a
product that we have all learned to depend on and a product
that people are willing not to have to depend on if there were
legitimate, sustainable alternatives to gas as we know it.
And so when you come here today and you put up with all of
this, it is because, as legislators, we cannot abide this any
longer. We cannot continue to do this.
And so I am hopeful that you will come up with something
that will help us to reduce the price of that gas at the pump.
I am really hopeful that--Ms. Lee talks about, I don't
know, interacting with you, talking with you. I don't need to
do all of that. I just need for you to get it done.
We are not going to learn--we don't know how to do that.
You know how to do that. And so I am hopeful that you will do
I thank you for being here today. If you feel a little bit
beaten up on, we all feel beaten up on. So just share the pain.
We get our behinds kicked every day in our districts about what
is going on.
So, again, I thank you for the work that you do, the
volunteerism and the help that you give with some of our
nonprofits and the work that you do, but for that father that
we are trying to train at the Urban League, it doesn't do any
good if he can't get to work because he doesn't have any money
I yield back. Thank you.
Mr. Conyers. I thank the gentlelady.
Does the distinguished gentleman from Tennessee want to
yield to the gentlelady to his right?
Mr. Cohen. Can I ask a couple of questions, Mr. Chairman,
Ms. Sutton. I will wait.
Mr. Cohen. I will yield.
Ms. Sutton. I have hung in here this long. I certainly am
not going to go anywhere. I thank the Chairman and I thank my
colleague from Tennessee.
As has been mentioned here, obviously, this is an Antitrust
Task Force and we are looking about probing collusion and a
while ago, in the first round of questions, I asked you guys
questions about whether or not you or any of the officials from
your organizations had participated in the task force meetings,
the energy task force meetings that Dick Cheney, Vice President
Cheney held early in the Bush administration.
And I just want to make sure that I understood what you all
said, because this is great, but this hearing is taking place
in the light of day so that the American people can have access
to your answers to these questions and hear this exchange and
see what is going on.
When I asked you that question, I believe, Mr. Simon, and I
want you to correct me if I am wrong, as we go down the line
here, Mr. Simon, you said you didn't participate and your
organization did not participate. Is that correct?
Mr. Simon. That is correct.
Ms. Sutton. Mr. Malone, you said that your chief executive
officer participated, but not necessarily in the task force,
just had a meeting with the Administration. Is that correct?
Mr. Malone. Yes. And I have since been informed we also had
one meeting with the task force from my company. So, yes, we
did meet with the task force.
Ms. Sutton. We will come back to that in a minute, but
thank you for that clarification.
And, Mr. Lowe, you said that no one from your organization
had participated, correct?
And, Mr. Robertson, if I recall correctly, you said that
while you didn't participate, you sent some detailed policy
recommendations or something to that effect, correct, and also
Mr. Robertson. I said we did not participate and I said
when the new Administration came in, we sent a letter to the
President of the United States and a copy to some Members of
Congress, both sides of the aisle, with some detailed
recommendations on this impending issue that we have of the
shortage of product in the world.
Ms. Sutton. That is what I recollect. Okay.
And, Mr. Hofmeister, you said that your company did not
Mr. Hofmeister. That is correct.
Ms. Sutton. Okay. The reason why I am perplexed and a
little bit dismayed is as I look back and, as I said, it is so
important to do this stuff in the light of day, way back in
2005, I am looking at an article from The Washington Post
headline ``Document Says Oil Chiefs Met With Cheney Task
And I will enter this into the record, Mr. Chairman.
Mr. Conyers. Without objection.
[The information referred to follows:]
Ms. Sutton. Thank you. ``A document obtained this week by
the Washington Post shows that officials from Exxon Mobil
Corporation, Conoco, before its merger with Phillips, Shell Oil
Company, and BP America met in the White House complex with
Cheney aids who are developing a national energy policy, parts
of which became law and parts of which are still being
debated,'' and, of course, this was, again, an article that is
a couple of years old.
