[Senate Hearing 110-496]
[From the U.S. Government Publishing Office]


                                                        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

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43-354 PDF                       WASHINGTON : 2008 

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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts     ARLEN SPECTER, Pennsylvania
JOSEPH R. BIDEN, Jr., Delaware       ORRIN G. HATCH, Utah
HERB KOHL, Wisconsin                 CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California         JON KYL, Arizona
RUSSELL D. FEINGOLD, Wisconsin       JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York         LINDSEY O. GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois          JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland         SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island     TOM COBURN, Oklahoma
            Bruce A. Cohen, Chief Counsel and Staff Director
           Stephanie A. Middleton, Republican Staff Director
              Nicholas A. Rossi, Republican Chief Counsel

































                            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


                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-working 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 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 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 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 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 Nation. 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.
    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. 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 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.
    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 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. Consumers 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 reserves, 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 lower-quality 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.
    [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 period. 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 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.
    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 
either, 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?
    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.
    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?
    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 significant 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 supplied 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.
    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.
    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 
marginal 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.
    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.
    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?
    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 corn-based 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.
    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 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 
demand, 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- 
billion-a-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 upside 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 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.
    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 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.
    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?
    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.
    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?
    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 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.
    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, Americans 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 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.
    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?
    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.
    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 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 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 all-time 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.
    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.
    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, 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 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. 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 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.
    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 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.
    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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