S. HRG. 110–496 

EXPLORING THE SKYROCKETING PRICE OF OIL 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

MAY 21, 2008 

Serial No. J–110–94 

Printed for the use of the Committee on the Judiciary 

( 

EXPLORING THE SKYROCKETING PRICE OF OIL 

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43–354 PDF 2008

S. HRG. 110–496 

EXPLORING THE SKYROCKETING PRICE OF OIL 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

MAY 21, 2008 

Serial No. J–110–94 

Printed for the use of the Committee on the Judiciary 

( 

(II) 

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

BENJAMIN L. CARDIN, Maryland 

SHELDON WHITEHOUSE, Rhode Island 

ARLEN SPECTER, Pennsylvania 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

STEPHANIE A. MIDDLETON, Republican Staff Director 

NICHOLAS A. ROSSI, Republican Chief Counsel 

(III) 

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page 

Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin ............................ 3 

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 1 

prepared statement and closing statement .................................................... 249 

Specter, Hon. Arlen, a U.S. Senator from the State of Pennsylvania ................. 7 

WITNESSES 

Hofmeister, John, President, Shell Oil Company, Houston, Texas ..................... 8 

Lowe, John E., Executive Vice President, ConocoPhillips Company, Houston, 

Texas ..................................................................................................................... 12 

Malone, Robert A., Chairman and President, BP America, Houston, Texas ...... 5 

Robertson, Peter J., Vice Chairman of the Board, Chevron Corporation, San 

Ramon, California ................................................................................................ 10 

Simon, J. Stephen, Senior Vice President, Exxon Mobil Corporation, Irving, 

Texas ..................................................................................................................... 14 

QUESTIONS AND ANSWERS 

Responses of John Hofmeister to questions submitted by Senators 

Whitehouse, Durbin, Kohl, Leahy and Feinstein .............................................. 57 

Responses of John E. Lowe to qustions submitted by Senators Leahy, Kohl, 

Durbin, Whitehouse and Feinstein ..................................................................... 97 

Responses of Robert A. Malone to questions submitted by Senators Leahy, 

Feinstein, Durbin, Whitehouse and Kohl ........................................................... 150 

Responses of Peter J. Robertson to questions submitted by Senators Durbin, 

Kohl, Leahy, Whitehouse and Feinstein ............................................................ 176 

Responses of J. Stephen Simon to questions submitted by Senators 

Whitehouse, Durbin, Kohl, Leahy and Feinstein .............................................. 205 

SUBMISSIONS FOR THE RECORD 

Hofmeister, John, President, Shell Oil Company, Houston, Texas, statement .. 236 

Lowe, John E., Executive Vice President, ConocoPhillips Company, Houston, 

Texas, statement .................................................................................................. 252 

Malone, Robert A., Chairman and President, BP America, Houston, Texas, 

statement .............................................................................................................. 304 

Robertson, Peter J., Vice Chairman of the Board, Chevron Corporation, San 

Ramon, California, statement ............................................................................. 327 

Simon, J. Stephen, Senior Vice President, Exxon Mobil Corporation, Irving, 

Texas, statement and attachment ...................................................................... 340 

(1) 

EXPLORING THE SKYROCKETING PRICE OF 

OIL 

WEDNESDAY, MAY 21, 2008 

U.S. SENATE, COMMITTEE ON THE JUDICIARY, Washington, D.C. 

The Committee met, Pursuant to notice, at 10:02 a.m., in room 

SD–106, Dirksen Senate Office Building, Hon. Patrick J. Leahy, 

Chairman of the Committee, presiding. 

Present: Senators Leahy, Kohl, Feinstein, Feingold, Schumer, 

Durbin, Cardin, Whitehouse, Specter, Hatch, Grassley, Sessions, 

and Cornyn. 

OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. 

SENATOR FROM THE STATE OF VERMONT 

Chairman LEAHY. As I have said before at hearings, we will not 

have disruptions in the Committee, whether for or against any position I may take or anybody else may. Everybody is welcome to 

be at the Committee. I would ask that nobody disrupt or stand or 

in any way block the views of others who are here as guests of the 

Senate. 

This weekend, when I was home in Vermont, I heard more than 

anything else about the price of a gallon of gas. And the price of 

a gallon of gas at the pump today in Vermont reached a record 

$3.77. And that is less than in a lot of other States. Nationwide, 

the average price has more than doubled since the President took 

office. 

The President once boasted that with his pals in the oil industry, 

he would be able to keep prices low and consumers would benefit. 

Instead, it appears to be his friends in the oil industry who have 

benefited. American consumers and the American economy have 

suffered immensely. 

Today’s witnesses represent the major, vertically integrated oil companies that, collectively, made more than $36 billion in profits 

in just the first quarter of this year—$36 billion in the 3 months, 

certainly more than the gross domestic product of some countries. 

I want these witnesses to hear about Warren Hill, whose family 

settled in Greensboro, Vermont, more than 200 years ago. Warren 

runs a logging and trucking company that he dreams of passing on 

to his son. But the increase in fuel prices has led him to question 

whether his business, which has been very successful for over 30 

years, can survive. 

I think Mr. Hill wants to know how all of you can justify such 

exorbitant profits on the backs of the middle class and hard-workVerDate Aug 31 2005 14:52 Sep 18, 2008 Jkt 043354 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\43354.TXT SJUD1 PsN: CMORC
2 

ing families. And I think he deserves answers. Every member of 

this Committee, every Member of this Congress, whatever part of 

the country they are from, they have constituents with similar stories and similar questions. 

We hear from the oil industry that the price of gas at the pump 

is directly related to the price of crude oil. One of the witnesses we 

have here today has said that normal supply and demand indicates 

that the price should be somewhere around $50 to $55 a barrel. As 

he said, ‘‘There is a disconnect.’’ There is. Well, as I was driving 

to work early this morning, they were saying that oil had reached 

$133 and some odd cents a barrel. I would like to know, and I am 

sure American families and American small businesses would like 

to know, why prices are so disconnected from what normal supply 

and demand would indicate. Why has the price of oil increased 400 

percent since President Bush took office? Why has it nearly doubled in the last year alone? We have seen it go up 6 years in a row, 

the first time that has ever happened. The prices should not skyrocket like this in a properly functioning, competitive market. 

Certainly the cost of oil to these companies has not doubled or 

quadrupled. Certainly our witnesses today would not contend that 

it is service station operators who are gouging consumers for windfall profits. 

I expect that none of our witnesses would dispute that a protracted war in Iraq has caused the price of oil to rise. I expect that 

none of our witnesses would dispute that the Administration’s economic policies, which have crippled the value of the dollar, have 

contributed to the rising price of oil. 

But I want to hear directly from these oil companies about 

causes of the rising price of oil, causes on which Congress can act. 

This Committee unanimously approved Senator Kohl’s NOPEC legislation, which would put an end to artificial limits on supply by 

ensuring that the U.S. Government has the authority to prosecute 

OPEC members for collusive behavior. Seventy members, Republicans and Democrats alike, have voted for this legislation, as have 

345 Members of the House, Republicans and Democrats alike. But 

the President threatened to veto it. 

I would like to know what these oil executives think about applying principles of competition from our antitrust laws to the commercial activity of the oil-producing states. 

The members of OPEC meet regularly to agree on limits on the 

amount of oil they will produce. I think that is wrong, and I think 

it hurts Americans. If such a meeting took place in almost any 

other context, the participants would likely be charged and arrested for an illegal conspiracy in the restraint of trade. 

So do our witnesses agree that we need to crack down on speculation and manipulation in the oil commodities market? Numerous 

experts have testified before this Committee and others that oil 

prices are moving higher as a result of speculators. Investors are 

betting up the price of oil, and consumers are paying the bill. Increasingly, this speculation takes place in over-the-counter trading, 

which avoids the oversight of the Commodity Futures Trading 

Commission. That is because of the Enron loophole. 

That is an unjustified loophole. Senator Feinstein and I, among 

others, have been actively trying to close it. To keep the CFTC 

3 

blind to speculation and manipulation in the oil futures market, we 

can only say that is inexcusable. Last week, Congress passed the 

farm bill that would close the Enron loophole. And now the President has threatened to veto the legislation to close the Enron loophole. I would like to know what these oil executives think about 

that. 

Finally, last week we were able to pass legislation calling for the 

Government to stop artificially inflating demand by diverting fuel 

to the Strategic Petroleum Reserve. The President opposed that. 

Filling the Strategic Reserve may have made sense when oil was 

$25 a barrel. At $125 a barrel, it is simply hurting consumers. 

So we need some answers so Congress can act in a way the administration apparently will not—for the benefit of consumers, for 

American families, for small businesses. We need to get prices 

under control and back to competitive levels, and we need to do it 

now. Warren Hill and his family in Vermont, and all Americans, 

deserve a Government that will stand up for them. Small businesses should not be forced to close their doors because oil prices 

are skyrocketing out of control. 

[The prepared statements of Senator Leahy appear as submissions for the record.] 

Normally we would not have other opening statements, but the 

Chairman and the Ranking Member of the Antitrust Subcommittee, Senator Kohl and Senator Sessions, are here, and so I 

will recognize each of them for an opening statement. Senator 

Kohl? 

STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE 

STATE OF WISCONSIN 

Senator KOHL. Thank you, Mr. Chairman. As gas prices approach the previously unthinkable level of $4 per gallon, and crude oil passes $130 per barrel, we can only conclude 

that the oil market has failed. Driving to the doctor or to the grocery story have become unaffordable burdens on the family budget. 

Consumers are angry and they have every right to be, and the 

American economy is buckling under the weight of gas prices. And 

while consumers and businesses suffer from these price increases, 

the oil industry seems only to get richer and richer. 

Last year, for example, Exxon Mobil reported all-time record 

profits for a U.S. corporation—an astounding $40.6 billion for all of 

2007, an amount that has nearly doubled in the past 5 years. We 

are forced to worry that we are witnessing profiteering caused by 

market manipulation, price gouging, and collusion. 

The oil companies defend high energy prices by claiming that 

there have been sharp increases in demand, and yet the record 

shows that demand for petroleum in the United States has hardly 

changed in the past 27 years. According to Government statistics, 

in January 1981, 571 million barrels of petroleum products were 

supplied to the U.S. market, and in February of 2008, 27 years 

later, from 571 million it got to 573 million barrels that were supplied. Hardly any change at all. 

So while demand has remained flat, prices and profits are breaking records. The question remains what is going on here. Do market forces alone explain the skyrocketing price of oil and gas? Each 

4 

of the executives testifying today should not leave here without 

telling us something meaningful about what is causing this miserable situation and how to correct it. 

Problems of failed oil markets are compounded by the effects of 

speculation. Unlike equities, speculators can buy oil futures with a 

very low margin requirement, as little as 8 cents on the dollar. 

These low margins drive speculation, which in turn causes sharp 

increases in the price of crude oil. So it is vitally important to increase margin requirements on the oil commodity markets so that 

millions of ordinary consumers do not pay the price at the pump 

for the billions made by hedge funds. 

I also believe that it is long past due for us to take action on the 

NOPEC bill. The NOPEC bill would make nations that participate 

in the OPEC oil cartel accountable under U.S. antitrust law when 

that cartel limits supply in order to fix the price of oil. There is 

simply no reason that nations participating in a cartel designed to 

control the price of oil should be treated any differently than a private international price-fixing conspiracy harming U.S. consumers. 

This legislation would, for the first time, give our Government a 

real tool to combat OPEC. 

The need for this tool was demonstrated once again just last 

week by Saudi Arabia’s rejection of President Bush’s appeal for increased oil production. Just yesterday, NOPEC passed the House 

with 324 votes in favor. It did pass the Senate last year by a similarly overwhelming margin, but it was stripped from last year’s energy bill in conference. 

When I first introduced this legislation in the year 2000, the price of crude oil on the world market was $29 a barrel—a price 

that has now more than quadrupled. We need to bring this measure to the Senate floor now so it can be enacted into law. 

Mr. Chairman, I appreciate your calling this hearing, and I look 

forward to the testimony. 

Chairman LEAHY. Thank you. And I was incorrect. It is Senator 

Hatch who serves as Ranking, and Senator Sessions has been either Chairman or Ranking on virtually every Subcommittee in this 

place, and I will ask him, just before I swear in the witnesses, Senator Sessions, did you want to say anything? 

Senator SESSIONS. Thank you, Mr. Chairman. We know that the 

world market for oil is not a free market. We have got nation states 

who are deliberately and systematically taking steps to keep prices 

high. Our guests here today do not exist to produce the lowest possible price of fuel for our constituents. They exist to maximize their 

profits for their shareholders. I know that is what you exist for, 

and you are going to charge what the traffic will bear, and shortages of supplies have allowed, I think, extraordinary profits to 

occur. And those of us in the public sector need to think about what 

we can do to create a climate where such is not so—these prices 

are not so high. That is the No. 1 thing I hear from my constituents. It is savaging the family budget, $50, $75, $100 more a month 

for the same number of gallons were buying just a few years ago, 

reducing their ability to purchase in the marketplace, and I do not 

think anyone can argue that it has not affected our economy. 

I am particularly concerned about diesel. Mr. Chairman, on average, 50 percent of the cars in Europe are now diesel. They get at 

5 

least 35 to 40 percent better gas mileage. Had we had 50 percent 

of our vehicles diesel, we would be utilizing substantially fewer gallons from our witnesses today in overall liquid fuel. 

So I think there are a number of things we need to think about. 

Thank you for your leadership, and I do believe that we need to 

utilize what forces, Senator Kohl, we can to deal with the sovereign 

state problem and that is exacerbating the world price of fuel. 

Thank you. 

Chairman LEAHY. Thank you. 

Gentlemen, would you please stand and raise your right hand? 

Do you solemnly swear that the testimony you will give in this 

matter will be the truth, the whole truth, and nothing but the 

truth, so help you God? 

Mr. MALONE. I do. 

Mr. HOFMEISTER. I do. 

Mr. ROBERTSON. I do. 

Mr. LOWE. I do. 

Mr. SIMON. I do. 

Chairman LEAHY. Let the record show that all five of the witnesses have been sworn in and have taken the oath. 

We will go through each witness before we open it to questions. 

The first witness, Mr. Robert Malone, is the Chairman and President of BP America. Mr. Malone became Chairman and President 

of BP America on July 1, 2006. He is based on Houston, Texas. He 

holds a Bachelor of Science degree from the University of Texas at 

El Paso. He received a Master’s of Science in management from the 

Massachusetts Institute of Technology. He has been selected for 

the board of trustees of the National Urban League, the Foreign 

Policy Association, and the National Petroleum Council. He is also 

currently on the executive committee of the American Petroleum 

Institute. 

I would say to Mr. Malone and all the others, your full statements, of course, will be made part of the record. You will certainly 

be given a chance to look at the transcript after you have answered 

questions. After you have looked at your answers, if there are 

things you want to add to it or change, if you feel you got a number 

wrong or something like that and you want to change it, obviously 

you will be given the opportunity to do that. 

Mr. Malone, go ahead. 

STATEMENT OF ROBERT A. MALONE, CHAIRMAN AND 

PRESIDENT, BP AMERICA, HOUSTON, TEXAS 

Mr. MALONE. Thank you, Mr. Chairman, Senator Sessions, members of the Committee. Good morning. 

We know that high energy prices are having an adverse impact 

on the economy here in the United States and on workers and families across this Nation. Every week I receive letters from consumers about the impact that high energy prices are having on 

their everyday lives. 

Unfortunately, I cannot and we cannot change the world market 

on which this Nation now relies for 60 percent—60 percent—of the 

oil it consumes every day. What we can do is work with this Congress, with the administration, with governments and consumers to 

6 

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, gas, and renewables, and to 

reduce demand through conservation and energy efficiency. The oil 

market is tight. Geopolitical risk and concern about future supply 

are having a big impact on price today. 

We are working very 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. Over the last 

5 years, we have invested $31.5 billion in development of U.S. energy supply, almost dollar for dollar of our U.S. profits. We expect 

to spend $30 billion over the next 5 years to maintain production 

of natural gas in the Rocky Mountain West, to renew critical infrastructure in Alaska, and continue development of the Deepwater 

Gulf of Mexico, and increase gasoline production from Midwest refineries. 

We are nearly doubling the capacity of our Frederick, Maryland, 

solar plant, and by the end of this year, we would expect to have 

a thousand megawatts of U.S. wind power capacity online. That 

should increase to 2,400 megawatts by the end of 2010. 

We are already one of the largest blenders of ethanol in this Na- tion. 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. And together with ConocoPhillips, we have 

recently announced the largest private sector investment ever in 

the U.S.—the Denali, Alaska, gas pipeline. 

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 coal, more natural 

gas, and more nuclear in 2030 than it does today. The United 

States, with 5 percent of the world’s population, consumes 25 percent of daily world oil production. The U.S. has got to produce more 

energy, and it needs to conserve and use this energy wisely. 

On the supply side, we support incentives for alternatives. But 

taking one form of energy to encourage production of another will 

reduce the ability to keep up with growing U.S. energy demand. 

The result is going to be less investment, less production, higher 

energy markets, and potentially even higher prices at the pump. 

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, dampen investment in infrastructure, and 

discourage trade with our Canadian neighbors will make our economy increasingly vulnerable to market influences outside of our 

borders. 

BP 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, affordable power that consumers need. 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. 

7 

Thank you. 

[The prepared statement of Mr. Malone appears as a submission 

for the record.] 

Chairman LEAHY. Thank you very much. 

We have been joined by the Ranking Member of the Committee, 

Senator Specter, and, Senator Specter, did you want to say anything before we go to the next witness? 

STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM 

THE STATE OF PENNSYLVANIA 

Senator SPECTER. Well, thank you, Mr. Chairman. Just a word 

or two. 