And on the point of Chevron, it says, ``Chevron was not
named in the White House document, but the Government
Accountability Office has found that Chevron was one of several
companies that gave detailed energy policy recommendations,''
and that is consistent, I believe, with what you said, ``to the
And on BP, I think that maybe this is what you are
referring to, ``Cheney has a separate meeting with John Brown,
BP's chief executive, according to a person familiar with the
task force work.''
I am concerned about what this says in relation to
everyone, frankly, but Chevron, because I do have the
underlying document here, too, about who was at the task force
meeting and it is clear to me, it says Exxon, Jim Rouse. Do you
know who Jim Rouse is?
Mr. Simon. Jim Rouse used to have our Washington office
Ms. Sutton. Jim Rouse obviously participated in this. Going
on to BP, Mr. Malone, it actually says that you participated in
a task force meeting.
Mr. Malone. That is not correct. I never met with the task
force nor did I meet with--I met with a staff member after the
task force report was written.
Mr. Simon. And I want to go on record as saying Mr. Rouse
did not meet with the task force and if that is reported, that
Ms. Sutton. Well, again, I am going to put this into the
record and I would love to have you look at it, because it says
that Mr. Rouse actually was there February 14, 12 p.m.
With respect to BP, there were four people listed on this
document, Bob Malone, Peter Davies, Deb Beaubien, and Graham
Mr. Conyers. Without objection, it is entered into the
[The information referred to follows:]
Ms. Sutton. With respect to Shell Oil, Sir Mark Moody-
Stuart, Steven Miller. Do you know them?
Mr. Hofmeister. Yes. And I said in my earlier testimony
that there were meetings in the White House with my
predecessors in the new Administration, but that had nothing to
do with any task force.
Ms. Sutton. Okay.
Mr. Simon. And I think that might be the difference here,
Congresswoman, is that there are meetings that take place
between us and government official, but not in the capacity of
that task force.
Ms. Sutton. So we are talking about semantics here.
Mr. Simon. No, no.
Ms. Sutton. What is called a task force and what isn't.
Mr. Simon. I don't think we are talking about semantics at
all. I think what is referenced there is Mr. Rouse had
presented our energy outlook, which was public knowledge. It
was out in the public. It was shared with the press. It is
shared with Congress.
There was no intention there to try to influence policy in
that task force.
Ms. Sutton. Okay. Well, I would disagree that that is the
way that it appears to either certain Members of Congress,
certainly, or the American people. And what this is entitled is
``Energy Task Force Meetings Participants,'' this document.
So if you are telling me that this is different than the
other meetings that you had and that you were having meetings,
but we are calling them different things, and that is how you
get all of this information to work out together in a way that,
in some minds, might appear consistent, it just doesn't look
consistent to me and I am sure it doesn't look consistent to a
lot of people and the American public.
And it is extraordinarily troubling, as we see this and
then we see gas prices where they are and we have the answers
during this hearing which has been, obviously, very long and I
am sure not all that pleasant for you, certainly not all that
pleasant for us, and certainly not all that pleasant for the
American people given the subject matter of what we are doing
I just want to do this one more time.
Mr. Simon, did somebody from Exxon Mobil meet in the White
House as part of the Vice President's energy task force or in
other meetings that were going on simultaneously in the same
time period early in the Bush administration to discuss energy
Mr. Simon. We did not have any meeting in relationship to
that task force.
Ms. Sutton. Did you hear my question? Or any other meetings
that were going on----
Mr. Simon. We had meetings all the time with government
Ms. Sutton. In the White House during the early days of the
Mr. Simon. I think our Chairman had a meeting with Vice
President Cheney at one time, but it wasn't in connection with
that task force. That is what I am trying to say,
Ms. Sutton. Was there a separate subject other than energy
policy and what the views of Exxon Mobil might be?
Mr. Simon. It was to share a public document that is our
energy outlook that we share with everybody every year.
Ms. Sutton. And that was all, it was just to----
Mr. Simon. That is it.
Ms. Sutton [continuing]. Hand them a copy of that document
and that was it.
Mr. Simon. That was it.
Ms. Sutton. How about you, Mr. Malone? Do you recall a
Mr. Malone. No, I do. Again, I was not there when our
former chief executive had the meeting. It was not with the
Cheney task force, but it was during that time period of your
Our meeting that I was present at was not with the Cheney
task force, but it was with a staff member. Peter Davies is our
global chief economist. We were presenting our statistical
review material with him.
