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THE WALL STREET JOURNAL: Under Attack, Big Oil Finds Reserves of Clout Running Low

Creaky Machinery
Under Attack, Big Oil Finds
Reserves of Clout Running Low

Giants Cut Back U.S. Lobbying
As Action Shifted Abroad;
New Bid to Play Catch-Up
How Rep. Barton Turned Critic
May 24, 2006; Page A1Rep. Joe Barton should be Big Oil’s biggest friend in Congress. The Republican chairman of the House Energy and Commerce Committee hails from a booming corner of the Texas energy patch. An engineer by training, he spent years working for a large integrated oil company, Atlantic Richfield Co. Since 2000, no House lawmaker has received more campaign contributions from oil and gas companies than Mr. Barton.

But in recent months, Mr. Barton has become a vocal industry critic. He struck from last summer’s energy bill a measure that would have relieved the companies of liability for pollution caused by a gasoline additive. He started an investigation into record profits. Earlier this month, he sent a letter to the top U.S.-based executive of BP PLC, which now owns the company that once employed him, demanding that the company spend more of its profits to expand refining capacity in the U.S. The same day he sent another letter to Exxon Mobil Corp. blasting the compensation and pension package for recently departed CEO Lee Raymond. Mr. Raymond received a lump-sum pension payment of nearly $100 million.

[On the Defensive]

“While we respect the right of corporations in America to set compensation packages as they see fit, it is hard to understand how, in light of most Americans paying nearly $3.00 per gallon at the pump, your board of directors can justify such an exorbitant payout,” Mr. Barton wrote.

Mr. Barton’s attacks on Big Oil underscore a mounting political problem, as even longtime supporters, from President Bush to Republican leaders of Congress, turn more critical of the industry. As Congress meets in the run-up to a hotly contested November election, legislators are likely to face a series of votes on proposals to whack oil companies with higher taxes, new regulations, or tougher law-enforcement scrutiny of pricing practices.

In one sign of potential trouble ahead, the traditionally oil-friendly House voted last week to revoke federal drilling leases giving favorable terms to oil companies, with 67 Republicans providing the margin for passage. If signed into law, the provision would cost the industry $10 billion over the next decade.

In a Senate hearing yesterday on gasoline “price gouging,” Mississippi Republican Sen. Trent Lott, the former majority leader, said, “there’s something real fishy” going on in the gasoline market, adding: “There better be restraint shown or the consequences are not going to be pretty.”

Big Oil has weathered plenty of rhetorical attacks over the years, often to survive with the bottom line intact. In last week’s leasing vote, Mr. Barton himself, for all his verbal broadsides, ended up siding with the oil companies. The proposal faces uncertain prospects in the Senate and President Bush could still veto it.

In response to all the criticism, the industry is launching its most vigorous political offensive since the 1970s, the last time Big Oil was so intensely vilified. The American Petroleum Institute is in the middle of a $30 million advertising campaign, the trade association’s first in three decades. The five largest integrated oil companies in the U.S. — BP, Exxon, Royal Dutch Shell PLC, ConocoPhillips and Chevron Corp. — spent $52.9 million on advertising in January and February, nearly twice their total in the same period a year earlier, according to TNS Media Intelligence.

API and the top five are also ramping up lobbying, spending $28.8 million in 2005, up 44% from the year before. As part of that, they’ve hired as lobbyists two former aides to Mr. Barton. They’ve also reached out to Democrats for the first time in years. Exxon Mobil just hired as a lobbyist David Leiter, a former chief of staff to 2004 presidential candidate John Kerry and once the man in charge of renewable energy policy in the Clinton administration.

But Big Oil’s current political woes go deeper than the recent surge in pump prices. Over the past decade, the industry has substantially scaled back its Washington lobbying presence and campaign contributions. With aging U.S. oil fields largely seen as petering out, the industry has shifted its focus to wooing Wall Street for its investment dollars and foreign governments for access to new sources of oil. A round of mergers and consolidations has diminished the industry’s political base. And a series of tactical mistakes in Washington — including tangling with the powerful Mr. Barton — has upset remaining allies in Congress.



Shell Oil President John Hofmeister discusses who’s to blame for high oil and gas prices, and what the oil giant is doing with its profits.

“It took us decades to get into this mess and it will take decades to get out,” says API President Byron “Red” Cavaney. “We have not broadly communicated to any external audience and to public officials the story about how the industry has changed in the last 20 or 30 years,” he adds. In particular, he says, Americans — and their elected representatives — don’t understand the extent to which foreign governments now control world oil markets, compared with the 1960s, when American investor-owned firms dominated prices and production. “The U.S. oil and gas industries are price takers, not price makers,” he says.

Big Oil has seen its Washington clout ebb and flow regularly over the past century. John D. Rockefeller beat back complaints about Standard Oil’s monopolistic practices, in part by being the largest funder of William McKinley’s 1896 presidential campaign. But the company was broken up during the Progressive Era of the early 20th century. Predecessors of today’s Exxon Mobil and Chevron Corp. helped shape U.S. foreign policy through the 1960s, then faced a backlash of taxes and regulation amid the gas lines of the 1970s oil crisis.

New Oil Age?

The 2000 election seemed to herald a new oil age in Washington, with both President Bush and Vice President Cheney having worked in the industry. Mr. Cheney’s energy task force, convened early in the administration, took extensive policy recommendations from the large oil companies and trade associations. Its final report included many of their requests for incentives and benefits.