First, I commend you for holding this very important hearing. 

We are obviously in a crisis, national, international, with the escalating cost of oil and the intolerable prices of gasoline at the pump, 

and it is important that we bear all of our resources to try to figure 

out what to do about it. It seems to be an intractable problem, but 

we have to keep trying. And you have assembled a very distinguished group of witnesses here today. 

For some time, this Committee has been trying to push legislation on eliminating the antitrust exemption for OPEC. They have, 

for some curious reason under our case law, an exemption for our 

antitrust laws. They get into a small room and decide what the 

supply will be, and that has the inevitable potential, at least, for 

raising prices. 

Senator Kohl and I reported out of Committee, as you know, Mr. 

Chairman, and have on the floor ready for action—i would hope 

that we would get some action on that bill. It certainly could not 

do any harm. 

I understand the complexities of the issue on the OPEC and the 

pricing, but at least they ought to be subject to the antitrust laws 

to have an impact if that would be successful. 

Then we have to search further. We have talked about it a lot, 

and, regrettably, too little action since the historic gas lines of 1973 

and 1974. In a conversation I had earlier today with Mr. 

Hofmeister talking about a good many of the issues, and it is extraordinarily complex. We have to work on it. 

One item which caught my attention especially, which is worth 

mentioning, is the credit card cost. At least as Mr. Hofmeister outlined it to me, it is a few cents for companies like Shell, it is, I 

think, 8 cents for the dealer, and 14 cents for the credit card. Am 

I quoting you right, Mr. Hofmeister? 

Mr. HOFMEISTER. That is an average number, yes. Thank you. 

Senator SPECTER. Well, we have been studying this interchange 

cost for a long time as to the issue of the credit card companies and 

what they do, and that sounds like a pretty big bite to me. But we 

are all consumed with the problem, and I thank you again, Senator 

Leahy, for moving ahead on this. 

Chairman LEAHY. Thank you very much. You mentioned Mr. 

Hofmeister, and he is the President of Shell Oil Company. He was 

named President of Shell Oil Company in March of 2005. He has 

a Bachelor’s and Master’s degree in political science from Kansas 

State University, serves as Chairman of the National Urban 

League, serves on the boards of the Foreign Policy Association, U.S. 

8 

Energy Association, National Association of Manufacturers. He is 

a member of the American Petroleum Institute’s executive policy 

committee. 

I understand that Shell is announcing you will retire at the end 

of this month. I hope that is not because you had to appear before 

this Committee, Mr. Hofmeister, but I assume that was something 

long in the works, and we appreciate your being here with us 

today. 

STATEMENT OF JOHN HOFMEISTER, PRESIDENT, SHELL OIL 

COMPANY, HOUSTON, TEXAS 

Mr. HOFMEISTER. Thank you, Chairman Leahy and Ranking 

Member Specter, members of the Committee. I am John 

Hofmeister, the retiring President of Shell Oil Company, and thank 

you for this opportunity to testify on these very important subjects. 

Let me offer my best wishes to your friend Senator Kennedy. We 

wish him and his family well in this time of uncertainty. 

Chairman LEAHY. If I may interrupt on my time, Mr. Hofmeister, 

I have just received word that Senator Kennedy will leave the hospital and will go back to the Kennedy compound in Hyannis where, 

being on the water, I know how much he will enjoy that. And I was 

pleased to see the strong, bipartisan expressions in the Senate. He 

is in our prayers, all of us, Republicans and Democrats alike, and 

I thank you for your comments. 

Mr. HOFMEISTER. Thank you. 

In addition to my formal written statement, I welcome this opportunity to offer several additional thoughts. 

Much has and will be said about the rising energy demand and 

the actions being taken to supply this energy by major oil companies. My written testimony speaks to Shell’s unique efforts in this 

regard. 

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 

ever known. Yet in the face of this sustained record spending, the 

relentless increase in the price of the crude oil continues. 

As repetitive and uninteresting as it may sound, the fundamental laws of supply and demand are at work. Oil- exporting nations, as has been said, 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 nations’ consumers, feeding the demand for 

more oil despite record prices. They do this to speed economic 

growth and to ensure competitive advantage relative to other nations. 

Meanwhile, in the United States, access to our own oil and gas 

resources has been limited for the last 30 years, prohibiting companies such as Shell from exploring and developing resources for the 

benefit of the American people. Senator Sessions, I agree it is not 

a free market. 

According to the Department of the Interior, 62 percent of all onshore Federal lands are off limits to oil and gas developments, with 

9 

restrictions applying to 92 percent of all Federal lands. We have an 

outer continental shelf moratorium on the Atlantic Ocean, an outer 

continental shelf moratorium on the Pacific Ocean, an 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 the resource potential for oil and gas in the Atlantic, 

Pacific, and eastern Gulf of Mexico. 

The Argonne National Laboratory did 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 long list. 

If I may, I offer it today, if you would like to include it in the 

record. 

When many of these policies were implemented, oil was selling 

in the single digits, not the triple digits we see now. The cumulative effect of these policies has been to discourage U.S. investment and send U.S. companies outside the United States to 

produce new supplies. As a result, U.S. production has declined so 

much that nearly 60 percent of daily consumption comes from foreign sources. 

U.S. reliance on foreign oil may drop this year for the first time 

since 1977, according to the EIA. But it is not clear yet whether 

that drop in foreign imports is sustainable given the restricted access to U.S. resources. Alternative and renewable energy sources 

play a role and are growing substantially. Energy efficiencies will 

improve as new technologies are developed and implemented. But 

leading experts forecast that oil and natural gas will continue to 

meet more than half of the world’s energy needs in the year 2030. 

EIA says that by 2030 we are still expected to import more than 

half of our own oil in this country. 

The problem of access can be solved in this country by the same 

government that has prohibited it. Congress could, if it chose, lift 

some or all of the current restrictions on exploration and production of oil and gas. Congress could provide national policy to reverse the persistent decline of domestically secured natural resource development. If the Nation set a goal 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 a nonresponsive reply. 

Let’s establish a national policy on domestic resource development 

and get on with the business of helping our Nation compete by producing more affordable energy. 

In addition to more access, we need additional refining capacity. 

As you know from my written testimony, Shell is a 50-percent participant in the $7 billion expansion of the Motiva refinery Port Arthur, Texas. This project will expand production of finished products by more than 300,000 barrels per day and, when finished, will 

be one of the largest refineries in the United States and in the 

world. 

10 

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 barrel.’’ 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 rising as fast or faster than for other products. There is simply no 

way to keep up, let alone get ahead of demand, except by producing 

more oil and building more refining capacity. That is because of the 

make-up of a barrel of crude. Only a third to a half of a barrel of 

crude oil can be used to make these products. we cannot use more 

than half of a barrel of oil to make diesel and aviation fuel. To 

meet this demand, we need more capacity. 

So we need policies that enable both more crude supply and more 

refining. Higher taxes would only serve to diminish the expansion 

capacity of this critical capital investment. I urge you on behalf of 

American consumers to resist such punitive policies. 

In conclusion, Mr. Chairman, when it comes to energy security 

and affordability in this country, there is no challenge that cannot 

be turned into opportunity. The United States has the natural resources, the technology, the financial capital, the human resources, 

and the desire to be energy self-sufficient. By addressing our challenges in the short term, the medium term, and the long term, 

Shell believes the U.S. can become more energy secure, and I look 

forward to your questions. 

[The prepared statement of Mr. Hofmeister appears as a submission for the record.] 

Chairman LEAHY. Thank you. 

Peter Robertson is the Vice Chairman of Chevron Corporation. 

He has been in this position since 2002. Mr. Robertson is a native 

of Scotland, and he earned his Bachelor’s degree in mechanical engineering from Edinburgh University, a Master’s degree in business administration from the Wharton School. He is the Chairman 

of the U.S.-Saudi Arabian Business Council and a director of the 

American Petroleum Institute. He is the past Chairman of the U.S. 

Energy Association. 

Incidentally, if I get the facts wrong on any one of you, feel free 

to correct it. 

Mr. Robertson, go ahead. 

STATEMENT OF PETER J. ROBERTSON, VICE CHAIRMAN OF 

THE BOARD, CHEVRON CORPORATION, SAN RAMON, CALIFORNIA 

Mr. ROBERTSON. Good morning. Mr. Chairman, Ranking Member 

Specter, and members of the Committee, my name is Peter Robertson, and I am Vice Chairman of Chevron Corporation. I am here 

today proudly representing 59,000 Chevron employees around the 

world. 

I appreciate the opportunity to discuss the energy issues that are 

on the minds of all Americans, and I will address three issues: rising oil prices, increasing energy supplies and improving efficiency, 

and urgent policy actions to achieve energy security. 

Americans feel the brunt of record oil prices, and not just at the 

pump. Everything is more expensive. People are concerned about 

11 

rising costs, and rightly so. Global issues affecting the supply and 

demand of oil are driving prices up. The world is consuming oil at 

an ever increasing rate, and it is projected to continue. There are 

more than a billion people who enjoy our standard of living. There 

are billions more striving for the same. 

The current system is straining to meet all our needs. There is 

dramatically reduced spare supply and no room for error. Any disruption or perceived threat of disruption sends oil prices up. And 

the declining value of the dollar, along with investors buying more 

commodities, has only worsened the situation. 

In the past year, oil prices have doubled. We need to take steps 

to protect our economy, our consumers, and our future. Massive investment is needed around the world, some $22 trillion by 2030, 

and all stakeholders must do their part. 

So what are we doing? Chevron produces 1.7 million barrels of 

oil a day. As large as that number sounds, it is less than 2 percent 

of world oil demand. We are aggressively spending to develop additional oil and natural gas supplies. Our capital budget this year is 

$23 billion for new energy projects, a record amount for our company and triple what we spent in 2004. In the previous 6 years, we invested nearly $73 billion, an 

amount greater than what we earned. As the Nation’s sixth largest 

refiner, we are spending $2.3 billion this year on our U.S. refining 

and marketing business, and we are developing renewables and improving energy efficiency. We are the leading producer of geothermal energy and provider of energy efficiency services. 

But Congress also has an important role to play. For starters, we 

strongly urge you to implement the recommendations of last year’s 

National Petroleum Council study. Its first recommendation is to 

reduce demand. We need to treat energy as a precious resource and 

become a Nation of energy savers. The study also urges us to increase energy supplies in all forms. 

When it comes to energy security, we need smart policies that 

support our competitiveness and help us decrease our dependence 

on foreign oil. American energy companies operate at the frontiers 

of geography, geology, and technology. We are large compared with 

most American companies, but relatively small when you stack us 

up against the national oil companies against which we compete. 

These companies have control over most of the world’s known reserves, and many enjoy the unqualified support of their national 

governments. 

Given these realities, Americans need companies that can effectively compete for access to new resources and responsibly develop 

new energy frontiers. Our size and strength allows us to develop 

many complex and expensive projects that can take more than a 

decade to complete. At Chevron alone, we have more than 40 

projects in development right now, each costing, our share, over a 

billion dollars. 

Americans also need your leadership. Punitive measures that 

weaken us in the face of this international competition are the 

wrong solution at this critical point in our history. Such measures 

will only increase our dependence upon foreign supplies of energy 

while resources at home are untapped. The stunning changes during this decade taught us that easy access to cheap oil is over. ConVerDate Aug 31 2005 14:52 Sep 18, 2008 Jkt 043354 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\43354.TXT SJUD1 PsN: CMORC
12 

sumers know this and are making hard choices to budget for their 

household needs. 

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 

they have to deliver energy reliably, and I can personally attest to 

that strong commitment. 

Congress has recently made some hard policy choices on renewables and energy efficiency. We hope you can also make the equally 

hard choices to open up more Federal lands and allow us to responsible produce more American oil and natural gas which can supply 

us for decades to come. We cannot expect other countries to expand 

their resource development to meet our increasing needs when we 

limit our development without good reason. 

Our collective actions can demonstrate leadership on issues that 

are within our control and can help us weather the powerful forces 

that we cannot control. You can count on us to work with you on 

this extraordinary challenge. 

Thank you very much. 

[The prepared statement of Mr. Robertson appears as a submission for the record.] 

Chairman LEAHY. Thank you very much, Mr. Robertson. 

Our next witness is John Lowe. He is the Executive Vice President for Exploration and Production at ConocoPhillips. He has been 

Vice President since 1999. In 2002, he was made Executive Vice 

President for Planning, Strategy, and Corporate Affairs, named to 

his current position in charge of exploration and production in 

2007. He received a Bachelor of Science degree from Pittsburg 

State University in Pittsburg, Kansas. 

Go ahead, sir. 

STATEMENT OF JOHN E. LOWE, EXECUTIVE VICE PRESIDENT, 

CONOCOPHILLIPS COMPANY, HOUSTON, TEXAS 

Mr. LOWE. Good morning, Chairman Leahy and members of 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 prices. 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 developing Asia. 

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 devaluation. 

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 their governments. We 

can only compete directly for 7 percent of the world’s available reVerDate Aug 31 2005 14:52 Sep 18, 2008 Jkt 043354 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\43354.TXT SJUD1 PsN: CMORC
13 

serves, 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 we 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 reserves. Downstream, we are 

increasing our refining capacity and our ability to process lowerquality crudes. 

Unfortunately, our efforts here in the U.S. have been met with 

continuing opposition. At our Wood River, Illinois, refinery, the 

tenth 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 in 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, encourage higher 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 U.S. oil and gas 

companies. This has been tried before with extremely negative results, reducing supplies, eliminating jobs, and resulting in higher 

prices. 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. 

14 

[The prepared statement of Mr. Lowe appears as a submission 

for the record.] 

Chairman LEAHY. Thank you very much. 

Our last witness is J. Stephen Simon, Senior Vice President of 

the Exxon Mobil Corporation. He is a member of its Board of Directors. He has served Exxon around the country and around the 

world—in Baton Rouge, Houston, New York, London, Italy. He received his Bachelor of Science degree in civil engineering from 

Duke University, his MBA from Northwestern. He is a member of 

the Board of Directors of the U.S.-China Business Council and the 

American Petroleum Institute. 

When he finishes, we will go into questions. We will begin in the 

normal order first by myself and Senator Specter, and we will alternate between Senator Kohl, Senator Grassley, Senator Feinstein, Senator Sessions, Senator Durbin, Senator Cornyn, Senator 

Feingold, and Senator Hatch, and others as they come in. 

Go ahead, Mr. Simon. 

STATEMENT OF J. STEPHEN SIMON, SENIOR VICE PRESIDENT, 

EXXON MOBIL CORPORATION, IRVING, TEXAS 

Mr. SIMON. Thank you, Chairman Leahy, Ranking Member Specter, and members of the Committee. 

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 needs at competitive 

prices. 

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. 

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. 

To meet the world’s growing demand for energy of all types, an 

estimated total investment of $22 trillion is needed between 2006 

and 2030, or roughly 8 times the size of the estimated 2007 Federal 

budget. 

Within this vital 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, long-term investments. 

To simply maintain our current operations and make needed capital investments, Exxon Mobil spends nearly $1 billion each day. 

Over the past 25 years, we have invested $355 billion in new energy projects, which is more than we earned during this same peVerDate Aug 31 2005 14:52 Sep 18, 2008 Jkt 043354 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\43354.TXT SJUD1 PsN: CMORC
15 

riod. 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 longer term. 

The second point I would like to make is to address 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 feedstocks 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 markets business, that 27 percent would be more than 23 percent costs and less than 4 percent 

earnings, which translates to earnings of only 10 cents per gallon 

of product sold. That is about one- quarter of the amount collected 

by taxes. 

Since last year, the increase in gasoline prices—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 4 cents 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 all serve. 

Thank you. 

[The prepared statement of Mr. Simon appears as a submission 

for the record.] 

Chairman LEAHY. Thank you. Well, Mr. Simon, I listened with 

interest to what you and the others had to say, and if I listen to 

your testimony, we should almost be embarrassed to even ask 

questions of you. The way you put it, you speak of this current up 

cycle. What a nice term. And I suppose we can tell our constituents, when they find that they cannot afford to go to work because 

16 

of the price of gas, ‘‘Don’t worry. You are in a current up cycle.’’ 

I think it is a little bit more serious than that. 

Let’s look at the—this hearing is on the upstream parts of the oil market. There is no question that with oil over $125 a barrel, 

the price of oil is currently the biggest factor in the price at the 

pump. 

Now, look at this chart. This is part of a multimillion-dollar advertising campaign from your industry. It goes along with what you 

were testifying. To show where the money is that we spend at the 

pump, 72 percent for crude oil, 16 percent for refined distribution 

service stations, 12 percent for taxes. That adds up to 100 percent. 

You would think that you were a charitable organization because 

there is nothing on that chart about profits. 

Ah, way down here, the asterisk. It says the industry in 2007 

earned 8.3 cents per dollar. I assume that is after-tax profit. 

Is there any reason why that is not up here in this chart, or does 

that kind of cut into the testimony? 

Mr. SIMON. Mr. Chairman, let me address that from Exxon 

Mobil’s perspective. When you look at our profitability in the first 

quarter of this year, only 4 percent of that profitability was associated with producing products for the American consumer here in 

the United States, our refining and marketing business. 

To bring that back into terms I think people better understand, 

for every dollar paid at the pump, only 1.4 cents of that was attributable to our profitability. 

Chairman LEAHY. Let me go into that a little bit. I understand 

the number is after tax, but we are still talking about tens of billions of dollars a year in profits, and I assume that among your expenses, your compensation, and all the other executives. Is that 

correct? 

Mr. SIMON. That is correct, and I think— 

Chairman LEAHY. And I know it is a matter of public record, but 

last year, what was your compensation, counting all the amounts 

that you have to list in salary, deferred compensation, and so forth. 

Mr. SIMON. In total, about $12.5 million. 