Ms. Sutton. And the staff member that you met with was to
the energy task force staff?
Mr. Malone. No. It was not a member of the energy task
Ms. Sutton. Just a member of the Vice President's staff.
Mr. Malone. Correct.
Ms. Sutton. Sir?
Mr. Lowe. No one from Phillips Petroleum Company at the
time or, subsequent to that, ConocoPhillips. I think I have
seen references to Conoco representatives, but I am not aware
Ms. Sutton. Mr. Robertson, anything to add?
Mr. Robertson. I stand by what I have already said.
Ms. Sutton. Mr. Hofmeister?
Mr. Hofmeister. Sir Mark Moody-Stuart and Steve Miller, in
the normal course of business, did have discussions, as I have
testified, and, subsequent to that, I have had meetings with my
boss with the vice president.
I think that is good business and I know of no prohibition
in law that would prevent members of a company from meeting
with elected officials in the White House.
Ms. Sutton. Thank you, sir.
I yield back.
Mr. Conyers. The Chair recognizes the very polite gentleman
from Tennessee, who has yielded to two Congresswomen in one
Mr. Cohen. Thank you, Mr. Chairman. I appreciate that
description and, yes, I did yield to two women. I want that to
be noted well.
Just a couple of questions. Do any of you all--let me start
with Mr. Hofmeister, just in general.
Do you have any idea how much oil we use every day or in a
year, what percentage of oil we use, that is consumed in this
country, what percentage might be the oil that we use in the
military in Iraq?
Mr. Hofmeister. Well, I know that Americans use 10,000
gallons of oil a second in this country, which is about 20
million barrels a day.
The amount of oil consumed in Iraq, I have no idea.
Mr. Cohen. Anybody have any idea, any ballpark figure? No.
Do any of you drill any oil in Iraq? Nobody drills in Iraq.
Do you know who is drilling in Iraq?
Mr. Robertson. Well, the Iraqi oil company is a great big
operation and they drill in Iraq.
Mr. Cohen. Do you have any idea how much they drill?
Mr. Robertson. No. But I think they produce about--it is
obviously been varying, but I think the produce up to 2 million
barrels a day.
Mr. Simon. It is about 2.2 million barrels a day.
Mr. Cohen. And where is that going? Is it being used there
in Iraq, do you have any idea?
Mr. Simon. No. I think a good bit of that is being
Mr. Cohen. It is being exported. And so they would be
making, theoretically, a lot of money on what they are making
in oil, as you are, as well, the Iraqi government.
Mr. Simon. I have no way of knowing what their balance is
or how much they are making on that.
Mr. Cohen. But supply and demand is what determines what
they are going to be making, isn't that correct? And supply is
down and demand is up. So they must be doing pretty good.
Mr. Simon. I would believe they would be getting market
price for that.
Mr. Cohen. You all are getting a whole lot of criticism
from us and from the American public, but don't you think a
whole lot of that criticism that the American public has got in
outrage about the price of oil should be directed toward the
Middle Eastern sheiks and Saudis and the people we spend all
the money and lives going over there?
Mr. Simon. No, I don't believe that at all. When you look
at our dependence on imports, again, about 60 percent of our
petroleum consumed in this country is on imports.
When you look at where that comes from, only about 15
percent of our imports come from the Middle East. But the rest
of it comes from other parts of the world and when you look at
the market today in contrast to what I think some people would
believe, it is well supplied.
We are not short of supplies. We have 35 refineries around
the world and there is not a single one of those that is having
any trouble finding the crude and feed stocks to fill up those
So we can be angry about it and we can frustrated about it,
I understand that, but I don't think we point the finger at
them. It is a world market situation.
Mr. Cohen. Don't they help set the price?
Mr. Simon. I think the market sets the price.
Mr. Cohen. Okay. That is just a disagreement, I guess, we
have. Let me ask you this. A few years ago, Mr. Raymond made
$400 million 1 year, Mr. Simon.
