http://www.denverpost.com/business/ci_4105814

Article Launched: 7/28/2006 01:00 AM

business
Big Oil's enormous profits ignite suspicion of gouging

By Andy Vuong
Denver Post Staff Writer
DenverPost.com

As motorists continue to pay more at the gas pump, two of the nation's largest oil companies on Thursday reported second-quarter profits of nearly $18 billion.

The huge profits come at a time when refiners are marking up wholesale gas prices to levels seen during the weeks after Hurricane Katrina, reigniting concerns about the possibility of price gouging.

Exxon Mobil Corp. said Thursday that its second-quarter profits increased 36 percent to $10.36 billion, the second-largest quarterly profit ever for a U.S. publicly traded company.

Royal Dutch Shell, which operates 155 gas stations in Colorado, reported earnings of $7.32 billion, up 40 percent from a year ago.

Including earnings from BP and ConocoPhillips, which reported earlier this week, four of the nation's five largest oil companies netted more than $30 billion in profit during the second quarter amid record crude oil prices. Chevron reports its earnings today. Those five companies own more than 40 percent of U.S. refining.

National gross profit margins for refiners have hovered around $21 a barrel this week, compared with about $12 a barrel a year ago, according to information compiled by Bryant Gimlin, an analyst with Fort Lupton- based Gray Oil Co.

Gross refining margins - calculated by subtracting refiners' crude-oil purchase price from their wholesale gasoline selling price - hit a record high of $31.71 a barrel on Sept. 1 shortly after Hurricane Katrina, which knocked out refineries and pipelines.

The profit margins, which aren't publicly reported by the companies, represent the amount of money refiners make from selling gasoline and other products, minus their costs for crude oil. The refiners' net profits are lower than gross margins because of additional costs such as operating expenses, payroll, marketing and taxes.

Amid outcry from lawmakers about its profits, the oil industry this week paid for advertisements in 14 newspapers - including The Denver Post, The New York Times and The Washington Post - that insist oil companies' earnings are not exorbitant.

"The oil and natural gas industry is really not out of line with other industries," said Jim Craig, a spokesman for the American Petroleum Institute, an industry trade group based in Washington. "With gasoline prices what they are and the price of crude what it is, I know we're top of mind for consumers. That's understandable."

The national average price of regular unleaded gasoline is $3 a gallon this week, according to AAA.

The price would be about $2.60 a gallon, factoring in taxes and transportation and other costs, if the refiners' gross profit margin had remained at the same levels from a year ago, according to Gimlin's figures.

Rep. Diana DeGette, D-Colo., on Thursday renewed her calls for stronger price-gouging laws.

"We have such weak price- gouging laws; nobody's investigating the practice," Degette said. "I'm not going to say there is price gouging on, but I do think we need laws that let us have thorough investigations and prosecutions."

The huge profits this week spurred outrage from other lawmakers.

"The big oil companies are taking in record profits, while the American people are" being taken advantage of, said Rep. Mark Udall, D-Colo. "We need a real energy policy that relieves consumers' pain at the pump and that puts our country on a path to energy independence."

Udall and DeGette are calling for legislation that would increase investments in alternate fuels and energy-efficient technologies using renewable energy sources such as wind, solar and biofuels.

Others lawmakers, including Rep. Edward Markey, D-Mass, are calling for a tax to redistribute some of the Big Oil profits to small businesses and the poor.

Exxon Mobil spokesman Kenneth Cohen said some politicians are using high energy prices as an election issue.

Crude oil prices hit a record high of $78.40 on July 14 and have stayed above $70 a barrel since then.

Bloomberg News contributed to this report.

Staff writer Andy Vuong can be reached at 303-820-1209 or avuong@denverpost.com.