Chairman LEAHY. Thank you. 

Mr. Lowe, what was yours? 

Mr. LOWE. My compensation— 

Chairman LEAHY. Press the button. 

Mr. LOWE. I am sorry. I know it is a matter of public record. I 

do not know the exact amount. 

Chairman LEAHY. Well, Mr. Lowe, I wish I made enough money 

that I did not even have to know how much I make. 

[Laughter.] 

Chairman LEAHY. Is it over, say, $100,000 a year? 

Mr. LOWE. Yes, sir. 

Chairman LEAHY. Is it considerably over $100,000 a year? 

Mr. LOWE. Yes, sir. It would be— 

Chairman LEAHY. Is it over $1 million a year? 

Mr. LOWE. Yes, sir. 

Chairman LEAHY. Do you suppose you might be able to find out 

how much you make and let us know? 

Mr. LOWE. Yes, sir. 

Chairman LEAHY. Thank you. 

17 

Mr. Robertson? 

Mr. ROBERTSON. I am in the same boat. It is certainly well over $1 million. It is public record. I would be happy to— 

Chairman LEAHY. Is it over $2 million? 

Mr. ROBERTSON. Yes, it is, sir. 

Chairman LEAHY. Is it over $3 million? 

Mr. ROBERTSON. Yes, sir. 

Chairman LEAHY. Is it over $4 million? 

Mr. ROBERTSON. I don’t remember. I don’t know—it depends. 

There’s a whole bunch of ways of— 

Chairman LEAHY. You know, if I may— 

Mr. ROBERTSON. But I will tell you that it is several million— 

Chairman LEAHY. If I made over $4 million a year, I probably 

would not remember either, but— 

Mr. ROBERTSON. It is several million dollars, and I would be 

happy to provide it. It is in our proxy statement and is a matter 

of public record. 

Chairman LEAHY. We have had witnesses here before who don’t 

remember. I hope you will recall and send it in to us. 

Mr. Hofmeister, you can probably see where this is going. 

Mr. HOFMEISTER. My income is not publicly reported because it 

is not within the top five executives of my company, but for the 

record, it was about $2.2 million. 

Chairman LEAHY. Thank you, and thank you for your honesty. 

Mr. Malone? 

Mr. MALONE. Chairman, mine is not a matter of public record ei- ther, but it is in excess of $2 million. 

Chairman LEAHY. Thank you very much. 

We understand that the price of crude oil is set on the world 

market. Given its influence by speculation in the commodities market, it affects the price at the pump. We all agree on that. But the 

efficiencies associated with the vertical integration of your companies—and they are vertically integrated companies—should include 

the ability to refine the oil that you do produce in a manner that 

costs less then to purchase, and some of these costs are reflecting 

oil not based on suddenly a new discovery, but discoveries in the 

past. You have already expensed those costs. I am not sure how 

this vertical integration is working for the customers. 

For example, if you refine this oil and gas from oil you produced, 

what price could you charge for a gallon of gas and still be profitable? Mr. Malone? And I realize that would be an approximation. 

Mr. MALONE. Senator, if I understand the question, if I might, 

in the case of my company we produce about 600,000 barrels a day. 

I refine 1.2 million, and I have 1.6 million barrels a day that go 

into the consumer. So I am a net purchaser on the external markets. So we bring in millions of barrels— 

Chairman LEAHY. But would the price be different if you were— 

and I am not asking if you should do this, but would the—I am just 

trying to understand your industry. You work in it all the time. 

You understand it better. But if you refine only the oil you produce, 

would the price still be the same at the pump? 

Mr. MALONE. It would be because the oil is priced as a global 

commodity, so— 

Chairman LEAHY. Mr. Hofmeister? 

18 

Mr. HOFMEISTER. Well, the market sets the price for the pump— 

the product that you buy at the pump. And what we do in terms 

of our production of crude, turning it into finished product and putting it then into the marketplace for sale, is a function of a whole 

range of activity. 

Chairman LEAHY. But if the market sets the price, the market 

sure moves in awfully lockstep on this. I mean, to go from—a doubling almost in the last few months, are those truly market forces? 

For example, Senator Kohl and Senator Specter and 67 Members 

of the Senate, 345 Members of the House, want the Justice Department to look into anticompetitive measures. What about the 

NOPEC bill? You have all been briefed on that. What about the 

ability to bring our antitrust laws to bear? Would that make a difference in the price? 

Mr. HOFMEISTER. Well, I think in my testimony I talked about 

the restrictions of access in this country. It seems to me that the 

place to start the free market is in our own country where we have 

practiced free market enterprise for a very long time. And the restriction of our own supplies to our producers in this country I believe is really setting the stage for OPEC to essentially do what is 

being done in this country, and that is, withdraw production from 

the free market. 

Chairman LEAHY. Where do you think the price of oil should be? 

Mr. HOFMEISTER. I personally believe that the price of oil is extraordinary because of the limits on production. 

Chairman LEAHY. But what do you think the market should be? 

Mr. HOFMEISTER. I think in a range of somewhere between $35 

and $65 a barrel is what has been consistent in our ability to run 

a successful company. 

Chairman LEAHY. Mr. Robertson? 

Mr. ROBERTSON. I have got no idea what the market price of oil 

should be, but I do know that the prices are being driven by the— 

there are a lot of fundamentals in the prices today— 

Chairman LEAHY. At $35 to $60, would you be able to be profitable? 

Mr. ROBERTSON. I don’t believe that you can produce the marginal barrels today, the kinds of complex resources that we are 

having to produce today, in that price range. So I— 

Chairman LEAHY. Mr. Lowe? Mr. Lowe, where do you think it 

should be? 

Mr. LOWE. Well, I believe that the incremental cost of supplies, 

as Mr. Robertson was just alluding to, is something above $90 a 

barrel in this environment. 

Chairman LEAHY. Mr. Simon? 

Mr. SIMON. I have no idea what the price should be today. I 

think the market determines that, Senator. 

Chairman LEAHY. At what price could you be profitable as a company? 

Mr. SIMON. Again, when you look at the marginal costs of production to meet demand today, it is significantly above the range 

that you gave. 

Chairman LEAHY. Up to $130 a barrel? Below $130? 

Mr. SIMON. I can’t answer that, Senator. 

19 

Chairman LEAHY. Mr. Malone, do you want to take a stab at 

that? 

Mr. MALONE. You know, right now on some of our projects—and, 

of course, the sensitivity is that this is commercially sensitive. But 

an oil price in the range of $60, I think in the range that you have 

heard today. But, that does not include the geopolitics, which are 

doing a lot to drive the price higher. And right now some of these 

heavy oil projects in Deepwater Gulf require a very high price to 

bring these fields online. 

Chairman LEAHY. Mr. Malone and Mr. Hofmeister, I appreciate 

your candor. 

Senator Specter? 

Senator SPECTER. Thank you, Mr. Chairman. 

Mr. Simon, there has been substantial publicity about the profits 

of Exxon Mobil. I have taken a look at the trend, and in 2002, 

Exxon Mobil made $11 billion; in 2003, $21 billion; in 2004, $25 billion; in 2005, $36 billion; in 2006, $39 billion; in 2007, $40.6 billion. 

Very, very steep escalation in profits. And that raises a question 

in the minds of many people, including Arlen Specter, about the 

scope of those profits, and a lot of talk about taxing excess profits, 

a lot of talk about oil’s benefits. 

We are mindful at the same time about the costs of exploration 

and very mindful about the problems of tampering with the free 

market. We want to be very careful we do not cause damage with 

what looks like a good idea. 

But when you take a look from $11.5 billion in 2002 to $40.6 billion in 2007, with the consumers suffering so drastically not only 

at the pump but big issues on heating oil for the elderly, especially 

in a State like mine—Pennsylvania—don’t you think that gives 

some cause for wonderment and questioning as to why profits have 

gone up so high when the consumer is suffering so much? 

Mr. SIMON. Absolutely, Senator, and I understand people’s concerns about that. When you look at our profitability, however, I do 

think it helps, as you point out, to break that down on what makes 

that up. 

When you look at our profitability last year and you look again 

at the profitability associated with manufacturing the products 

that we are talking about here, 10 percent of that profitability was 

associated with our refining and marketing business here in the 

United States. To put that into perspective, that is 4 cents on the 

dollar. To put that 4 cents into perspective, that compares to 7.8 

cents from the Dow Jones Industrials, or about half. 

The point is it is not our profitability in this business that is 

driving the higher price that consumers pay. It is the raw materials that we have to purchase on the open market to produce those 

products for our customers. That is what is driving the higher 

price. 

Senator SPECTER. Mr. Simon, that is a good logical agreement, 

but is there any merit to those who contend that given that explanation, that when Exxon Mobil’s profits are so high, that there 

might be some give which would have an impact on the cost of 

heating oil and the cost of gasoline at the pump, looking at it on 

an overall picture? 

20 

Mr. SIMON. Well, again, when you think about that, Senator— 

which I understand people saying—again, when the profitability 

that we have is 4 cents on the dollar, the market is working today. 

The market is working. I understand consumers are feeling the 

pain, but we are seeing a reduction in demand in this country as 

a result, and we are bringing on more supplies. 

When you look at what the industry has projected to bring 

onstream—and this is the DOE that has made this projection—five 

additional refineries will come onstream between now and the year 

2012 by incrementally expanding existing capacity. To put that into 

perspective, that is three more refineries than is needed to meet 

the projected demand growth. 

The point is that the market is working. If we leave the market 

alone, if we do not additionally tax the industry, if we do not put 

in place additional mandates, the market will work to the benefit 

of the American consumer. 

Senator SPECTER. Let me shift gears to the issue of OPEC, Mr. 

Robertson, and direct this question to you. The 13 OPEC countries 

produce 40 percent of the world’s oil supply. Saudi Arabia made an 

announcement that they were going to increase production by 

300,000 barrels by June. At the same time, the other OPEC countries announced that they were going to decrease production by 

about 390,000 barrels. 

A lot of analysis here about the supply, talk about other exploration. Why shouldn’t the OPEC countries be under our antitrust 

laws so that a group of companies cannot sit down in a room, 13 

companies, decide to lower production, less supply? At least under 

the traditional laws of supply and demand, that raises prices. Why 

should we give them preferential status in our economy? 

Mr. ROBERTSON. Well, Senator, I don’t support the NOPEC proposal. I don’t think that suing foreign governments in our courts 

will do anything to raise the supply in the world. I think that engagement in partnerships and talking to these people and spending 

time with them I think is the most important thing— 

Senator SPECTER. Well, the talk has not done a whole lot of 

good— 

Mr. ROBERTSON. I think the issue— 

Senator SPECTER. Vice President Cheney is practically on a commuter line. 

Mr. ROBERTSON. I think the issue— 

Senator SPECTER. And the President was just there— 

Mr. ROBERTSON. I know that. 

Senator SPECTER.—tank was empty. 

Mr. ROBERTSON. Yes, sir, I know that. But I think that the real 

issue here is more investment in the world. There are many countries that are not making investments. There are many countries 

that are. There are many— 

Senator SPECTER. But we— 

Mr. ROBERTSON. We are one of the ones that should be making 

more investment. 

Senator SPECTER. I have got less than a minute left, but we cannot control—we cannot control— 

Mr. ROBERTSON. I don’t think we can control OPEC. I don’t think 

it is our place to control OPEC. But I do think that there are sigVerDate Aug 31 2005 14:52 Sep 18, 2008 Jkt 043354 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\43354.TXT SJUD1 PsN: CMORC
21 

nificant investments needed in many of the OPEC countries, significant additional investments, because this is all about investment. There is not much spare capacity in the world. OPEC does 

not have much spare capacity to change the world’s supply right 

now. So many of the OPEC countries are making investments, 

many are not. But we need across this business, across the world, 

more investment to increase the supply, and it is not just the 

OPEC countries. 

Senator SPECTER. Well, I am not sure we can’t—OK, we can’t 

control OPEC, but we might have some impact. But I think right 

now OPEC may be doing a pretty good job of controlling us. 

Mr. ROBERTSON. Senator, I think— 

Senator SPECTER. My red light— 

Mr. ROBERTSON.—a negative impact. 

Senator SPECTER. Excuse me. Excuse me. 

Mr. ROBERTSON. Excuse me. 

Senator SPECTER. My red light is not yet on, Mr. Hofmeister, so 

I want to come back to an issue we talked about privately in the 

little time I have remaining about the cost of gasoline at the pump. 

As you described it to me, how much is attributable to the credit 

card costs? 

Mr. HOFMEISTER. Well, I think the credit card rates are set 

through a particular process by the credit card companies, and they 

are set at a percentage of the retail price. And so if you just take 

that percentage times the retail price, it comes out somewhere in 

the range of 12 to 15 cents a gallon. 

Senator SPECTER. And how much is the profit of the gasoline operator at the pump? 

Mr. HOFMEISTER. Well, for the retail operator, it depends on 

their cost structure, obviously, and that various from State to 

State, from station to station. But, you know, I think our retailers 

generally are somewhere in the range of, at the low side, 2 to 3 

cents a gallon; at the high side, depending upon the wholesale margins that they are having to pay for, could be in the range of 8 to 

10 cents a gallon, averaging somewhere around 6 to 8 cents. 

Senator SPECTER. And how about Shell? What is Shell’s profit 

margin? 

Mr. HOFMEISTER. The wholesale margins are much thinner than 

that. In some cases, they are just barely profitable margins, sometimes as low as a cent a gallon. 

Senator SPECTER. Well, we have been looking at the issue of exchange rates with Visa and MasterCard. It is a pretty bleak picture 

if you say the credit cards are 12 to 15 cents and the dealer at the 

pump is about 6 cents and the oil companies are about 1 cent. That 

is a very significant factor that we will have to look at further. 

Thank you, gentlemen, for coming in. We really appreciate your 

being here, and we know it is not easy, but we really want to try 

to find some answer to this, if we can. 

Thank you, Mr. Chairman. 

Chairman LEAHY. Thank you very much, Senator Specter. 

Senator Kohl? 

Senator KOHL. Thank you, Mr. Chairman. 

Just proceeding to try and get some clarity here, as I said in my 

opening statement, back in 1981 the total petroleum product supVerDate Aug 31 2005 14:52 Sep 18, 2008 Jkt 043354 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\43354.TXT SJUD1 PsN: CMORC
22 

plied to our market here in the United States was 571 million barrels in January 1981; and 27 years later, in February of 2008, the 

total number of barrels in petroleum products supplied was 573 

million barrels. So it was the same. Twenty-seven years later, we 

were supplying our market with the same amount by way of raw 

material. And you might say, well, the worldwide situation needs 

to be considered because that is—and certainly you have your 

point, and it is true. But worldwide petroleum consumption increased from 2004 to 2006 just 2.8 percent. 

So that does not explain why prices are up 40 percent, 60 percent 

over last year. You cannot say it is because demand has gone 

through the roof. So what is the answer? Yes, sir? 

Mr. ROBERTSON. I think there are several things that have happened. First of all, the market did work in the 1980’s, and as a result of very severe price increases in oil, people changed their behaviors, and people did buy smaller cars and people did get a lot 

more efficient because prices were high, and that in the United 

States dropped demand dramatically over a period of time. And, in 

fact, it took pretty close to 15 to 20 years to recover from that, so— 

to recover, I mean for the demand to grow and for the economy to 

grow so that we are back to where we were in terms of the use of 

oil. 

So we did get much more efficient in the United States, and that 

was a good thing. And some of us believe that with higher prices 

here this time, we will again become more efficient, and we will 

again use our technology, and we will again use our, you know, behavior patterns in the United States to reduce demand. So the 

market, higher prices did have an impact in the past and will have 

an impact this time. 

Senator KOHL. Well, that is true but— 

Mr. ROBERTSON. The other thing—can I make another point? 

Senator KOHL. Go ahead. 

Mr. ROBERTSON. The other thing I would say is that the other 

thing that we haven’t talked about yet is underlying decline rates. 

Oil production declines, and we have in the world about a 4-percent 

decline on all the existing fields, or something like that. So there 

are massive investments needed every year just to stay even. So 

when we talk about the world growing at 2 or 3 percent, or whatever it is, it is really 2 or 3 percent plus the decline of 5 or 6 percent, which is an enormous investment that is required. 

So, I mean, the growth is bigger, I think, in the world in terms 

of the investment that is needed than perhaps the relatively small 

growth rates would suggest. 

Senator KOHL. People listening just do not get it. When demand 

is not going crazy, why are prices going crazy? They do not get it. 

You say, well, we need more investment and so on. But demand is 

not going crazy. Why are prices at the pump going crazy when demand is not going crazy? 

Mr. ROBERTSON. Well, I think the combination of supply and demand are going crazy. There is a significant demand increase in 

the world, and there is a significant continuing reduction in supply 

unless we continue to invest. So it is the combination of those two 

things. I think as you say, it is not going crazy, but this is an enormous gap that exists. 

23 

Senator KOHL. But they are not going crazy like prices are going 

crazy. 

Now I want to talk about OPEC because you said given that 

OPEC is really not something we should be tampering with, you 

know, we need to get more supply here in the United States. But 

it is true that as long as the OPEC cartel decides on supply, therefore, prices are going to follow—we know that. Unless we deal with 

OPEC in the foreseeable future, we are not going to be able to deal 

with the price at the pump. If they are allowed to get together and 

decide what supply is going to be, and then decide what the prices 

are going to be, we are helpless. There is nothing we can do. And 

if you say, well, we need to invest more, we need to drill more, that 

might take 5 or 10 years to come onstream. 

So you are saying that we should not tamper with the OPEC cartel. You are, therefore, saying that we are helpless to do anything 

about what we are paying at the pump for the foreseeable future. 

You are saying that. 

Mr. ROBERTSON. No, I am not saying that. 