Now, is that money you all have already paid out or are we
still paying his $400 million for that year?
Mr. Simon. Well, we have the stock programs that we have
pay out over 5 and 10 years. So all of that has not even been
vested yet. So that is still being paid out.
And I think that was a misconception that he received $400
million in cash the year that he retired, and that just wasn't
accurate at all.
About 10 percent of that, a little over 10 percent was
actually applied to the year, that year, and much of that,
about 75 percent, didn't even pay out for 5 to 10 years.
A lot of the rest of it was what he had earned over the
previous 10 years, which hadn't vested yet, and then he had a
pension that was calculated the same way that everybody else's
pension is calculated in our corporation.
And people keep throwing that $400 million number up and,
quite frankly, it is just misrepresented, and I think quite
Mr. Cohen. And just for the record, what was his position?
Mr. Simon. He was the chairman of Exxon Mobil.
Mr. Cohen. And he left in what year?
Mr. Simon. He left in 2005.
Mr. Cohen. And he did get a package, though, however, if it
is 5 years or 6 years. The package, apparently $400 million,
seems to be accepted.
Mr. Simon. No, that is not accurate. It wasn't a package.
It wasn't a package. He received a pension of about $98
million, which was calculated based on his years of service and
a formula that is applied to everyone else. That is not a
He received compensation, cash compensation in that year.
The total amount of compensation in that year was $42 million
out of the $400 million that you are talking about.
Seventy-five percent of that didn't pay out for 5 or 10
years into the future. It was applied to a number of years. In
that year, it was $42 million, not $400 million.
Mr. Cohen. Well, to be honest with you, I think $42 million
is--even if you are a baseball player or a rock star or
Mr. Simon. Well, I understand that, but I do think--I just
wanted to clarify that it wasn't all in 1 year and was not a
Mr. Cohen. Has Exxon done anything to assure that that
won't happen again, that that kind of payout package won't
happen? Have you reformed your pension package in any way or
Mr. Simon. Again, it was not a package. It was a pension
calculated the same way as everybody else's is, and we have not
Mr. Cohen. How was his pension calculated?
Mr. Simon. It is based on the years of service and then a
multiple and I would be happy to give you that formula, if you
would like it. It is calculated the same way mine is going to
be calculated and everyone else.
Mr. Cohen. Congratulations.
Mr. Simon. Believe it, it won't be that high for me, but--
Mr. Cohen. It will be comfortable.
Mr. Simon. I am not saying--I am not underpaid. I am well
paid, I am well compensated, and I understand that. But, again,
when you look at our compensation and you look at other people
in comparable positions of responsibility, an independent
committee of the board determines that, looking outside,
compensating our executives commensurate with what others are
being compensated in similar positions.
Mr. Cohen. What is the God pod?
Mr. Simon. The God pod?
Mr. Cohen. Yes.
Mr. Simon. I am not sure.
Mr. Cohen. It is an Exxon term, isn't it?
Mr. Simon. I am not familiar with it. I guess I am not a
part of it, I don't know.
Mr. Cohen. You are not a part of it. I think I saw
something, maybe it is here. It is suggested that $50.6 million
at ConocoPhillips and the gentleman from ConocoPhillips here,
Mr. Lowe, you are the vice president, et cetera.
This was the figure for the chief executive. Do you know
what the chief executive at ConocoPhillips made last year?
Mr. Lowe. No. I know it is on page 36 of the proxy, though,
because I looked at my compensation last night on page 36 of
the proxy. But I don't recall what his compensation was.
Mr. Cohen. Whatever they are, I think we have made our
point through the day, Mr. Chairman, that the compensation----
Ms. Jackson Lee. Would the gentleman yield?
Mr. Cohen [continuing]. Compensation has been extremely
good, the profits have gone up extremely high.
I still have a problem understanding why the profits have
to be that great if you are just saying that it is just supply
and demand. Somewhere there is profit and the profit is paid
for at the pump by the consumer, and that is what has got
people and the airlines and business and folks buying food
where the food prices have gone up.
The price of gas has affected the entire economy and really
we have to do something other than just the idea of drill,
Ms. Jackson Lee. Would the gentleman yield for a moment?
