2011-05-12 14:03:11
Exxon Mobil Corp. (XOM) Chief Executive Officer Rex W. Tillerson led oil industry executives in defending $21 billion in U.S. tax breaks that Democrats say should be eliminated to help reduce the federal deficit.
Executives from Exxon, Royal Dutch Shell Plc (RDSA), Chevron Corp. (CVX), ConocoPhillips and BP Plc said production costs may rise and gasoline prices increase if Democrats succeed in stripping the benefits. The plan is counterproductive, Tillerson told the Senate Finance Committee at a hearing today in Washington.
Increasing these companies taxes would only discriminate against certain U.S. workers, make our companies less competitive against others who are in the same business, and discourage future energy investment, said Tillerson, who also is Exxon s chairman.
Senate Democrats are proposing to increase oil and gas taxes by $21 billion over 10 years and use the money to reduce the deficit. Democrats say this would end unjustified subsidies for profitable companies. Republicans and company officials say the legislation would impose higher taxes that may lead to higher gasoline prices for consumers.
We can put this money to better use and we should, Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said as he opened a hearing with the executives. The money should be spent to lower the deficit and on clean energy programs, he said.
Senator Orrin Hatch of Utah, the top Republican on the committee, said Democratic proposals fail to help increase energy supplies and reduce U.S. dependence on foreign oil.
Bad Precedent
The reasoning put forth for repealing these tax provisions -- rising gas prices and reporting higher first quarter profit -- would set a bad precedent for future tax increases, Hatch said.
The executives defended the tax breaks and urged lawmakers to keep similar incentives for all energy producers, rather than targeting the five companies.
Singling out five companies because of their size is even more troubling, said John Watson, Chevron s chairman and CEO. Such measures are anticompetitive and discriminatory.
Democratic Senators Charles Schumer of New York and Robert Menendez of New Jersey pressed ConocoPhillips (COP) Chief Executive Officer James Mulva to apologize for calling their tax change proposal un-American in a statement yesterday.
Mulva, asked if the company meant the plan s supporters, such as Menendez or President Barack Obama, aren t patriots, said today the statement wasn t directed at any lawmaker.
Exxon s Profit
Exxon, the world s largest company by market value, reported a 69 percent increase in first-quarter profit, the biggest jump in eight years. Net income rose to $10.7 billion from $6.3 billion a year earlier, Irving, Texas-based Exxon said on April 28.
After a 29 percent rise in oil prices in the past 12 months, the five companies don t need tax incentives to invest, Schumer said during a news conference in Washington yesterday.
You re going to do anything you can to find oil at these prices, Schumer said, speaking of the five companies.
The legislation, which the full Senate may consider as early as next week, would increase oil and gas taxes for 10 years, with the cash used to reduce the U.S. budget deficit.
An increase in taxes for the five oil companies is unlikely to raise gas prices, which are closely tied to crude oil prices, the Congressional Research Service said in a report to Senate Democratic Leader Harry Reid of Nevada that reviewed the effects of five provisions proposed by the Democrats.
Hard To Separate
Political unrest, expectations effects on financial markets, macroeconomic growth trends, the value of the dollar and a host of other factors have contributed to fluctuations in the price of oil and gasoline, according to the report yesterday. Any effect due to changes in the tax treatment of the oil industry would be hard to separate from the changes due to other factors.
In the House, Democrats introduced legislation that would increase fees on oil companies if they don t produce in areas where they hold leases. The bills also would require new safety standards for drilling and promote natural-gas powered trucks with tax credits.
The Republican-led House yesterday passed legislation that would require U.S. decisions on drilling permits within 60 days, as a part of an effort to increase oil production in the Gulf of Mexico.
To contact the reporters on this story: Katarzyna Klimasinska in Wash Dc at kklimasinska@bloomberg.net; Jim Snyder in Washington at jsnyder24@bloomberg.net
To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net