Senator KOHL. But if we do not deal with the OPEC cartel, how 

are we in the foreseeable future going to deal with the price at the 

pump? 

Mr. ROBERTSON. I just maintain that the surplus that exists, 

even in the OPEC countries or in other countries, is minimal at 

this point. So what is going to be required, whether it is within 

OPEC or whether it is within Russia or whether it is within the 

United States, what is going to be required is not—OPEC is not 

the issue here. The issue is we have to as a world invest more. 

OPEC is certainly some of the places where there is some investment to be made, but it is not just OPEC. So I don’t believe— 

Senator KOHL. But that comes back, again, to demand. Demand 

is not going crazy, but prices are going crazy. 

Mr. ROBERTSON. Well, in this kind of world, a several-percent increase is a huge amount, particularly with the underlying decline 

rate going— 

Senator KOHL. And then I just want to hit on this next point and 

listen to all of you, if you would. Generally, when raw materials go 

up in a company and the raw materials just skyrocket in price, it 

is pretty hard to continue making even the margin of profit that 

you were making. And yet as you have said, your raw material cost 

is just beyond your ability almost to deal with it. And, nevertheless, your profits are going up hugely. Again, that is something 

we—we find it hard to understand that. 

Mr. Simon, you were talking about that—just in almost every industry that I know of, including some of the businesses I have been 

in, when raw materials jump like crazy, we cannot make the profit 

that we used to. With you, it is just the opposite. You are making 

more money than ever. In effect, your industry has no problem in 

doubling your profits, tripling your profits. Even when prices at the 

pump go crazy, you have no problem in keeping up with your increasing profit. 

It does not seem fair, guys. It just does not seem fair. 

Mr. SIMON. Senator? 

Senator KOHL. Yes, sir. 

24 

Mr. SIMON. Again, when you look at our profit, again, on the 

manufacture of products here in the United States, it has not kept 

the same. The price of crude oil, our raw material, has gone up 78 

percent, May of this year compared to May of last year. The price 

of diesel fuel has gone up 52 percent. The price of motor gasoline 

has gone up 16 percent. Profit margins have been squeezed. As I 

said before, our profitability last year was 10 cents a gallon. That 

is now down around 4 cents a gallon. We are seeing the impact because 90 percent of the raw materials that we use to make our 

products, we buy on the open market. It is not our own production. 

We buy it on the open market, and we are not able to pass that 

through. 

Senator KOHL. Well, you are retiring, Mr. Hofmeister, so you can 

really be candid with us today. 

[Laughter.] 

Senator KOHL. How about it? 

Mr. HOFMEISTER. I think, Senator, from my point of view on all 

of this, the profitability that we are reporting is very large in absolute numbers. But we are—you have to look at the different segments of our business to understand where the profit comes from. 

In the upstream of our business, at $125 a barrel, when we are 

producing oil that we have been producing from oil fields that are 

much lower cost oil fields because of their historic age and the 

write-down of the costs, the profits coming from those oil fields 

where the marginal cost of producing the oil might be, you know, 

low double digits given the history and the sales price is $125 in 

the global trading market, there is a lot of profit coming from that. 

But it is earned profit. It is earned because the market sets the 

price, our costs are very low. But as we look at new fields, new 

fields that are costing—and I would indicate that my 35 to 65 

range that I said earlier was on a ‘‘should be’’ basis, which includes 

the value of the dollar restoring itself to some measure as it used 

to be. The costs of new fields are extraordinarily much higher. 

And I agree with colleagues here who have said that the mar- ginal costs of production are in the $70-plus range for many of 

these new fields. So we are not making as much money on new oil 

as we are making on old oil. When it comes to refining, we are 

making considerably less this year on refining than we were last 

year because there is much less demand. 

So when you add all of that together—the old oil profit, the new 

oil much lower profit, the much lower refining margins—Shell’s result in the first quarter was 6.9 percent return on sales. They 

sound like big numbers at $7.8 billion profit on $114 billion in revenue. But if I was reporting $7.8 million on $114 million in revenue, we would not be here today. Just change the word ‘‘million’’ 

to ‘‘billion.’’ It is the same percentage, 6.9 percent, which I think 

is a rather average number. In fact, we spent more money on capital investment in the first quarter than we did on—than we returned in profit. 

Senator KOHL. Thank you, Mr. Hofmeister. 

Thank you, Mr. Chairman. 

Chairman LEAHY. Thank you. 

We have been joined by Senator Grassley. Senator Grassley, you 

are next. 

25 

Senator GRASSLEY. Most of my questions will be to any one or 

all of you on the panel, and I don’t necessarily demand that you 

all answer them from the standpoint of being repetitive. There is 

no point in doing that. 

According to the Center for Agricultural and Rural Development 

at Iowa State University, ethanol use has lowered retail gasoline 

prices by 30 to 40 cents per gallon. A Merrill Lynch strategist estimates that oil and gas prices would be about 15 percent higher if 

biofuels were unavailable. Some have estimated that gas today 

would be $1.40 more if you removed the 4.5 billion gallons that 

would be removed by a bill introduced by Senator Hutchison from 

the alternative fuels market. 

What would happen to retail prices if that 3 to 7 percent that 

is biofuel were removed from the fuel supply? Any one of you? But 

hurry, because we have only got 7 minutes. 

Mr. SIMON. Senator, I would make just one comment, and that 

is, when you look at producing motor gasoline out of crude versus 

ethanol out of corn, at today’s prices, even with the extraordinary 

high price of crude, it is still more costly to produce an equivalent 

gallon of gasoline out of corn or ethanol than it is out of crude. 

Senator GRASSLEY. OK. But my question is we have got x percentage of supply coming from biofuels. If that were taken off the 

market, would that increase the price at the pump for the consumer? 

Mr. ROBERTSON. Well, there is no doubt in my mind that it 

would. 

Senator GRASSLEY. OK. 

Mr. ROBERTSON. Because I think it is an important component 

of the supply today. 

Senator GRASSLEY. Is there anybody that disagrees with him? 

OK. Let’s move on. 

Currently, refineries are blending ethanol and 60 percent of the 

Nation’s gasoline. Many of your companies, including BP, Shell, 

and Chevron, are pursuing biofuel projects. From your opening 

statements, I assume each of you support the use of ethanol. If you 

don’t, say so. And I also assume that if there is more supply of ethanol, you are going to continue to increase that, use of ethanol. If 

that is not so, I would like to have you clear that up because I do 

not want to ask a series of questions if the assumption is going to 

be that you like ethanol, you are going to continue to use ethanol, 

et cetera, et cetera. 

Mr. SIMON. I think mandating use of ethanol is not the right approach. I think ethanol ought to stand on its own. We ought not 

to mandate and subsidize it. Let’s let the free market work, and 

we will make that determination. 

Senator GRASSLEY. OK. But in the meantime, you are going to 

continue—beyond, you know, right now, the mandate is 7.5 billion 

gallons, going up to 15 billion. We have just about reached that 7.5, 

9 billion next I guess it is. Probably if there is—are you saying that 

if there is ethanol available above the mandate, you might not use 

above the mandate? 

Mr. SIMON. We wouldn’t even be using as much as we are today 

were it not for the mandate. 

26 

Senator GRASSLEY. So then if gasoline with ethanol in it is 13 

cents a gallon cheaper in Iowa, then otherwise you want the consumer to pay more? 

Mr. SIMON. No. We would be using where it was economic to be 

using it, but there are areas where it is not. 

Senator GRASSLEY. OK. We have your general support for ethanol with or without mandates, I think. You have also agreed that 

without renewable fuel, gas prices would be higher. I think you 

have said that. Yet we have Charles Drevna, President of the National Petrochemical and Refiners Association, recently stating that 

biofuel policies ‘‘have significant detrimental effect to our country 

and its consumers,’’ and that biofuels ‘‘fail the economy, fail the environment, fail energy security, and fail the American consumers.’’ 

Now, I assume your companies are prominent members of the 

National Petrochemical and Refiners Association. If it is not, correct me. But if I am correct, does Mr. Drevna speak for you when 

he makes these statements? For those of you doing active research 

on biofuels, do you agree with Mr. Drevna’s outrageous comments 

that denigrate our efforts to promote renewable fuels? OK, go 

ahead. 

Mr. HOFMEISTER. Well, I think from the Shell standpoint, we see 

biofuel as a new and growing industry, not only in this country but 

elsewhere around the world. The research and development that 

we are pursuing happens to be non-food based ethanol, which is 

second-generation or cellulosic ethanol, where in the last year we 

have announced a number of major projects, a number of future 

fuel streams which we think will be necessary as a way of delivering energy security to this country, the reason for that being the 

convenient, easy oil that we—when I talked about earlier sort of 

the old oil, it is scarcer and scarcer. And we cannot predicate our 

future business on the probability of access being more free in this 

country. And, therefore, we think it is necessary to have an alternative. We think cellulosic ethanol is the way to go. 

Senator GRASSLEY. I take what you are saying then is when Mr. 

Drevna says it ‘‘fails the economy, fails the environment, fails energy security, and fails the American consumers,’’ he does not 

speak for you? 

Mr. HOFMEISTER. I don’t approve what he says. 

Senator GRASSLEY. OK—you don’t approve of it, or you don’t— 

Mr. HOFMEISTER. I don’t get to approve it before it is said. 

Senator GRASSLEY. OK. And so you obviously disagree with it. 

Mr. HOFMEISTER. That is correct. 

Senator GRASSLEY. In remarks before the House Committee, Mr. 

Drevna made accusations that increased biofuel production is driving up the cost of food. However, numerous economists, including 

Iowa State University, including Texas A&M, U.S. Department of 

Energy, U.S. Department of Agriculture, and the White House 

Council of Economic Advisers, have all concluded that biofuel policies have had a very minor, if any, impact on food prices. Unless 

Mr. Drevna is an expert in agricultural policy or food economics, 

do any of you know why we should believe the claims of the head 

of this trade association over the Chief Economist of the U.S. Department of Agriculture and the Chairman of the President’s Council of Economic Advisers? 

27 

Mr. ROBERTSON. No. All I can say is that we need all forms of 

energy today, and I think biofuels are an important part of that energy mix. I do think that there are some implications for food that 

I do not personally understand well, but I think there are tradeoffs 

in everything we do. So I think there is a limit to how much cornbased ethanol we should be using, and the mandate calls for about 

10 percent of our U.S. gasoline capacity. 

I agree with Mr. Hofmeister that moving to some other form of 

ethanol—cellulose-based ethanol or something else—is the right 

track, and Chevron and many of the other companies are on that. 

But I do think that it is an important part of the fuel supply today, 

not only in the United States but in the world. 

Senator GRASSLEY. Well, you know— 

Mr. ROBERTSON. And if we did not have that, we would be feeling 

more pressure on the other system of oil and gas. 

Senator GRASSLEY. Yes. Well, you know, it is our policy right now 

in law that not more than 15 billion gallons of ethanol is going to 

be made from grain. 

Thank you, Mr. Chairman. 

Chairman LEAHY. I thank you, Senator Grassley. 

Senator Feinstein? 

Senator FEINSTEIN. Thank you very much, Mr. Chairman. 

Gentlemen, it is good to see you. Mr. Robertson, good to see you 

again. 

I must tell you up front, as I listened to your opening comments, 

to me it was just a litany of complaints, that you are all just hapless victims of a system. You blame one thing or another, which 

most people would say is just simply the cost of doing business. 

And yet you rack up record profits—record profits for any corporation in the United States of America—quarter after quarter after 

quarter, and apparently have no ethical compass about the price of 

gasoline. You are just victims. 

I do not think you are, really, and I want to read something to 

you. The Chief Economist of Commodity Futures Trading Commission and the Director of Market Surveillance of that Commission 

said before Congress—and it is in a written paper—a few days ago, 

‘‘Our studies consistently find that when new information comes to 

the market and prices respond, it is the commercial traders, such 

as oil companies, utilities, airlines, who react first by adjusting 

their futures positions. When these commercial traders adjust their 

futures positions, it is speculators who are most often on the other 

side of the trade. Price changes that prompt hedgers to alter their 

futures positions attract speculators, who change their positions in 

response. Simply stated, there is no evidence that position changes 

by speculators precede price changes for crude oil futures contracts.’’ 

In other words, the CFTC is saying oil companies are driving up 

the price of oil in this way, and other market participants are simply responding to your constant increases. 

I would like to know your response to that. Mr. Simon? 

Mr. SIMON. Senator, we do no speculation. 

Senator FEINSTEIN. I did not say you did. 

28 

Mr. SIMON. Well, you are saying that what we are doing in terms 

of taking positions influences the market, and we do not do that 

as a corporation. 

Senator FEINSTEIN. That is exactly what the CFTC’s experts are 

saying. I am not saying that. That is what they are— 

Mr. SIMON. Well, I am just saying that we as a corporation do 

not take positions. We do not speculate. 

Senator FEINSTEIN. OK—well, all right. Any other comments on 

that? Mr. Robertson? 

Mr. ROBERTSON. Well, I would just like to say, first of all, I am 

sorry for sounding like a victim because I do not feel like a victim 

at all. 

Senator FEINSTEIN. I don’t think you are. 

Mr. ROBERTSON. I feel very proud of what we do. We have 

changed our future by increasing our investment patterns dramatically. I feel very proud of the fact that, you know, we are investing 

all of our earnings. That is why we earn money, is to invest. We 

are an investing machine, and we invest in future supplies for the 

people of the world. So I am very proud of that. 

With regard to the speculation, we sell about 2 million barrels 

a day of oil into the market which we produce, and we buy about 

2 million barrels a day, round numbers, for our refineries. We trade 

in the market to basically—on a physical basis and to sort of optimize our position. We are not a speculating company at all. We 

support all transparency and support the bill that you have put forward. So that is not an issue for us, and I don’t feel threatened by 

it at all. And I don’t feel like a victim. 

Senator FEINSTEIN. I don’t think you are a victim. It is just when 

I heard it is one complaint after the other, it is American policy, 

it is permitting, you can go on and on and on. But let me go back. 

Mr. Simon, last month you testified before the House Select Committee on Energy, and you agreed that speculation is part of the 

problem. You said, ‘‘When you look at the fundamentals, the price 

should be $50 to $55 a barrel of oil.’’ Today, in response to the 

question, you said you did not know. Why is that? 

Mr. SIMON. Yes, thank you very much, Senator, for giving me the 

opportunity to clarify that. What I did comment was that when you 

looked at historical fundamentals, it would predict a crude price 

about $50 to $55 a barrel. And then I outlined three factors that 

have caused a disconnect since 2005, the first of 2005: one is the 

weaker dollar; the other is geopolitical uncertainty in combination 

with a very low level of spare capacity in the world; and the third 

is speculation. But what I did not say was that if you eliminated 

or reduced that, that that would necessarily change the price today, 

because those are true factors in today’s market, and the price that 

you see in the market today is reflective of what is required to balance supply and demand. 

Senator FEINSTEIN. Well, let me ask you this question. When you 

said that last month, did you mean that the marginal cost to 

produce an additional barrel of oil is $55? 

Mr. SIMON. No, that is not what I indicated at all. 

Senator FEINSTEIN. What exactly did you mean by fundamentals? 

Mr. SIMON. If you look at the historical relationship between usable commercial days of inventory around the world in terms of 

29 

crude oil inventories, there has been a reasonable correlation between that and crude price. That correlation broke down beginning 

2005, and the three factors that have been identified as contributing to that disconnect are the three that I just indicated. 

Senator FEINSTEIN. I guess I am really not understanding. I 

think it is—based on what everybody said, it is probably correct 

that the price should be somewhere between $40 and $60. I remember when royalty relief was anything over $35 a barrel of oil, 

and we are now at $130 a barrel of oil today. And it seems to me 

that those same basic fundamentals that enabled somebody to 

produce oil much more inexpensively are still there. And all these 

extra features that you are adding in, I am having a very hard 

time understanding. 

Mr. SIMON. But I think they are reflective of the world’s perception of the supply demand balance. When you have got such a very 

low level of spare capacity, it does not take much of a disruption 

in supplies to cause that. And what you are seeing today is the 

market’s perception of the price that is required to balance supply 

and demand given that very low level of spare capacity. 

Senator FEINSTEIN. So what you are talking about is the futures 

trading of the market— 

Mr. SIMON. I think it is— 

Senator FEINSTEIN.—increasing the cost of oil. 

Mr. SIMON. That is one factor because, again, when they look at 

that amount of spare capacity, there is a risk premium in the market today. 

Senator FEINSTEIN. How much per barrel do you believe is speculation of this type? 

Mr. SIMON. What I indicated before is, roughly speaking, maybe 

a third, a third, a third. But I will frankly admit, Senator, I have 

no way of really knowing that because there is such a lot of interrelationship between those three factors that I just indicated. 

Senator FEINSTEIN. Well, let me ask others. I am absolutely convinced that futures speculation is a big part of it. I am also convinced that the falling dollar is part of it when you can buy much 

better with the euro than you can with the dollar, clearly. But does 

anybody else have a view on futures speculation and its influence 

on the price of gasoline? How much would that be? 

Mr. ROBERTSON. Senator, I want to raise— 

Senator FEINSTEIN. Mr. Robertson? 

Mr. ROBERTSON. It is a slightly different point, but the cost of everything has gone up. Oil as a commodity clearly has gone up. But 

the cost of all other commodities has gone up, too, and so the cost— 

you were talking about the incremental or the marginal cost of producing a barrel of oil. The marginal cost of producing a barrel of 

oil has been impacted by the cost of steel, by the cost of cement, 

by the cost of all of these other commodities in the world that you 

see. So actually, as the price of oil has gone up, the cost of producing those barrels of oil has gone up because all commodities 

have gone up and because the complexity of the projects that we 

are having to go to today has gone up dramatically, and I would 

give you one example. We are just completing a project in 

Kazakhstan, a $6 billion project. It is 250,000 barrels a day, which 

is less than 1 percent—less than half of 1 percent of global oil deVerDate Aug 31 2005 14:52 Sep 18, 2008 Jkt 043354 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\43354.TXT SJUD1 PsN: CMORC
30 

mand, and the amount of man-hours that went into producing that, 

creating that project, is more than building the Panama Canal. 