Mr. Cohen. I will yield to the lady.
Ms. Jackson Lee. The crux of what we are all trying to get
to is if we give you more, if we give you the drilling off of
the Gulf, if there is some consensus between Mr. Keller and
myself or Mr. Keller and Mr. Cohen from Tennessee that drilling
can occur off the coastline of Florida, we are perplexed as to
why then we can't match that drilling, what you are asking us
for, one of those points Mr. Lowe made, to a lower price of
gasoline or gas at the pump.
Then the second part of that is there is a war in Iraq. Has
the war in Iraq helped generate a greater opportunity for
access to resources to any of your companies and have the
policies in Iraq, if you will, been such that it creates
opportunities for American companies?
Start with you, Mr. Simon, if the gentleman would yield for
Mr. Simon. I apologize, Congresswoman, I forget the first
Ms. Jackson Lee. The first one was if we give you the--if
Republicans and Democrats, whoever agrees with drilling come
together and say you now can go off the coast of Florida, I am
compromising, I think ANWR doesn't generate much, somebody said
it lowers the price $0.01 if you go into ANWR.
But if you go off the coast of Florida, OCS off the coast
of Florida and your supply goes up, are you going to tell me
that we can get a lower price at the pump?
And in Iraq, has the Iraq war contributed to better access
to energies in Iraq? Is their policy such that you are getting
a greater supply potentially out of Iraq?
Mr. Simon. In terms of access, first of all, I do not agree
with the $0.01 associated with ANWR. I don't know where that
Ms. Jackson Lee. It is documented here and I don't want to
pursue that, but I believe it is 16 billion, I think, 16
billion barrels and they say over 20 years, it might lower it
Mr. Simon. But when you look at----
Ms. Jackson Lee. There are 83 billion elsewhere. So let's
talk about the OCS.
Mr. Simon. When you look at what is off limits today, and I
have seen numbers of 30 billion barrels of oil and 125 trillion
cubic feet of gas, what I think we can assure you is, if given
access to that, it will have downward pressure on the price
paid at the pump.
What I cannot tell you or guarantee you is it will be lower
or higher than where it is today, but I can assure you it would
be lower than it would otherwise be if we are not given access.
That is what we all can say, because it would add plus supplies
and plus supplies are going to put downward pressure on prices,
because it puts downward pressure on the crude price, which
today constitutes about 75 percent of the price that your
constituents and our customers are paying at the pump.
In terms of Iraq, I am not aware--I am not in a position to
say whether it is helped or hurt us, what the policy is. I will
say that we are currently in discussions of a technical
agreement with the Iraqis, which we are in pursuit of. We will
see how that plays out.
Ms. Jackson Lee. Mr. Malone?
Mr. Malone. Just to your last question, we are in the same
place. It is competitive and we are having technical
Ms. Jackson Lee. But has the Iraq war contributed to your
ability to get access to those resources?
Mr. Malone. Not that I am aware of.
Ms. Jackson Lee. And would the offshore Florida addition--
you could not see a vision of lower prices because of the
Mr. Malone. Again, it would clearly put downward pressure
on the crude price with additional supply in the market,
Ms. Jackson Lee. That is a lower price answer. You have
just given me a potential lower price at the pump.
Mr. Malone. Yes.
Ms. Jackson Lee. A potential lower price at the pump
because of that. And I have only said offshore Florida, by the
way. I just wanted to make sure.
Thank the gentleman for yielding.
Mr. Lowe. Getting access to the outer continental shelf
would be extremely well received. It would generate hundreds of
millions of dollars in lease sales and it would bring added
Iraq, while the opportunities are not there today, the
resource potential there is enormous and if we would have
access to Iraq to develop the oil there, that would be very
substantial in helping.
Ms. Jackson Lee. But you would not--are you suggesting the
war helps you get access?
Mr. Lowe. At this point, we are in the same boat as
everyone else. We are trying to look at signing technical
agreements to help the Iraqis get their----
Ms. Jackson Lee. I understand. But did the war contribute
to helping you get access?
Mr. Lowe. Well, we had no access before.