But even then, there were forces at work that would undercut the industry’s influence. Companies were dramatically cutting their American payrolls and their presence in communities around the country. Between 1990 and 2005, the number of U.S. employees working in oil and natural gas extraction shrank by 32% to 128,700 from 189,000, according to the Bureau of Labor Statistics. “The fact there aren’t more direct jobs… makes the industry vulnerable,” says Shirley Neff, the former general counsel for the Senate Energy Committee.

Mergers eliminated several corporate campuses. When Chevron bought Texaco Inc. in 2001, it closed Texaco’s headquarters in White Plains, N.Y., and consolidated operations in Chevron’s hometown, San Francisco. This eliminated 2,000 jobs in suburban New York City. The companies that make up BP once had employee bases in Los Angeles, Cleveland and Chicago. Today the combined company’s U.S. operation has major employee hubs in Chicago and Houston but has shuttered its other offices.

Texas remains a political stronghold for oil. But since Tom DeLay was forced to quit the House majority leader’s post amid scandal earlier this year, there have been no Texans in the Congressional leadership, an absence rare in recent decades. And even Texas isn’t the ally it once was, having diversified its economy. The Texas Comptroller of Public Accounts said in 2004 that for the first time, high oil prices hurt the state’s economy more than they helped.

[Out of the PAC Race]

With fewer employees, oil companies gave less money to political candidates — a pattern that has continued into this year, even as political attacks are ramping up in advance of this November’s Congressional elections. A Democratic takeover of either chamber would almost certainly intensify the legislative attacks. In 1999-2000, the combined Exxon and Mobil would have boasted the 16th-largest political action committee among U.S. corporations. Its PACs contributed $1.2 million to candidates, according to the nonpartisan PoliticalMoneyLine. So far in the 2005-06 election cycle, the company has given $436,000, barely breaking into the top 100 PACs. The other companies have also cut back.

Before the recent rebound, industry lobbying spending tumbled as well, falling to $19 million in 2003 from $27.3 million in 1999.

As they spent less time and money in Washington, oil companies also committed tactical mistakes on the political front that upset Republican lawmakers who should have been their biggest champions.

Lukewarm on Alaska Refuge

While Republicans pushed to open up Alaska’s Arctic National Wildlife Refuge to oil and gas drilling, Big Oil did little lobbying on the issue. The companies are divided on the commercial potential of the field and not all of them have interests there — sidelining the API.

A few years ago, Sen. Ted Stevens, an Alaska Republican, asked the major oil companies to respond to the environmental lobby by funding a $15 million advertising campaign in support of new oil production in Alaska. They refused, in part out of fear that publicly and aggressively taking on environmentalists would damage their public image. “It hurt us a lot,” says Mr. Stevens, who has been pushing the legislation for two decades.

Rep. Richard Pombo of California, the Republican chairman of the House Resources Committee, is another oil-industry ally now frustrated with Big Oil. “The major producers are as guilty of doing nothing to help Congress increase supplies at home as liberals and environmentalists are of blocking bills we advance to do just that,” Mr. Pombo says.

In part to vent his frustration, Mr. Pombo joined Democrats last week in voting to force higher royalty payments for certain companies in the Gulf. Unless the large oil companies help push legislation to open up U.S. lands to energy exploration, Mr. Pombo says, “they can look forward to more of the same on the House floor.”

Oil companies upset Mr. Barton last year by making it more difficult for him to pass a comprehensive energy bill. They refused to support the bill unless it included liability protection for the production of methyl tertiary butyl ether (MTBE). The clean-burning fuel additive was essentially required by clean-air legislation in the 1990s, but it has since been found to pollute groundwater. Democrats refused to back a bill with a provision protecting oil companies. Mr. Barton held up the bill for months as he brokered a compromise that gave oil companies the liability relief they sought if they agreed to pay about $4 billion toward a federal fund to clean up MTBE spills.

But a few hours after he unveiled the compromise, the oil industry issued a press release rejecting the proposal. Mr. Barton was stunned. He cut the liability relief from the bill and that legislation ultimately became law.

Industry officials say they had told Mr. Barton they wouldn’t pay more than $1.5 billion, and that when he crossed that line, they had no choice but to oppose the measure.

Hurricane Katrina was a political wake-up call for oil executives. In the days after the storm, they felt they’d performed heroically in preventing major oil spills and repairing damage to help avert a nationwide shortage of gasoline. Instead, the industry’s own polls showed that Americans thought Big Oil was the villain.

Emergency Call

Mr. Cavaney of API, the industry trade group, convened an emergency conference call with top oil executives. They quickly agreed to fund a $30 million advertising campaign to make two key points: that oil-industry profit margins are in line with those in other industries and that Big Oil is powerless to control prices at the pump since they are largely dictated by the market rate for crude oil.

Exxon is running its own quarter-page text-heavy advertisements. A recent one defended the company’s large profits, arguing that earnings “enable us to continue making vital investments that benefit everyone in the long run.”

So far, the industry has weathered the new political assaults with little damage. As Congress was putting the finishing touches on a tax bill signed into law by President Bush last week, Exxon, Chevron and ConocoPhillips, aided by other business lobbies, deflected an attempt to make an accounting change that would have cost the oil giants $6 billion.

Still, the industry believes it won a skirmish, not the war. With gas prices expected to hover near $3 through the summer, industry lobbyists expect to be on defense for a while. “If we see a prolonged environment with the prices we’re seeing today, energy is going to stay at the forefront on the minds of Congress and that is not going to make our job any easier,” says Don Duncan, the top lobbyist for ConocoPhillips.

–Christopher Conkey contributed to this article.

Write to Brody Mullins at [email protected] and Russell Gold at [email protected]


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