So these are enormously complex projects, getting more complex 

by the day, the kinds of resources that we are getting access to, as 

opposed to the places where we can’t get access to, are getting more 

and more difficult. So not only prices have gone up, costs have gone 

up dramatically, too, and that has been a big part of the run-up, 

and it has changed the fundamentals from the time that you are 

talking about, I believe. 

Senator FEINSTEIN. Thank you. My time is up. 

Chairman LEAHY. Thank you. 

Senator Sessions? 

Senator SESSIONS. Thank you, Mr. Chairman. 

The oil man Boone Pickens recently said that our $500- billiona-year transfer of wealth to buy foreign oil is the greatest wealth 

transfer in the history of the world. I guess, Mr. Simon, would you 

agree that 50 percent of our balance-of-payments deficit is one reason the dollar is declining in the world market? 

Mr. SIMON. I think that is one factor, but, Senator, I would be 

the first to admit I am not expert in that area. 

Senator SESSIONS. Well, that is what they tell me, too, that trade 

deficits tend to weaken the dollar, and this huge—and that is— 

what?—15 percent of the price of oil now in the last 3 or 4 years 

is a decline—15 percent of the increase is related to the decline in 

the dollar? Is that 10, 15 percent? Is that what— 

Mr. SIMON. The U.S. dollar has weakened about 20 percent since 

2004 relative to the euro. 

Senator SESSIONS. Well, I don’t know how much it is, but it is 

a factor, and it strikes me that, therefore, our fundamental policy 

needs to be more conservation and more clean American production. Those two things will help make us less dependent, help reduce our balance-of-trade deficit, and keep wealth at home, hiring 

Americans, paying them decent wages with decent retirement benefits. 

Mr. Hofmeister, let me just clear one thing up. When I say sometimes we need to produce more oil in the United States, in Alaska, 

offshore—which I have been a strong advocate of and believe it is 

unthinkable that we have not done that, and it is absolutely a factor in increasing the price of oil, and it is a factor in our wealth 

transfer, which we could have kept at home no matter what the 

price of oil was. 

Senator SESSIONS. But explain—and people say, well, you are 

just talking—you are shilling for the oil companies. That is what 

the oil companies say. 

Explain to us briefly how it is in America’s interest and that you 

would have to compete for those resources and have to produce 

them and sell them at a competitive price on the marketplace. But 

to me, it is America’s interest in producing more oil and gas at 

home, not to benefit you in any way. 

Mr. HOFMEISTER. I think the first benefit is to the American consumer. If, in fact, futures speculation is based on scarcity, if there 

is a sense in the market that there will be an abundance of oil because of the extra exploration and production which the United 

States is now committing itself to, the futures market is turned upVerDate Aug 31 2005 14:52 Sep 18, 2008 Jkt 043354 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\43354.TXT SJUD1 PsN: CMORC
31 

side down, because we look at a future of surplus because of new 

American oil heretofore off limits, now being brought into the marketplace. The immediate beneficiary would be the American consumer because futures speculation would take that into account. 

Second, the job creation content of new oil exploration and production would be enormous. I just point to the example of Motiva’s 

Port Arthur, Texas, refinery of which Shell has a 50-percent share. 

We are going to have 6,000 construction workers at the peak of 

construction in adding on to that refinery. Now, much of the crude 

oil is going to come from foreign oil sources, but if, in fact, over 

some longer period of time there was more production coming from 

the Gulf of Mexico, more production from the east or the west coast 

or the eastern Gulf of Mexico, this would have a dramatic impact 

not just on that refinery but other refineries in the United States 

getting oil that is now coming from oil produced by American workers. 

Senator SESSIONS. And I am exceedingly disappointed that the 

Democrat leadership slipped in the two bills, changed the law in 

the last year to, in effect, stop oil shale production. Mr. Hofmeister, 

I believe your company is investing in oil shale. Do you believe that 

if you are allowed to produce that that you can produce huge 

amounts of oil in the United States, American oil, at less than this 

$130 world price of oil? 

Mr. HOFMEISTER. Well, I think it would depend upon what all 

the other costs are at the time that our research and development 

project is completed. We do see that, you know, as we have talked 

earlier, the marginal cost of a barrel is increasing. That is because 

steel is more expensive, labor is more expensive, the house pumps, 

everything is more expensive. So we do not know what the future 

cost structure might look like of oil shale, but let’s be clear. When 

there is a natural deposit of more than a trillion potentially recoverable barrels of oil in a particular geography within the continental United States, not to develop that is really, in my opinion, 

a disservice to the American consumer. 

Senator SESSIONS. Well, and a trillion barrels, we spend about 5 

billion—we utilize about 5 billion a year, so that is a couple of hundred years’ worth of oil right there. We would not have to—your 

engineer in the Energy Committee either this week or last week 

testified that you could bring it out for less, far less than the world 

price. And then the coal to liquid also can be brought forth at less 

than this world price right now. And with good technology, we may 

even get better. But both of those were blocked, I would note. 

So a majority in the Congress, I just have to say, have blocked 

Alaska, they have blocked the Pacific Coast, they have blocked the 

Atlantic Coast, they have blocked off Florida and made it far more 

difficult to produce on certain Federal lands, leaving us more dependent on foreign oil. 

Now, I am not pleased with some things that I think are occurring. I cannot fathom why the United States is producing so little 

diesel, and Europe has half of its automobiles diesel automobiles. 

Diesel is cheaper in Europe than in the United States, cheaper relative to gasoline. It gets, I have always understood, about 38 percent better gas mileage than a gasoline engine. We have recently 

seen a Popular Mechanics article that compared them and said it 

32 

gets 38 percent better than a hybrid vehicle that we have been 

committing so much to and I have supported. 

Why aren’t we doing more diesel? What is the policy that has us 

at 3 percent diesel automobiles whereas Europe has 50 percent diesel automobiles? And if we were using diesel, we would be utilizing 

about 35 percent fewer gallons of that fuel we put in our cars and 

it would hurt your business? I am asking Mr. Robertson. 

Mr. ROBERTSON. Mr. Sessions, you are exactly right. Diesel is 

fundamentally a better product, so there is fundamentally more energy in a barrel of diesel than there is in a barrel of gasoline. And 

so you would expect that the price, if everything else were equal— 

which it is not—the price would be higher. 

Europe has traditionally tax-advantaged diesel through policy, 

and so the European system is fundamentally—the European refining system is fundamentally built to produce diesel. The American 

refining system is fundamentally built to produce gasoline, so the— 

Senator SESSIONS. Why? Why? 

Mr. ROBERTSON.—facilities are different. It used to be that diesel 

was a product that people did not like, they did not like the kind 

of cars, they did not like the noise, they did not like the smell. And, 

of course, technology has changed all that. But our refining system 

is fundamentally focused on gasoline as a primary product. 

Senator SESSIONS. Well, I am going to be pursuing that in more 

depth, but I would note that new diesel engines are cleaner, emit 

fewer CO2, and our diesel—low-sulfur diesel fuel is the cleanest 

fuel in the world. The whole ideas about dirty diesel are not correct. It actually is environmentally friendly. 

Mr. ROBERTSON. I was agreeing with you. But the problem is 

that we have built our system for something else, so there is— 

Senator SESSIONS. I know. I want to find out how we made that 

mistake. 

Chairman LEAHY. Maybe this could wait for another round. 

Senator Durbin? 

Senator DURBIN. Thank you, Mr. Chairman. Thank you to the 

witnesses who are here today. 

The Chairman’s earlier questions about CEO compensation left 

me a little puzzled when I heard your responses. I asked the Congressional Research Service to give me updated information on the 

CEO salaries of the oil industry, and these salaries relate to 2005. 

That is the only information they had readily available. They are 

dramatically larger than the amounts which we have been told— 

for instance, Mr. Tillerson, CEO of Exxon Mobil in 2005, $21.7 million in salary, $69.7 million in stock options. It turned out the average salaries, bonuses, deferred compensation, stock options of the 

15 United States oil CEOs in 2005 averaged $32.7 million. In comparison, the average compensation for the largest corporation 

CEOs in America was $11.6 million, about a third. 

So I would like to ask, Mr. Chairman, as a followup to your question, for the record if you all will be kind enough to update these 

figures for each of your companies, the amount that is being paid 

to CEOs in salary, bonus, deferred compensation, and other stock 

options so that the record is complete. I thank you for asking that 

question. 

33 

Mr. Chairman, I am glad we had this hearing, and I am sure it 

is not the first or last time that these gentlemen or people like 

them will be called before Congress, as they should be. But the 

honest answer is it takes us a long time to respond to a national 

crisis like the one we face. And it is tough. The idea of a windfall 

profits tax, which I support—and I assume the entire panel opposes—is not likely to pass in this Congress because these gentlemen and their companies have very powerful people in Washington 

that make it difficult to bring those measures before us. I understand that. 

It strikes me that this is the right situation for a President to 

step in, for a President of the United States to step in. I can understand when the President of the United States goes to Saudi Arabia and begs the sheikhs, please, release more oil, you are killing 

the American economy, they told him to take a hike. They sent him 

home empty-handed. 

I think the President should be calling you all before his little 

meeting place in the White House and talking about what you are 

doing to the American economy. You have to sense what you are 

doing to us. We are on the precipice here and about to fall into a 

recession. Working families across this country have been falling 

behind for 7 straight years in the cost of living. And if I ask any 

family in Illinois—which, incidentally, has the dubious distinction 

of having the Nation’s top gas prices as of Tuesday of this week. 

If I asked any family in Illinois, ‘‘What is the biggest pain you 

face?’’ they are going to point at you and what it costs to fill a tank 

of gas. It cost me 61 bucks to fill up my Ford pick-up truck at the 

Shell station in Springfield, Illinois, Friday. That is the most I 

have ever paid in my life. I am afraid it is going to go higher. 

I come down to this basic question. You do not all work for American companies, but you all, I think understandably feel a certain 

pride in this country and an obligation to this country. Does it 

trouble any of you when you see what you are doing to us, the profits that you are taking, the costs that you are imposing on working 

families, small businesses, truckers, farmers? Does it trouble you 

when you say, you know, if we take that extra billion dollars here, 

it is right out of America, it is right out of our economy? Is there 

anybody here that has any concerns about what you are doing to 

this country with the prices that you are charging and the profits 

you are taking? 

Mr. SIMON. Senator, we have—and I can certainly speak for our 

corporation. We have a lot of concern about that, and we are doing 

all that we can to produce as much product as we can to put downward pressure on prices. 

When you look at what we have done, for example, in refining, 

we have expanded our refining capacity at a rate 40 percent higher 

than the rest of industry. 

Senator DURBIN. If I could just interrupt you for a second, do you 

know what the current utilization of refining capacity is for the oil 

companies in America? Do you know what the percentage is? 

Mr. SIMON. I know what ours is, and it is about 93 percent. 

Senator DURBIN. OK. Nationwide, industry-wide, it is 85 percent. 

They are begging us for more refineries. They are begging us for 

more exploration. And they are utilizing current refining capacity 

34 

at 85 percent, which is the lowest since 1992. You are shorting the 

market a product when we desperately need more of it. 

I do not understand that. Why is that the case? 

Mr. SIMON. Let me address that, at least from our corporation, 

and I think others can do the same. We are using every bit of available capacity that we have, Senator. We have a number of units 

that we have to take down on overhaul. Those have been running 

for 5 to 7 years between overhauls. We do not plan those; we started planning those 20 to 30 months ago. We have to take them 

down. We take them down during the slack period, right after the 

heating oil season but before the mogas season. 

Now, again, when you look at our utilization as a corporation, it 

has been higher than the industry average. I understand— 

Senator DURBIN. Well, let’s listen to some of the others. I would 

like some of the others to have a chance to respond to this, about 

this 85-percent refinery capacity. Why are you not operating at 

higher levels of capacity? Is it all what Mr. Simon has said, the situation where you have to take some offline at a given period of 

time for transition? 

Mr. ROBERTSON. Well, everybody has that situation, but I would 

just like to start by saying that, I am a regular person, I have got 

lots of friends who are regular people, and we do not like this situation. We have to explain to our families and friends what is going 

on with— 

Senator DURBIN. How do you explain your profits? 

Mr. ROBERTSON. Well, I explain my profits by saying we reinvest 

it all. So what we are doing— 

Senator DURBIN. Oh, really? 

Mr. ROBERTSON. Yes. We reinvest all our— 

Senator DURBIN. Do you know how much cash on hand your companies have? 

Mr. ROBERTSON. I know how much cash in— 

Senator DURBIN. Compared to capital investment? In the past 

several years, there has been almost a 300-percent increase in your 

cash on hand while your industry has been an 81-percent increase 

in capital investment. 

Mr. ROBERTSON. We are investing at the capability of our company to invest, and that has been equal to our earnings over the 

last 5 to 6 years. 

Senator DURBIN. But for you to take— 

Mr. ROBERTSON. So we are— 

Senator DURBIN.—profits and hold it in cash while the price of 

gasoline is breaking the back of the American economy is unconscionable. 

Mr. ROBERTSON. We— 

Senator DURBIN. Where is the corporate conscience here? 

Mr. ROBERTSON. Right now, we are investing all we can, first of 

all. The things that we can do is we can invest to produce more 

supply. We are investing all that we can, given the limitations of 

access around the world, given the limitations of our own human 

capacity, given the limitations of the contractor community and the 

drilling rigs and all these things that are available in the world. 

We are investing at our capacity. 

35 

In terms of the refining situation, the markets that we supply 

are well supplied. Inventories of gasoline are as high as they have 

been in all time. So the issue is not refining capacity right now. 

The issue is the price of crude oil. That is the largest single— 

Senator DURBIN. Do you have adequate refining capacity? You 

are not— 

Mr. ROBERTSON. We have adequate refining capacity, and we 

have got the inventories at an all-time level, and our markets are 

all well supplied— 

Senator DURBIN. My time has run out, Mr. Chairman, but I 

would just close by saying because of the high price of a barrel of 

oil, many companies are looking at sources they had never considered before—Senator Sessions alluded to oil shale—and one of 

these is Canadian tar sands. I know BP, Conoco, and maybe all of 

you, you will readily concede this is one of the dirtiest sources of 

oil that we could be refining, and it has environmental concerns 

which we all should share. When you talk to us about drilling in 

every direction in every place and expanding refinery capacity for 

some of the dirtiest crude sources in the world, excuse me, but we 

also have an environmental and public health responsibility that 

we have to take into consideration. This should not come down to 

an equation of your money or your life. And if you are telling us 

we have to sacrifice the public health of America to bring gasoline 

prices down, I am telling you we ought to take a closer look at your 

industry and who is making the decisions. 

Thank you. 

Chairman LEAHY. Thank you. 

Mr. ROBERTSON. Well, I certainly did not say that, Senator. 

Chairman LEAHY. Thank you. I— 

Senator DURBIN. And I did not suggest you did, Mr. Robertson. 

I am sorry if that was your conclusion. 

Chairman LEAHY. I am going to yield just a moment to Senator 

Hatch, who has been waiting here patiently, as the Ranking Member of the Subcommittee. I am going to have to step out after that, 

and Senator Whitehouse has agreed to stay and chair. But I was 

struck, if I might, by something that Senator Durbin said. He 

talked about Saudi Arabia and their response. The President has 

flown twice to Saudi Arabia this year to plead with the Saudis to 

increase oil production in order to lower gas prices. 

Here we have this photograph of him. He has failed in his efforts, although he touted himself as a friend of the Saudis, could 

work with them and jawbone them into action. 

Do you agree or disagree with the Saudi Oil Minister’s statement 

that supply and demand are in balance today and with the Bush 

administration’s statement that Saudi Arabia does not have customers who are making requests for oil that they are not able to 

satisfy? Mr. Malone, do you agree with those two statements? Yes 

or on. 

Mr. MALONE. No. 

Chairman LEAHY. Mr. Hofmeister? 

Mr. HOFMEISTER. No, I don’t. I think the underlying demand requires more supply. 

Chairman LEAHY. Mr. Robertson? 

36 

Mr. ROBERTSON. I think the real issue is the shortage of supply 

and capacity available in the system that just is not very much. So 

I think the market is pretty well supplied today. 

Chairman LEAHY. Thank you. Mr. Lowe? 

Mr. LOWE. As Mr. Robertson said, while the market is currently 

supplied, there is very little, if any, excess capacity. 

Chairman LEAHY. Mr. Simon? 

Mr. SIMON. The market is well supplied. We have 35 refineries 

around the world, and not a single one of them are having any 

trouble finding the crude and feedstocks to run at high utilization. 

Chairman LEAHY. And so you agree that Saudi Arabia does not 

have customers making requests for oil that they are not able to 

satisfy? 

Mr. SIMON. This is not a supply issue. 

Chairman LEAHY. Thank you. Thank you and I thank Senator 

Hatch for, as always, his courtesy. 

Senator HATCH. Well, thank you, Mr. Chairman. I appreciate 

your courtesy. 

Mr. Hofmeister, just to set the record straight, as you know, the 

Democrat leadership in the Congress has passed legislation that 

would ban our Government from purchasing oil from the oil sands 

up in Canada. And Canada has moved to a million barrels a day, 

and they are moving up to 3 million barrels a day. 

Now, do you see this as a problem for oil supply in this country? 