Ms. Jackson Lee. So you would have supported the war in
order to get access to oil.
Mr. Lowe. That is putting words in my mouth. I think that
is inappropriate. No. All I am saying is----
Ms. Jackson Lee. I am just asking if that is what you are
Mr. Lowe. No. What I am saying is we had no access to Iraq
before and there is tremendous resource there, whoever develops
it. There is tremendous resource there that could add to
Ms. Jackson Lee. And did you tell me that the amount would
go down at the pump if you had access in OCS off the coast of
Mr. Lowe. That is correct.
Ms. Jackson Lee. Mr. Robertson?
Mr. Robertson. What I can tell you about Florida is I don't
know whether--I think it would be a great benefit to the
America people to drill offshore of Florida.
We have drilled offshore of Florida and we found natural
gas. I believe that, from my knowledge, it is more natural gas
offshore of Florida than oil.
If we found oil, it would have the impact that the
gentleman said. It would reduce the world market price of oil,
If we found gas, the same people that are paying the
gasoline bills are also buying electricity and if we could
produce gas offshore of Florida, which we plan to do, that
would substitute for LNG that is being brought in from the rest
of the world.
The United States, natural gas market actually is pretty
isolated. And so additional supplies in the U.S. will bring
Bringing LNG from Angola is very expensive. So drilling
offshore of Florida, finding natural gas would bring down
electricity bills in Florida, which is the same kinds of
consumers we are talking about that are paying for gasoline.
So I think in both cases, in oil, it is a world market, it
would depress the world market. In gas, it is much more of an
American market and that would have a bigger impact and that
would be very important.
So drilling offshore of Florida would bring jobs to the
United States, lots of them, would bring resources to the
United States in the gas market and if we found oil, it would
certainly help depress the price of gasoline.
Ms. Jackson Lee. And that all would be based on an
agreement. You couldn't go there if we didn't get a consensus
in this Congress and in the population.
Mr. Robertson. Well, everywhere we go, we have to the
agreement of the community before we can do it.
Ms. Jackson Lee. And Iraq?
Mr. Robertson. In Iraq, like everybody else, we are in
discussions with the Iraqis in terms of technical support. The
Iraqis, if and when they pass a petroleum law and allow people
to compete for access there, then if the security situation is
adequate, Chevron will certainly see whether we can do
I have no idea what the circumstances would have been had
there not been a war and that is all I can say. That is all I
know about that circumstance.
Ms. Jackson Lee. Mr. Hofmeister?
Mr. Hofmeister. With respect to the potential of more
access in the eastern Gulf of Mexico, I would stand by my prior
statements that more supply would bring less pressure on future
oil prices, and I believe that would have beneficial impact
across the board, to the whole global supply chain, not only to
With respect to Iraq, Shell was in Iraq for many, many
years, until the Iraqi government at the time nationalized the
oil company in Iraq. Shell was asked to leave. We did leave.
There is a new government today in Iraq. If that government
invited us to participate in the oil industry, I think Shell
would look forward to that opportunity.
Ms. Jackson Lee. I thank the gentleman for yielding.
Mr. Cohen. Thank you.
Let me just ask, how many of you all do business with
Halliburton? All of you?
Mr. Simon. I am sure we do, as well.
Mr. Cohen. What does Halliburton do for you all?
Mr. Lowe. They provide technical services.
Mr. Cohen. How much do you think your contract with
Halliburton is a year, approximately?
Mr. Lowe. I don't know for sure, but it would be a few
hundred million dollars, I would guess.
Mr. Cohen. Were you there when Vice President Cheney was
involved with Halliburton? Were you with your company?
Mr. Lowe. I was not part of the upstream part of the
Mr. Cohen. Anybody part of the industry when Vice President
Mr. Simon. I was part of the industry, but I was not in the
upstream part of the business.
Mr. Cohen. You weren't.
Mr. Robertson, you were. How much business do you all do a
year with Halliburton?
Mr. Robertson. I couldn't tell you the exact number, but--
Mr. Cohen. Give or take.
Mr. Robertson [continuing]. I am sure it is hundreds of
millions of dollars.
