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THE NEW YORK TIMES: US Oil Defends Record Profits

Published: June 18, 2006
Filed at 2:43 p.m. ET

WASHINGTON (Reuters) – Top executives at three big U.S. oil companies defended record profits on Sunday as necessary to finance future investment, and one cautioned that summer gasoline pump prices could go higher with hurricane season underway.

Some of the major oil companies, including Exxon Mobil Corp. (XOM.N), Chevron Corp. (CVX.N), ConocoPhillips (COP.N), collectively earned well over $100 billion in profits last year, sparking outrage among consumers and some lawmakers.

Prices at the pump, already up due to tensions in the Middle East, soared last year after Hurricanes Katrina and Rita disrupted U.S. Gulf coast oil and gas production.

The industry is gearing up for what forecasters predict will be another busy Atlantic hurricane season this year after a record 28 tropical storms in 2005.

“The thing that concerns all of us I think is that we’re heading into hurricane season again,” Chevron Chairman and Chief Executive Officer David O’Reilly said when asked if consumers should expect higher gas prices this summer.

The National Oceanic and Atmospheric Administration predicted 13 to 16 tropical storms this year, of which eight to 10 would become hurricanes. Four to six hurricanes could become ”major” storms of Category 3 or higher on forecasters’ five-step scale of hurricane strength, NOAA said.

“Absent hurricanes, I’m optimistic, but I think it’s a cautionary note,” he said on NBC’s “Meet the Press.”

The Energy Department’s forecasting arm has said it expects consumers will pay an average $2.76 a gallon for gasoline this summer, 39 cents more than last year. But costs will have to fall sharply to get to that level, as prices have been hovering closer to $3.00 per gallon.

Amid the record profits, James Mulva, ConocoPhillips’ chief executive, acknowledged the industry has not done well at explaining the costs of meeting rising U.S. demand.

“I don’t think we really have done a good job as an industry over many decades explaining how we explore and develop energy,” he said.

Shell Oil Co. President John Hofmeister said more attention was needed to developing additional fuel sources.

“We’re investing to grow, but it takes time and it takes investment and it takes access to places to invest to produce more oil and gas,” he said.

Chevron’s O’Reilly defended the industry’s profits as in the middle range of other industries.

“I think this there’s a perception that this is an extremely profitable business long term, and over the long-term cycle it has not been profitable,” he said. “The return on capital and return on sales were very modest.”


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