Mr. HOFMEISTER. I absolutely do, Senator, and I do believe that 

there are environmental remediations both underway and future 

technology will deliver more so that the world can benefit and the 

U.S. in particular can benefit from not just oil sands production 

coming from Alberta, but also oil shale production that could come 

from Utah, Wyoming— 

Senator HATCH. I am going to get into that. In other words, we 

are talking about Utah, Colorado, and Wyoming. It is fair to say 

that they are not considered part of America’s $22 billion of proven 

reserves. 

Mr. HOFMEISTER. Not at all. 

Senator HATCH. Now, but experts agree that there is between 

800 billion to almost 2 trillion barrels of oil that could be recoverable there, and that is good oil, isn’t it? 

Mr. HOFMEISTER. That is correct. 

Senator HATCH. It could be recovered at somewhere between 30 

and 40 bucks a barrel? 

Mr. HOFMEISTER. I think those costs are probably a bit dated 

now based upon what we have seen— 

Senator HATCH. Somewhere in that area. 

Mr. HOFMEISTER. I don’t know what the exact costs would be, 

but, you know, if there is more supply, I think inflation in the oil 

industry would be cracked. And we are facing severe inflation because of the limited amount of supply against the demand. 

Senator HATCH. I guess what I am saying, though, is that if we 

started to develop the oil shale in those three States, we could do 

it within this framework of over $100 a barrel and make a profit. 

Mr. HOFMEISTER. I believe we could. 

Senator HATCH. And we could help our country alleviate its oil 

pressures. 

37 

Mr. HOFMEISTER. Yes. 

Senator HATCH. But they are stopping us from doing that right 

here as we sit here. We just had a hearing last week where Democrats have stopped the ability to do that in at least Colorado. 

Mr. HOFMEISTER. Well, as I said in my opening statement, I 

think the public policy constraints on the supply side in this country are a disservice to the American consumer. 

Senator HATCH. Well, if the Government gave you free access to 

the oil that could be recovered, would that make a difference to you 

in Shell? 

Mr. HOFMEISTER. Yes, it would, over time. 

Senator HATCH. Well, how would it make a difference? 

Mr. HOFMEISTER. We would be steering investments toward—on 

a global capital allocation basis, we would steer investments toward the best opportunities for the most prolific supply. We are a 

supply side company. That is what we do. And anytime we can 

move into a new source of supply and it is economic, we would proceed to invest capital to produce more product. 

Senator HATCH. You are already moving into that new source of 

supply, if you could, in Colorado especially. 

Mr. HOFMEISTER. Correct. We have been there 20 years doing a 

research and development project for a technology that does not require mining, that does not require opening up the surface, other 

than by drilling, which we have done for a hundred years. 

Senator HATCH. Well, who is stopping you from doing that? 

Mr. HOFMEISTER. Well, currently it is—we are still not at a point 

of making a commercial decision because of the research work that 

is necessary to know that we can do this in an environmentally 

safe manner and that we can use the—we can find an energy 

source for our heating technology which is also environmentally 

sound, and that we would have the water plan, the land use plans, 

et cetera. 

So we are not ready to make a commercial decision yet, but we 

would be unable to make a commercial decision unless the Minerals Management Service creates the necessary regulatory framework, including a royalty structure, that would enable us to know 

what we will be able to produce. 

Senator HATCH. And leasing structure. 

Mr. HOFMEISTER. And leasing structure, yes. 

Senator HATCH. Mr. Simon, isn’t it true that we are spending 

about $600 billion a year for offshore oil? 

Mr. SIMON. I am not sure what the number is, Senator. 

Senator HATCH. Anybody know the number? That is what I have 

been told. It is around $600 billion a year that we are sending overseas to Venezuela, Russia, the Middle East. 

Mr. SIMON. I know that we are dependent upon imports for about 

60 percent of our petroleum use. 

Senator HATCH. Let me ask you this: How much of a barrel of 

crude does the Government take in taxes? 

Mr. SIMON. Well, when you look—the numbers I gave before is 

when you look at a gallon of gasoline, it is about 15 percent. 

Senator HATCH. About 15 percent. Now, your profits range between, what, 4 and 8 percent? 

38 

Mr. SIMON. When you look at our profitability for refining and 

marketing in the U.S. during the first quarter of this year, it is 

about 4 cents. 

Senator HATCH. Anybody over 8 percent down there? Anybody? 

You are all shaking your heads no. So the Government is taking 

15 percent— 

Mr. SIMON. Fifteen cents on the— 

Senator HATCH. Well, that is 15 percent. 

Mr. SIMON. Well, the— 

Senator HATCH. Am I missing something here? 

Mr. SIMON. The gallon is currently about $3.80, I think. 

Senator HATCH. Oh, OK. So it is 15 cents on a gallon. 

Mr. SIMON. It is 15 percent on a gallon. Our profitability this 

year is 4 cents. 

Senator HATCH. OK. Now, if all of you—you hear all these comments on Capitol Hill all the time about ‘‘big oil.’’ I think they are 

referring to you. If you put all the so- called big oil companies together, what percentage would they be of producers in the world 

oil stage? 

Mr. ROBERTSON. We are about 2 percent. 

Senator HATCH. But total, all lumped together. 

Mr. ROBERTSON. My guess would be about 10 percent, probably. 

Senator HATCH. I have been told 6 percent. 

Mr. SIMON. When you look at worldwide crude reserves, Senator, 

you are right. It is about 6 percent versus 80 percent for the national oil companies. 

Senator HATCH. OK. That is what I have been—that is my understanding. 

Now, I am the author of the CLEAR ACT to develop alternative 

fuels, alternative fuel resources, alternative fuel vehicles, alternative fuel infrastructure. I also was one of the people who put the 

tax credits for alternative energy into the 1995—both of these are 

in the 1995 energy bill. So I take second place to nobody with regard to trying to develop alternative fuels and other renewable 

fuels. But let me just ask you, if we do everything we can in solar, 

wind, geothermal—I will leave nuclear off here right now—solar, 

thermal, which my friend Bernard Koestler is doing out there. He 

is going to have 200 megawatts of power by 2010. If we do everything we can, what percentage of energy would that provide for our 

country to run our trucks, our cars, our trains, our planes? Can 

anybody tell me that? Mr. Hofmeister? 

Mr. HOFMEISTER. The estimate that I have seen is that by 2030 

it could be about 20 percent. 

Senator HATCH. Twenty percent would be the maximum? 

Mr. HOFMEISTER. Based on what I have been— 

Senator HATCH. Well, where would we get the other 80 percent 

to keep our country going, run our cars, our trucks, our— 

Mr. HOFMEISTER. All of the estimates say that traditional hydrocarbons must be part of our long-term energy security, meaning 

gas, oil, coal. 

Senator HATCH. But that is dirty. I mean, why would we subject 

ourselves to being hostage to 80 percent of this type of production? 

Mr. HOFMEISTER. I think there are some brilliant technologies 

that are coming down the pike that will enable us to manage CO2 

39 

and continue to use hydrocarbons. And I for one and Shell is a fan 

of a cap-and-trade bill for this country on a national basis, using 

these new technologies to both produce hydrocarbons to keep the 

economy strong while developing alternative forms of energy. 

Senator HATCH. Would it be fair to say that with that 80 percent, 

if we do not have that, we could not run our country? 

Mr. SIMON. I would agree with that, Senator. Eighty percent of 

the outlook is fossil fuel, 60 percent for oil and gas alone. And let 

me correct myself, you are absolutely right with what you said before. In 2007 it was 15 percent on taxes, and our profitability was 

4 percent. I apologize if I— 

Senator HATCH. I am glad to have that apology. Do the rest of 

you agree with what he just said? Do you agree with the 80 percent? 

Mr. ROBERTSON. Yes, sir. 

Senator HATCH. We cannot run our country. We cannot run our 

cars, our trucks, our trains, and our planes—at least over the next 

20, 25, 30 years—if we do everything we can with regard to alternative fuels, renewable fuels. We cannot do it without oil and gas. 

Is that right? 

Mr. ROBERTSON. That is exactly right, but we can do it— 

Senator HATCH. And anybody who does not understand that just 

does not understand what it takes to run America. 

Mr. ROBERTSON. What we can do, we can do it with more North 

American oil and gas. 

Senator HATCH. We could become somewhat independent of— 

Mr. ROBERTSON. So my take on your question was we are importing 10 million barrels a day of oil today. We can make a significant 

dent in that by doing more here. 

Senator HATCH. If you were not hampered by Congress, right, or 

Government? 

Mr. ROBERTSON. If we weren’t hampered by a lot of barriers to 

investment, yes. The thing I would also add is that we can do a 

lot more— 

Senator HATCH. You are so much more diplomatic than I. 

Mr. ROBERTSON. Well, I am an engineer. The one thing I would 

say is, don’t forget Canada either. And I know you mentioned Canada. We talk about importing 10 million barrels a day of oil; 1.3 

million barrels a day of that comes from Canada. And so the resource that exists in Canada—we have talked a little bit about it— 

is a really important resource, just like the shale oil and just like 

the offshore and just like the coal, and just like all of these fossil 

fuel resources that we have in North America. So we have the capacity in North America to significantly reduce our imports of foreign oil, and, frankly, that is a good thing not only for America, but 

it is a good thing for the world because it will reduce our load on 

the world and, frankly, free up more for other people. 

So I think it does drive prices down, and it is good for America, 

and it is possible. 

Senator HATCH. Thank you, Mr. Chairman. I appreciate it. 

Senator WHITEHOUSE. [Presiding.] Senator— 

[Audience outburst.] 

Senator WHITEHOUSE. This room will come to order. 

40 

We will suspend for a moment while the proceedings are brought 

to order. My apologies. 

[Pause.] 

Senator WHITEHOUSE. I hope there will not be further disruptions like that, and I call on the guests who are here to conform 

themselves to the behavior that the Senate Committee expects. 

Senator Feingold? 

Senator FEINGOLD. I thank the Chair and the Ranking Member 

for holding this hearing to investigate the skyrocketing price of oil. 

Americans may have a hard time believing this, as they fill up 

their cars, but the United States is the third top oil-producing 

country in the world, exceeded only by Saudi Arabia and Russia. 

We produce 4 times more oil than Iraq, 3 times more oil than Venezuela, and over double the production in Canada, Mexico, China, 

and Iran. And yet we have never been able to meet our needs domestically because the U.S. consumes more oil than any other 

country in the world. Our annual consumption of 20.7 million gallons of oil a day is threefold the consumption level of the next highest consuming country. In short, we have an insatiable appetite— 

an appetite that cannot be met even by adding an amount equivalent to all the oil in the top oil-producing country of Saudi Arabia. 

Even President Bush famously declared that the United States is 

addicted to oil. 

The problem is clear. Now we need solutions. We do not need 

economists in the room to explain the basic principles of supply and 

demand. Given ever increasing global demand and predictions of 

continued skyrocketing oil prices, we need to start the long-term 

transition to renewable energy and alternative fuels immediately. 

Mr. Hofmeister, the President of Shell Oil, stated in an NBC 

interview last year that he, too, agrees that we must and can get 

over our addiction to oil over decades and that Shell Oil will be 

there when it comes to renewables and alternative fuels. However, 

his colleague, Mr. Simon, the President of Exxon Mobil, declared at 

a House hearing last month that oil and gas will represent 80 percent of our energy portfolio in 2050, over four decades from now. 

So how many decades from now are we talking before your companies will seriously invest in alternative fuels and renewable energy? 

Three years ago, the same oil companies testified before the Senate’s Energy and Commerce Committees and had similar discussions, and yet based on April 2008 data published in the Oil and 

Gas Journal and distributed by the American Petroleum Institute, 

over this time period your companies invested more in marketing 

than renewable energy. 

Mr. Chairman, I ask that this data be submitted for the record. 

Senator WHITEHOUSE. Without objection. 

Senator FEINGOLD. Thank you, Mr. Chairman. 

Obviously, you are private companies looking to make a profit. 

And succeeding—we have all read the headlines regarding your 

companies’ record-setting profits, $123 billion for 2007. Meanwhile, 

my constituents are facing financially challenging times. I have 

never seen anything really like it in my 26 years in public life. 

From our farm fields to our grocery stores and gas pumps, AmeriVerDate Aug 31 2005 14:52 Sep 18, 2008 Jkt 043354 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\43354.TXT SJUD1 PsN: CMORC
41 

cans really are feeling quite an effect of record oil prices, and they 

are looking to us for help. 

There are some things we can do to provide some short- term relief, such as no longer filling the Strategic Petroleum Reserve and 

preventing market manipulation. We have recently made some 

progress in both of these areas. We also need to promote policies 

that encourage renewable energy, alternative fuels, as well as energy efficiency and conservation, and last year’s energy bill moves 

in that direction. 

But more is needed, and I hope that oil companies will step up 

and be a part of the solution finally, and I would like to ask a bit 

about what you can still do given your own resources. 

Could you tell me, how many oil and gas leases on Federal lands 

do you currently have that are not in development? Surely some of 

you know. 

Mr. HOFMEISTER. Senator, frankly, I would have to go check. We 

have thousands of leases that are out there that we have won over 

a number of years, and I do not have a current inventory at my 

disposal. I would have to go research that number. 

Senator FEINGOLD. My guess is some of you have a general sense 

of this issue. Currently, your companies hold leases on 42 million 

acres of Federal land, and yet you are only producing on 12 million 

acres. This means you are not producing on 30 million acres. Can 

you talk to me about why this is? 

Mr. ROBERTSON. Well, Senator, I am in the same position. We 

have got thousands of leases, and I could not tell you how many, 

but I can tell you that we pay rent on those, and so we do not lease 

them unless we are going to do something with them. As we look 

at those and do seismic work a lot of them will, frankly, prove to 

have nothing to drill on, and we will relinquish those. So, I mean, 

all of them we are either keeping because we are doing work on 

them, or we are going to relinquish them. 

Senator FEINGOLD. Do you have the manpower and infrastructure to put your current leases on a lot of these acres in production? 

Mr. ROBERTSON. Well, a lot of them will never come on production because they do not have—at the end of the day you look at 

them, and they don’t have the prospectivity. So we are working 

on— 

Senator FEINGOLD. But you have adequate manpower and infrastructure to do the work on those that you do think will be productive? 

Mr. ROBERTSON. Yes, sir. 

Senator FEINGOLD. All right. Well, I would appreciate some followup in writing from you on this so I can get a better sense of 

that question. 

I would like to know a little more about how your companies are 

going to assist in the significant transition we need to make. Ideally, of course, we do this gradually, but I am concerned it is happening too slowly. 

Mr. Lowe, following a 2006 Judiciary Committee hearing, James 

Mulva, the Chairman and Chief Executive Officer of 

ConocoPhillips, responded to one of my questions regarding the 

company’s investment in alternatives by stating, ‘‘ConocoPhillips is 

42 

an oil and gas company and, as such, we are in the business of 

finding new sources of fossil fuels to meet consumer demands. 

Eventually, there will be an evolution to the next generation of 

fuels, but this evolution will not occur for some time,’’ he said. 

Is this still ConocoPhillips’ position that alternatives are years 

off? Have you increased your annual investments in renewable energy and alternative fuels? 

Mr. LOWE. Yes, Senator. We have significantly increased our efforts. We are combining with universities such as Iowa State to try 

and develop cellulosic ethanol. We are working with companies 

such as Tyson and ADM to try and develop alternative sources, renewable sources of fuel. And we are also working on projects such 

as carbon capture and storage to make a positive impact and what 

we think is necessary for the development of the Canadian oil 

sands— 

Senator FEINGOLD. So has the company’s position changed? Are 

the alternatives more immediately available or is this something, 

as your previous spokesman said, that is still years off? 

Mr. LOWE. I think that in the short term, we are really limited 

to corn-based, sugar-based ethanol as far as alternative fuels, as 

far as ethanol. But longer term, we can have an impact through 

these other sources, and ConocoPhillips is advancing those. 

Senator FEINGOLD. Mr. Hofmeister, I would like to give you a 

chance to respond to this question, since, as I mentioned in my 

opening remarks, you seem to be saying the right things. Is Shell 

backing up what you said about being part of the energy revolution 

and investing in alternative energy? 

Mr. HOFMEISTER. Senator, I would like to call attention to a document that I made part of my written record, which is a Shell report on all of the areas on which we are working, which includes 

hydrocarbon, includes new technology in hydrocarbons, for example, coal gassification, liquefied natural gas, also includes biofuel, 

wind, solar, and hydrogen fuel cell work that we are doing with 

automotive makers. 

In addition to that, we do put significant emphasis on efficiency. 

Without better use of the molecule of hydrocarbon, I think we cannot in any way keep up with the future demand for product, and 

there is so much opportunity for efficiency that we ought to consider that as a whole new form—in a sense, new form of energy. 

Senator FEINGOLD. OK. And, Mr. Simon, could you just answer 

that question also, please? 

Mr. SIMON. I appreciate, Senator, the opportunity to clarify our 

position on alternative fuels. I think we have been painted with a 

brush that we are against alternatives, and that is not the case at 

all. Our scientists have looked at every form of alternative fuels 

and current technology, current generation, and frankly, we have 

not found any in terms of producing an appreciable amount of energy when you look at the energy balance or that have mitigated 

greenhouse gas emissions in any appreciable way. 

So what we are doing is to try to look at the next- generation 

new technologies which can produce energy with scale and also 

dramatically reduce greenhouse gas emissions. And we are working 

with a number of research institutions in that area. 

Senator FEINGOLD. Thank you very much, Mr. Chairman. 

43 

Senator WHITEHOUSE. Senator Schumer? 

Senator SCHUMER. Thank you, Mr. Chairman. 

Just to followup, Mr. Simon, give me a number. How much do 

you invest in research and development of alternative fuels? 