Mr. Cohen. Hundreds of millions. And Mr. Cheney was
involved at that time.
Mr. Robertson. He was the CEO of the company.
Mr. Cohen. Right. So you dealt with him a bit.
Mr. Robertson. I don't deal with him.
Mr. Cohen. You didn't. Okay. We don't either, but----
Mr. Robertson. But we deal with Halliburton every day in
hundreds of places around the world and certainly have dealt
with him when he was the chairman and CEO of the company.
Mr. Cohen. With the price of oil going up, the crude oil
and the profits of the oil companies going up, does Halliburton
necessarily make more money as part of this whole scheme?
Scheme is the word, but----
Mr. Robertson. Halliburton sells services. So to the extent
that we contract to Halliburton to do oil field services, to
help us produce wells, to help us in a myriad of different
services, for every service they provide us, we pay them a
So if there is more activity, if we are spending more
capital to find more barrels of oil or TCFs of gas around the
world and there is more production, Halliburton, certainly,
that is their business.
Mr. Cohen. So if we drill off of Florida or we drill in the
ANWR, Halliburton is going to make a lot of money, aren't they?
Mr. Robertson. Well, I don't know whether it is going to be
Halliburton. Service companies, whether it is Schlumberger or
Halliburton or Baker Hughes or a myriad of others, they will
compete for the business.
Mr. Cohen. Is Halliburton the biggest of those three
Mr. Robertson. No.
Mr. Cohen. They are not.
Mr. Robertson. No.
Mr. Cohen. But they are up there.
Mr. Robertson. Yes, they are up there, but they are not the
Mr. Cohen. It is just kind of hard to believe, it is almost
surreal that we are defending the salary and saying that this
man didn't make $400 million, he only made $42 million.
$42 million comes to over $100,000 a day, even if you
worked on Saturday and Sunday--$100,000 a day.
There is something wrong with that type of salary and even
if it is just $42 million, it is obscene when people are having
to pay $4 a gallon. The whole salaries are just obscene.
Does Halliburton do anything in renewables at all? Do you
all have any idea? Are they strictly oil?
Mr. Robertson. I am certainly not aware of whether they do
or do not, but, again, their business is a service business.
They provide services on request and that is more of their
business than producing a product by itself.
Mr. Cohen. Who did Mr. O'Reilly work with?
Mr. Robertson. Who did he work with?
Mr. Cohen. Is he still the CEO?
Mr. Robertson. Yes.
Mr. Cohen. And what was his salary last year?
Mr. Robertson. Well, his salary, I just described my salary
of $2.5 million in salary and bonuses. Last year, it was $5.2
million in salary and bonus.
Mr. Cohen. O'Reilly's?
Mr. Robertson. And on top of that, he got some options and
performance shares that will be valuable depending on the
performance of the company.
Mr. Cohen. When I read in the New York Times that maybe his
salary was $37 million, when you put it all together, in 2006,
would that be accurate?
Mr. Robertson. That number, $31 million, is the number in
the proxy, but it includes appreciation of awards that he got
Mr. Cohen. And that is, again, about $100,000 a day.
Mr. Robertson. But he didn't earn $31 million in----
Mr. Cohen. No, I am sure he didn't earn it. Thank you.
Thank you, Mr. Chairman.
I want it to be noted that I yielded to three different
beautiful, intelligent women.
Mr. Conyers. All in the same day.
Mr. Cohen. That is right. It was a great honor.
Ms. Jackson Lee. We should end on that good note. When he
says something like that, that should be for the record, Mr.
Mr. Conyers. Well, I want to thank the witnesses for their
experience and knowledge and, most of all, their endurance. We
appreciate the testimony you have given and I think this is a
very important hearing.
And we look forward to you feeling free to make any
additional communications with us to go into the record or not
into the record, if there are any things that you want to amend
or any corrections you want to make to your oral testimony, we
will be happy to accept it.
And, again, thanks for your contribution to the subject
And the hearing is adjourned.
[Whereupon, at 4:51 p.m., the Task Force was adjourned.]
A P P E N D I X
Material Submitted for the Hearing Record