Mr. SIMON. Senator, it would be hard for me to answer that because I do not know the answer. We have— 

Senator SCHUMER. OK. When your Chairman was here, he told us $15 million. Has it changed appreciably from that? 

Mr. SIMON. I think it is higher than that, but we have— 

Senator SCHUMER. How much? 

Mr. SIMON.—a number of efforts underway, and I haven’t added 

them all— 

Senator SCHUMER. Sir, is it over $100 million? 

Mr. SIMON. It is over $100 million, but I don’t know how— 

Senator SCHUMER. It is over $200 million? 

Mr. SIMON. I do not know how high it is. 

Senator SCHUMER. OK. Could you get to me an answer in writing 

exactly how much you invest in alternative fuels and in which 

ones. 

Mr. SIMON. I could, but— 

Senator SCHUMER. Thank you. 

Mr. SIMON.—the other comment I would make, Senator, is that 

we don’t measure progress based on how much we spend. We measure it based on results. 

Senator SCHUMER. Right. That is what your annual reports always say, what your progress is, not on how much money you 

make or what your price per shareholder is. Please. How much you 

spend will be a pretty good indication of how much you believe in 

alternative fuels. Your Chairman told us you do not believe in alternative fuels and invested about $15 million in some institute. I 

would like to know if that has dramatically changed. That will clarify your answer. 

Mr. SIMON. I would be happy to provide that, Senator. 

Senator SCHUMER. Thank you. 

Next, also for you, Mr. Simon, new data has been released this 

week saying that Iraq could exceed Saudi Arabia as the largest oil 

producer in the world. The Iraqi Government does not have a national oil law or a revenue-sharing agreement for either its competing factions or how much the United States gets back. I know 

you would like to be players in Iraqi oil, but I would like to ask 

you, Mr. Simon, do you think it would be appropriate for your company to sign a contract with Iraq before an Iraqi national oil law 

or revenue-sharing agreement is in place? And do you think it is 

appropriate for you to sign one before that? 

Mr. SIMON. We are looking at a technical agreement right now, 

and we will take into account all factors, and— 

Senator SCHUMER. So you do think it is appropriate? I would ask 

you right now, would you say here that Exxon will not sign such 

an agreement until there is a revenue-sharing agreement or national oil law in place? Would you commit to that? 

Mr. SIMON. I am not going to make any commitment at this time. 

Senator SCHUMER. Don’t you think such a contract could exacerbate the strife in Iraq that our troops are struggling to quell every 

day? 

44 

Mr. SIMON. I think we ought to be looking at every form around 

the world of additional supplies, and that is one of them that we 

as a country should be looking at. 

Senator SCHUMER. OK. Well, let me tell you, I think it is outrageous for Exxon Mobil to go ahead and again pursue its own policies that will exacerbate the very problems that our soldiers, General Petraeus, and others are trying to undo. 

The next question is for, I guess—let me ask any of you. If Saudi 

Arabia increased its production tomorrow of a million barrels of oil 

a day—let’s just assume they do. We know they can because it is 

lower by about several hundred thousand barrels a day than it was 

in 2005, and they have added production. How much would the 

price of oil go down in the next few months? Just if you can give 

me an approximate guess. Does anyone want to hazard a guess? 

Does anyone think it would not go down? Raise your hand if you 

think it would not go down. OK. Do you want to say something on 

this, Mr. Robertson? 

Mr. ROBERTSON. I think it would go down. I think the real—what 

really is important to the market is what is going to happen in the 

future. Maybe they could produce a million barrels a day for 

some— 

Senator SCHUMER. Well, what if they committed for 2 years? 

Mr. ROBERTSON. I think it would make a difference, and I think 

we all—any of us that showed that we were going to increase production by some significant amount over a significant period of 

time would make a difference. 

Senator SCHUMER. And the estimates I have seen, not done by 

me but by experts, say it could go down—if they did a million barrels of oil a day, increased from today, it would go down about— 

in transition to gasoline, it would be about 50 cents a gallon, 

maybe 62. Does anyone think that is out of line, seriously out of 

line? 

Mr. SIMON. I would have no way of estimating that, Senator. 

Senator SCHUMER. Right. How about—OK. Would it go down significantly? Does anyone disagree that it would go down significantly, a million barrels a day? 

Mr. SIMON. One point I would like to make, Senator, is when you 

look at the market today, it is well supplied. And so if you take a 

well-supplied market and then you throw another million barrels 

a day in it, yes, it will go down. 

Senator SCHUMER. Right. And if you all are preaching to us that 

you need new exploration so you can find more oil, which is something I do not always disagree with—I support it. I was in the 

handful of Democrats to support more drilling in the east gulf so 

we could do just that—then, clearly, a million barrels a day production now would have a significant effect because you cannot—it is 

a contradiction, isn’t it, that you finding new supplies and producing them will keep the price in line, but Saudis just pumping 

a million barrels wouldn’t keep the price in line, right? Mr. Robertson, you are shaking your head. 

Mr. ROBERTSON. No. I am nodding my head. 

Senator SCHUMER. Shaking your head yes. 

45 

Mr. ROBERTSON. I think that the really critical things here are 

signals to the world that there is a determination to increase production for the foreseeable future. 

Senator SCHUMER. Correct. 

Mr. ROBERTSON. We could do that in our country, I believe. It 

wouldn’t— 

Senator SCHUMER. The Saudis could do it tomorrow, couldn’t 

they? 

Mr. ROBERTSON. Well, the Saudis are making significant investments to increase capacity. They could, by— 

Senator SCHUMER. No, but right now— 

Mr. ROBERTSON. Anybody in the world that made a—you are 

talking about short term. Anybody in the world that made a commitment for the long term to increase production— 

Senator SCHUMER. Right. 

Mr. ROBERTSON.—by a significant amount would have an effect 

on our— 

Senator SCHUMER. But here, Senator Kohl was asking you about 

OPEC and how OPEC restrains supply and that keeps the price 

high, and you all go along with OPEC. 

Now, the bottom line is if there weren’t an OPEC and if Saudi— 

or within OPEC Saudi decided to do what they could do tomorrow, 

from what I understand they have 2 million barrels more of capacity, the price would go down significantly. And I think there is 

agreement from all of you about that—not that you can force them 

to do it. No one is saying that. I see that everyone is nodding. Anyone disagree with that? 

Mr. SIMON. Again, when you look at the market today, though, 

Senator, it is well supplied. 

Senator SCHUMER. I did not ask you that. 

Mr. SIMON. OK. 

Senator SCHUMER. I asked you—′′well supplied’’ is a very flexible 

definition. OK? I asked you—I want to now then ask you, yes or 

no: If Saudi Arabia tomorrow said for the rest of their—for the next 

3 years they are increasing supply by a million barrels a day and 

it will not stop, would the price go down significantly? 

Mr. SIMON. It would go down today because then you would— 

Senator SCHUMER. Yes. 

Mr. SIMON.—be flooding the market with an extra million barrels 

a day to a well-supplied market. 

Senator SCHUMER. OK. Next, Burma. I would like to ask you, 

Mr. Robertson, about Burma, where we now have a brutal dictatorship. There are people who feel that you should leave Burma. 

There are people who feel you should not be dealing with such a 

harsh dictatorship. So my question is: What is Chevron’s future 

plans in Burma in the wake of the massive popular opposition to 

the military junta and its initial refusal to accept disaster aid? 

Have you weighed in with the Burmese Government about accepting disaster aid? And, more generally, does your presence in Burma 

not bolster the military junta? 

Mr. ROBERTSON. Well, thank you. We have, just in the last few days, committed $2 million to aid in Burma. The agencies that we 

are working with, some of them have matched it, so it is $3 million. 

I have some photographs in my file here of aid being delivered to 

46 

people in Burma, so I know it is happening. Our people on the 

ground are seeing it. So we are delivering aid. Even though a lot 

of others cannot, we are. So that is an advantage, I think— 

Senator SCHUMER. Do you think they could use a lot more than 

$2 million? 

Mr. ROBERTSON. Of course, they could. But I am saying what 

Chevron can do we are doing, and we are doing a significant 

amount, and that goes a long way in Burma. 

Our plan is to stay in Burma. I have been there and have seen 

the people that live in the area where we operate along our pipeline system. I know for a fact that they are better off by us being 

there than by anybody else being there. So I know we are doing 

the right thing in Burma. 

Senator SCHUMER. Are you— 

Mr. ROBERTSON. The Burmese Government is benefiting from the 

fact that natural gas is being produced in Burma, but the fact is 

that if we were there or anybody else was there, that gas would 

still be being produced. It has been developed, and so the only 

thing we can do by leaving is enhancing the value to the Burmese 

Government. They would get our interest. If we sell our interest, 

we would pay a large capital gains tax to them. Any way of extracting us would be a benefit, a windfall benefit to the Burmese Government. And I know the people there are better by us being there. 

Senator SCHUMER. Are you trying to pressure the military government to let in more aid right now in addition to the $2 million 

you are giving? 

Mr. ROBERTSON. No. We— 

Senator SCHUMER. Do you think that would be helpful? 

Mr. ROBERTSON. I don’t think we could have much effect on that. 

I can tell you that I am working with the United Nations Ambassador, who is Mr. Gambari, Ambassador Gambari, who is working 

with the Burmese. We are working with the EU Ambassador that 

is working with the Burmese. So we are doing everything that we 

think we can, but I can assure you, I don’t think that Chevron as 

a non-operating partner in an operation in Burma could have much 

personal effect on the Burmese Government. 

Senator SCHUMER. Would I have time for one more question, Mr. 

Chairman? 

Senator WHITEHOUSE. Take your time, Senator. 

Senator SCHUMER. Thank you, Mr. Chairman. 

This relates to refinery capacity. Again, we all talked about the 

difficulty of building new refineries, and that is sort of obvious that 

if you—you know, that you need to build more new refineries if you 

are going to increase production someplace or other in the world. 

But right now, refinery capacity is at 81 percent compared to 90 

percent last year. Eighty-one percent would strike most people at 

a time when the price of gasoline and other petroleum products is 

so high as not very good and not very adequate. This is not about 

building new refineries. This is the same existing refineries and the 

capacity they had. 

Could any of you comment on why refinery, present—I do not 

want a discussion of building new refineries. I am talking about 

present refinery capacity. Why is it so much lower, 10 percent 

47 

lower than it was last year, even though the price is through the 

roof? Mr. Malone? 

Mr. MALONE. I can’t speak to the entire industry. I can speak to 

my company, which is our utilization rate is higher this year than 

it was last year. 

Senator SCHUMER. What is it? 

Mr. MALONE. We are up—probably the average across all of them 

is in the area of 88, 89 percent of available capacity. 

Senator SCHUMER. OK. 

Mr. MALONE. Remember, we have our huge Texas City refinery 

still going through rebuild so that knocks our numbers down. 

Senator SCHUMER. Right. Mr. Hofmeister? 

Mr. HOFMEISTER. Shell year to date has been running about 92- 

percent refining capacity. We had two shutdowns which were unexpected in two refineries. It would have been higher were it not for 

those two unplanned shutdowns. 

Senator SCHUMER. Is the amount of money you are putting in to 

keep maintaining the refineries higher or lower than it was last 

year? 

Mr. HOFMEISTER. It is on average less for existing refineries, but 

more overall because of a major refinery expansion in Port Arthur, 

Texas, which will more than double the size of that refinery. 

Senator SCHUMER. Any of your refineries’ capacity lower than, 

say, 85 percent? Mr. Lowe is shaking his head no. 

Mr. LOWE. ConocoPhillips has consistently outperformed the industry in utilization rates over the last 4 years. We had some operating upsets in the first quarter, but still ran at a refinery utilization rate of about 90 percent. 

Senator SCHUMER. Mr. Robertson? 

Mr. ROBERTSON. I would just make a comment. The industry has 

continued to expand its refinery capacity, so even though we have 

not built any new refineries, we continue to expand it, and refining 

throughputs this year in the first 19 weeks of this year are at alltime highs. 

Senator SCHUMER. But why is the— 

Mr. ROBERTSON. Gasoline— 

Senator SCHUMER.—capacity so low, 81 percent? 

Mr. ROBERTSON. Because the market, you know, basically the 

market has not needed it. I mean, inventories are high. Look, we 

are producing gasoline at an all-time-high capacity, and the market—the demand has shrunk by 2 percent. So, I mean, people are 

seeing higher prices, using less; we are producing more gasoline 

than— 

Senator SCHUMER. Well, if demand has shrunk, isn’t— 

Mr. ROBERTSON. Demand has shrunk. 

Senator SCHUMER. Isn’t it logical for the price to go down as opposed to the supply to decrease? 

Mr. ROBERTSON. The fundamental, though, the real thing that is 

happening here is the cost of oil on the world market. That is what 

is being paid. I mean, over time, reduced demand will drop prices, 

and that is what has happened in the past. But it will take a lot 

of time, and it will take more than just the United States gasoline 

market. 

48 

Senator SCHUMER. I would just say—and I have gone way over 

my time, and I thank the Chairman’s indulgence, and Senator 

Cardin has walked in. But I would say, to me at least, 81 percent 

refinery capacity in the industry as a whole—this is not new refineries but existing—asks a whole lot of questions at a time when the 

price is high. And one wonders if the pattern of oil companies here, 

big ones and small ones, is to decrease supply and increase price 

rather than increase demand and decrease price. And it may well 

be your shareholders do better with the first than the latter, but 

the American consumer does better with the second. 

Thank you, Mr. Chairman. 

Senator WHITEHOUSE. Senator Cardin? 

Senator CARDIN. Well, thank you, Mr. Chairman. I thank Senator Whitehouse for his courtesy in allowing me to question at this 

time. 

Let me just preface my comments by reflecting that I have followed Senator Sarbanes. I have his seat in the U.S. Senate, and 

I am sure all of you know Senator Sarbanes, but you also know 

Sarbanes-Oxley. And Sarbanes-Oxley I think was a moment in the 

history of America where we said, you know, there is a responsibility of corporate America that it does not go just to the private 

sector. There is a public responsibility. 

We have a national problem. We are dependent upon foreign oil, 

and that dependency upon foreign oil has caused us security problems in regards to our international concerns. It has caused us environmental problems with global climate change. And we are now 

seeing how it is causing us economic problems. The people in Maryland and around this Nation are hurting today because of the cost 

of gasoline at the pump. It is affecting our lives in a very dramatic 

way. I have small businesses that will probably go out of business 

because they cannot afford the cost of gasoline. 

So this is having a dramatic impact, and I would like to see a 

greater urgency from our leaders in our energy field than I have 

seen. 

Mr. Robertson, let me just—I think you were the one who said 

you are investing $6 billion in Kazakhstan, I believe. Pardon? 

Mr. ROBERTSON. I said we had one project that— 

Senator CARDIN. One project, $6 billion in Kazakhstan. I guess 

my disappointment is—were you here seeking changes in law in 

the United States so that $6 billion could have been invested in 

America— 

Mr. ROBERTSON. Absolutely. 

Senator CARDIN. One moment. I haven’t finished my question.— 

in alternative and renewable energy sources so that we could become energy independent and wean ourselves off of oil? 

Mr. ROBERTSON. We have supported all— 

Senator CARDIN. I know you have supported—but have you been 

here to really fight for the types of policies—the more you invest 

in foreign oil, you have got to get your return. It creates a dilemma 

for you, for your shareholders. You have got to get that $6 billion 

back. 

Now, if that money would have been invested in America, we 

would be more secure today. 

49 

Mr. ROBERTSON. Well, maybe I should have talked about some of 

the investments we are making in America, because that was one 

example that I used of a project, the typical project around the 

world. We are just finishing up a $4.7 billion project in the U.S. 

Gulf of Mexico, in the Deepwater, to produce 125,000 barrels a day 

for the United States of America, which is— 

Senator CARDIN. I am more interested in alternative fuels. 

Mr. ROBERTSON. OK. I understand. We are making a lot of investment in the United States. 

Senator CARDIN. Do we need— 

Mr. ROBERTSON. Over the next couple of years, we are going to invest $2.5 billion in renewable fuels and energy efficiency services 

for outsiders. So $2.5 billion. We are spending—with the largest 

geothermal energy company in the world, we are investing in that. 

We are investing in cellulose-based ethanol. We have got a joint 

venture— 

Senator CARDIN. Do you believe we need stronger economic incentives in this country so that we can have an energy policy that 

is in the best interest of our country? 

Mr. ROBERTSON. I don’t think that we need new incentives. The 

prices that exist today are pulling huge amounts of money, including Chevron money, into alternative fuels. I think $150 billion last 

year was being spent on renewable energy. So the problem is— 

Senator CARDIN. So based upon our— 

Mr. ROBERTSON.—a time problem. 

Senator CARDIN. OK. Based upon our current incentives, then, 

you believe that we will solve our energy problem and become energy independent? 

Mr. ROBERTSON. I believe that there is a lot we can do and are 

doing in this country, not to mention—you know, we have talked 

about shale and— 

Senator CARDIN. And how many years will it take us to be energy independent under our current policies where we do not have 

to import foreign energy? 

Mr. ROBERTSON. I don’t think that we will be energy independent. 

Senator CARDIN. And you don’t think that is a worthy goal? 

Mr. ROBERTSON. I think reducing our dependence on the rest of 

the world is a hugely worthy goal, yes. 

Senator CARDIN. But you are satisfied with current policies? 

Mr. ROBERTSON. No, I am not satisfied with current policies. I 

think there are a lot of policies that need to be made to enhance 

the ability to produce natural gas in this country, which is a clean 

fuel. I think there are a lot of policies that need to help us invest 

more in the oil business in this country. I think there are a lot of 

policies that need to be done to invest in the coal business in this 

country, and I think in renewable. 

Senator CARDIN. Well, I— 

Mr. ROBERTSON. We need the removal of barriers to investment, 

not incentives to invest. 

Senator CARDIN. I hear your verbal support for these types of 

programs. I don’t see the energy by the leadership that is at the 

table today in helping us develop an energy policy for our country 

that is in the best interest of our national security, environment, 

50 

and economy, and may very well adjust the way that your company 

does business in the future and may very well affect your company’s future. But I do not see that leadership as Americans do 

what is right for our country. That is my take on it, and I would 

be more than happy to have your response. 

But let me ask a question. We have S. 2991 and it deals with 

some of the oil speculation, oil market speculation. I know you are 

not experts in that field because that is not what you participate 

in. You have had a chance to review that legislation. Do you support sensible regulation on oil market speculation? Any one of you. 

Mr. ROBERTSON. I think I have already mentioned it. As I know 

the bills that are around, we support completely transparency and 

we have not seen any bill that we object to. 

Mr. MALONE. Senator, we support the market provisions in that 

bill, and anything that, again, allows for transparency and liquidity, it is so important that we bring in 60 percent of oil and gas, 

we need markets that are properly regulated and allow for those 

variables. 

Senator CARDIN. Do you believe that there is price gouging in our 

markets in the United States, either at the retail level or elsewhere? Is that a problem? 

Mr. ROBERTSON. I don’t believe so. 

Mr. HOFMEISTER. I do not either. 

Senator CARDIN. So you have checked every gas station in the 

country and— 

Mr. SIMON. No, I haven’t, but the FTC has done many investigations in that area and have not found any inappropriate, non-competitive behavior as a result of those. 

Mr. ROBERTSON. And we do monitor our stations, so if any of 

them get way out of line, then we do go and followup with them. 

So we do monitor. 

Senator CARDIN. So the variation in cost that I see in Maryland 

at a particular brand station is just the normal fluctuations in a 

region in Maryland? 

Mr. SIMON. You know, when you look at the 166,000 individual 

retail outlets, in our case about a half a percent of those are those 

that we own, operate, and, therefore, set the price in. Most of those 

are set by independent men and women business people, and they 

look at their sphere of competition, and that is what they set their 

prices based upon. And, yes, it can differ from one zone to the next, 

depending upon competition. 

Senator CARDIN. I understand that, so it can vary from one 

neighborhood to another, as I have seen in Maryland. 

I would just make an observation. It would be good to have some 

independent verification here. I appreciate the fact that you are 

doing that, but I can tell you that what is happening in pricing of 

gasoline is a crisis in this country. And we need more help from 

you in dealing with this. I don’t think—and everybody sort of says, 

well, this is the market, it is going to work itself out. It has gone 

beyond that. 

I appreciate your support for the oil market speculation issues. 

I would like to see a greater urgency for our national energy needs 

and not just the bottom line of your company. I think in a way that 

was the message of Senator Sarbanes when he held this seat, and 

51 

he was effective in bringing about a major change. Unfortunately, 

it happened after many people were injured. 

We have got to get a sensible policy for this country that deals 

with the current pricing of gasoline at the pump and deals with the 

long-term security of this country and environmental needs. 

Thank you, Mr. Chairman. 

Chairman LEAHY. [Presiding.] Senator Whitehouse, thank you 

again for covering for me. I understand you had yielded time, so 

you have not asked questions yet. 

Senator WHITEHOUSE. That is correct. 

Chairman LEAHY. The floor is yours. 

Senator WHITEHOUSE. Thank you very much. 

Gentlemen, my question is: Where does this end? I went home 

this weekend in Rhode Island. Regular was $3.89, medium was 

$4.04, super was $4.12. A gentleman from Bristol, Rhode Island, 

who is in the home heating oil business, came in and said that just 

in the last few weeks his supply costs had gone up 60 cents. Since 

George Bush was sworn in as President, the cost increases amount 

to $2,000 per family in Rhode Island, and for a lot of families who 

are working in Rhode Island in an economy where wage growth 

has been completely stagnant, flat, and families are working harder than ever to keep up with increased costs, they don’t have that 

$2,000 lying around. And they are looking at family budgets, and 

they are comparing what they can afford for gas to what they can 

afford for food to whether they are going to be able to buy new 

clothes for their kids when the go to school in September. They are 

making very, very hard choices, and I think they are entitled to 

look ahead and try to get a sense of what they have got coming. 

What is your view on where the price of gasoline is going to be 

a month from now, 6 months from now, a year from now? What are 

American families looking at? 

Mr. SIMON. Senator, I would like to be able to answer that question, and answer that question for our customers as well. But the 

practical fact of the matter is there is no way that we can make 

that prediction. Seventy-five percent of the costs that people are 

paying at the pump today is a result of the raw materials that we 

must buy in order to make those products—crude oil. There are so 

many factors that go into establishing that price: supply and demand, weakness of the dollar, geopolitical situation, the amount of 

speculation coming into the market, the amount of spare capacity. 

It is absolutely impossible to take all of those factors and make any 

kind of intelligent prediction. The market will make that determination, and I am not smart enough to do so. 

Senator WHITEHOUSE. Anyone else? Mr. Robertson. 

Mr. ROBERTSON. Well, can I respond to a comment that was 

made a couple of minutes ago about leadership? There have been 

some recommendations made to the U.S. Government from our industry and a lot broader range than just our industry through the 

National Petroleum Council, and that was a very extensive document that was just put together and made some very specific recommendations for Government action and for policy in the United 

States. The No. 1 recommendation was reduce the demand, get 

more efficient. That is something that we can do in America today. 

52 

The only things we can do to change prices are to either reduce demand or increase supply, or hopefully both. 

One thing we can do in reducing demand, we have a company 

that sells energy efficiency services. They go to many, many installations around the country. They put in solar panels. They put in 

fuel cells. They put in insulation. Their average savings has been 

30 percent over 800 projects. A 30- percent reduction in energy use 

in big Government installations and private installations around 

this country would have a dramatic impact, almost more than anything else we can do. 

The best thing we can do as leaders for the people that are suffering under these huge price increases is to get more efficient as 

a Nation, to provide leadership in terms of getting more efficient 

as a Nation, and to make it the right thing to do, because it can 

really make a difference. That is the best thing we can do in the 

short term. 

Senator WHITEHOUSE. Well, let me ask you this: You are all 

international—you are here representing international oil companies whose purpose is to sell oil and gas and make money by doing 

so. We are an America that has complex energy needs, which include, as you have mentioned, Mr. Robertson, conservation, alternative fuels, solar, wind. There are also very significant national 

interests at stake in our continued use of oil and gas. There are 

very significant economic problems that we have all alluded. There 

are very significant environmental risks that could be the most 

damaging thing ever to happen to the human species. There are 

very significant national security risks. We are at war in Iraq right 

now in large part because of our dependence on foreign oil. 

So the cost of this can be extremely high, and it is not really the 

cost of your product. It is the cost to our country of not engaging 

in other ways. And my question to you is: Do you see yourselves 

as energy companies, or do you see yourselves as oil companies? 

And where the international interest seems very, very strongly to 

be steering us away from oil and gas, and that is your primary 

product, what assurances can you give us that as people who are 

making decisions for the American people, we can trust you to be 

making the right decisions for this country where they seem very 

apparently to be diverging from the corporate interests of the companies you represent? I see those two paths as on a very, very different trajectory, and I don’t know how to bring them together. 

Mr. HOFMEISTER. If I could speak for my own company, we see 

ourselves, Senator, really as both. I don’t want to hide and say we 

are not doing oil and gas, because we are doing oil and gas. But 

in respect of the economic value creation for this country, the jobs 

that we create, the contracting and procurement that we do which 

provides thousands of more jobs in the oil and gas sector, in the 

last 7 months, 8 months, just in the United States Shell has committed some $10 billion to economic value creation, which translates into jobs. That is all part of what our industry does. 

If you visit new hydrogen stations, for example, in California and 

New York and Washington, this is part of a whole new economy— 

Senator WHITEHOUSE. Mr. Hofmeister, I am not suggesting that 

you are incapable of doing things that are beneficial to the United 

States. I am suggesting that when we are making policy, it may 

53 

be that there is a significant conflict of interest between your corporate interests and our national security, environmental, and economic interests as a country. And what are the ways that we can 

do to try to reconcile those two more? 

Mr. HOFMEISTER. Well, I think across the whole range of social 

issues that move from the climate and the environment, the stewardship that we demonstrate, our activism, our advocacy of cap-and 

trade—Shell is a member of the United States Climate Action Partnership, as are several other companies here—we are trying to promote means by which we can reduce carbon emissions in the atmosphere, taking very active stands. In my 3-year tenure as President of Shell Oil Company, I average some 30 visits to Capitol Hill 

a year to advocate for—or to educate, I should say, on various policy initiatives ranging from hydrocarbons to hydrogen. And I 

think—that is, hydrocarbon-free hydrogen. And I think that, you 

know, personally I believe that America can improve its competitiveness by solving our energy issues in a comprehensive, holistic 

way. 

Senator WHITEHOUSE. My time has expired, and I am now operating under the Chairman’s indulgence, so let me just ask all of 

you one other request. It is not so much a question for the hearing 

as it is a request. We are facing a potentially existential threat to 

the human species. We can warm the planet as much as we please 

with global warming and the planet will be fine. The question is: 

Will the species be fine? And it is a very, very significant risk. It 

is one we absolutely have to do something about, in my view. 

Also in my view, the science has become extremely clear on this. 

I am married to a marine biologist. I understand a little bit of the 

science. I have read into this a great deal. There is an astonishing 

level of scientific agreement about this considering that science is 

by its nature an area of debate and exploration and experimentation. But the degree of agreement about it is phenomenal. 

And yet there remain fringe views, many of them endorsed, espoused, promulgated by organizations that either are now or have 

been in the past funded by your companies, with, in my view, the 

intention of misleading the people of the country about the actual 

state of the science. 

And I would ask that each of you, when you go back from this 

hearing, talk to the folks in your companies and take a look to see 

if this is still going on. Our regulatory proceedings in this country 

are riddled with phony science, with propped-up, phony organizations that are fronts for industrial interests. It is a real disservice 

to the people of this country that that is going on, and I think 

when people at your level support that kind of behavior, it is a terrible mistake. And I would ask you to review it and try to put an 

end to that practice, if it still exists in your companies. 

Thank you, Mr. Chairman. 

Mr. ROBERTSON. It does not exist in our company. 

Senator WHITEHOUSE. I am very glad to hear that. Thank you, 

Mr. Robertson. 

Mr. SIMON. And I would take exception with your comments as 

well, Senator. 

Senator WHITEHOUSE. You take exception with them? 

Mr. SIMON. I do. 

54 

Senator WHITEHOUSE. In what sense? 

Mr. SIMON. In other words, that we are supporting junk science 

and trying to make people think that this is not an issue. I think 

all of us recognize it is an issue. It is how we deal with it—and 

I think we are dealing with it, and we are doing so in a responsible 

fashion. 

Senator WHITEHOUSE. Well, allow me to disagree, and I am 

happy to continue the discussion. Thank you. 

Chairman LEAHY. Thank you. 

Senator Sessions, you wanted a couple minutes more for a followup? 

Senator SESSIONS. I did. This is a free country, and if you want 

to invest your money in expressing a view on science, you have 

every right to do so. And I think you have an individual responsibility to make sure it is done with integrity, because you are major 

corporations and you have great responsibilities. 

I understand fundamentally that a responsible large corporation 

exists to make a profit and that—but you have a responsibility also 

to do so in a way that is consistent with high ethical standards. 

One thing I would want to disagree with you about is a sense 

that nothing can be done about the OPEC situation. As I understand it, it costs less than $10 a barrel to produce a barrel of oil 

in Saudi Arabia, and probably in some of these other countries. 

And so it is now selling for $130 on the world market. You are not 

allowed, may I ask, you are not allowed to go in and produce more 

of that oil any time you want to. Is that correct, Mr. Hofmeister? 

Mr. HOFMEISTER. I think Saudi Aramco is the— 

Senator SESSIONS. They control it, they say how much can go on 

the world market, and by producing below their capacity, they are 

creating shortages that are allowing companies, you and others and 

other national oil companies, to maximize profits. We need policies 

here in our country to end that. We need to fight back, and I believe the President has certain leverage—I don’t know what that 

is—but I believe a sophisticated, sustained effort. 

Now Senator Kohl, I really liked the intent behind his effort to 

confront OPEC and create an antitrust lawsuit. However, I think 

it is true that historically, and legally, we have not been able to 

say to a nation, a sovereign nation, they have got to sell an asset 

they have on the world market. That is apparently a component of 

sovereignty, to be able to decide how much of your resources you 

want to put on the world market. But there are other pressures 

that we need to bring forth, and I hope that you guys will see that 

it will be helpful to us in the future to get away from this power 

that is being established there. 

I think most of you have drilled offshore. I was very pleased that 

in the aftermath of the devastating Hurricane Katrina, where 

many rigs actually were damaged, and severely, there was almost 

no spills of any oil. I think if we can sustain that kind of hurricane, 

as massive as it is, I think that gives us confidence that the technology that you are using is good. 

I would point out that we expanded some areas in the gulf for 

drilling, 100 miles or more offshore, but Florida blocked even further offshore than that, to my great disappointment. They like the 

situation, I think, where a pipeline from Mobile, Alabama, to 

55 

Tampa, Florida, takes our natural gas that we produce so they can 

burn it and have their aid conditioning and drink their mint juleps 

while the sun sets. You know, that is happy to them. But nobody 

can drill within 200 miles of their shore. 

We have got to get beyond that, and I would just note, as a 

former Department of Justice employee, States do not own the offshore outside their own waters; 50, 100 miles is controlled by the 

Federal Government. 

So I guess I want to ask you, do you believe—let’s say in the Gulf 

of Mexico the Destin Dome, which is still not open, some of those 

areas contain very large amounts of oil and gas and it can be produced safely? 

Mr. SIMON. Senator, when you look at the estimates, it has been 

estimated that there are 30 billion barrels of oil that have been 

placed off limits by the Federal Government, 125 trillion cubic feet 

of natural gas. To put that into perspective, that is enough oil to 

back out imports for a period of over 8 years, enough natural gas 

to heat 15 million U.S. homes for over 100 years. 

This is the only Government in the world that denies its citizens 

access to known, recoverable oil and gas. We can develop that in 

an environmentally responsible fashion, as we are doing everywhere else in the world in environments much more severe and 

much more challenging than we would confront here in this country. 

Senator SESSIONS. The North Sea is a much tougher environment, would you say, than the— 

Mr. SIMON. The North Sea, Sakhalin Island off Russia. 

Senator SESSIONS. But we don’t mind buying it from them, but 

we won’t buy it from our own Americans, and the money that 

comes to the U.S. Government, billions of dollars from that oil produced off our shores in the Gulf of Mexico and, for example, 50 percent of that goes to the general treasury, 12.5 percent goes to fully 

fund the Land and Water Conservation Fund, a key conservation 

program; 37 percent goes to the States who participate in that— 

my State has received millions of dollars and will receive hundreds 

of millions of dollars—instead of having that money go to Venezuela, Saudi Arabia, and places like that. It is just unthinkable 

to me that we are not examining this more carefully. 

Is it possible, Mr. Simon, that there could be even larger reserves 

than you have suggested just in the gulf? 

Mr. SIMON. There have been a number of estimates which would 

be higher. We really need to get out there and do some more work 

to really understand what is there, and that I think we are all a 

strong proponent of. 

Senator SESSIONS. Well, and, of course, Alaska could be itself 

about 10 percent—reduce by 10 percent our imported oil if we had 

that online, and we know we can do that, and I am sorry it has 

not happened. 

Thank you, Mr. Chairman. This is an important hearing. The 

American people care about this. These companies, I think it is 

healthy for you to have to answer to the American people. 

Chairman LEAHY. Thank you. 

56 

I want to thank the witnesses for being here today, and some of 

you, to your credit, were more forthcoming than others in answering the questions from both sides of the aisle. 

Of course, the bottom line is very simple: People we represent 

are hurting. Your companies and the foreign oil interests, are profiting. And we need to get this somehow into balance. 

I think the price of oil has to reflect market fundamentals. If oil 

returns to $35 to $65 a barrel, as some of you have said, then we 

could bring gas prices back to competitive levels. We look at the 

past profits of oil companies and what they are making on previously discovered oil; oil that was very profitable for them at $55 

to $65 a barrel is obviously making them windfall profits at $130 

a barrel. 

And I think for any of the oil companies to come here, and, as 

your ads suggest and others in some of the testimony today, to play 

the victim is extraordinary. The American people are the victims. 

Billions of dollars are paid by Americans to oil companies every 

year to put gasoline in their cars, to heat their homes, to run their 

businesses. And skyrocketing oil prices hurt these consumers, but 

it is also hurting our Nation’s economy and, thus, its security. 

And despite your opposition, the administration should support 

the NOPEC bill, as the majority of Republicans and Democrats in 

the Congress have. 

When OPEC countries commercially set the limit of output of oil, 

this Government, on behalf of all Americans, ought to be able to 

go after them as it could any other cartel. The President vetoed the 

bill to close the Enron loophole. I will ask CFTC to come in here. 

I hope that the veto will be overridden. 

The $36 billion that your companies reported in the first 3 

months of this year were drawn directly from the exorbitant 

amounts of money Americans are paying at the pump. It is wrong. 

As we heard from Senators here today, it just doesn’t seem fair. 

I thank Senator Durbin. For some of you who were not able to 

remember how much you make, I am glad that Senator Durbin reminded some of you. 

But I thank you for your testimony. You have been here on Capitol Hill a lot. It is probably not the thing you enjoy the most. I 

thank you for being here. 

We stand in recess. 

[Whereupon, at 1 p.m., the Committee was adjourned.] 

[Questions and answers and submissions for the record follow.] 

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