with increasing taxes on your company affect your earnings? >> increasing taxes and would have an impact on our earnings and ultimately on the value of our companies valuation and the shared performance to our shareholders. >> and all these pension funds. new jersey is not the only state with pension funds. >> that is true. if you take all americans and retirees and employees, and if they are involved in one way or another, they probably are shareholder in an oil and gas company. >> to agree with that? >> raising the taxes would affect our cash flow. the ability to pay dividends. it can affect the overall cash flow and financial management of the company. >> one last question, i am sure you are aware of the united

states has the highest statutory corporate tax rate. according to a database that collects information from company's financial statement, the industry has an effective tax rate of 41.1%. other industrial companies have a tax rate of 26.5%. yours is a very high tax rate. all the tax increases we're talking about would eliminate incentives to produce oil and? -- while and gas within the united states. did these tax increases encourage you to produce coal and gas? outside the united states rather than doing in here? anyone can answer that. >> certainly, tax is a big cost of doing business for us and is considered in all decisions that we make. to the extent that taxes are higher in the united states, we will look elsewhere.

with all the provisions that had been considered, it will make it more difficult for us to do business. it will raise the cost of doing business. it will produce less in revenue, fewer jobs, and did against the president's agenda. >> my time is up. >> thank you, mr. chairman. this is not the first time that congress has dealt with this issue. five years ago, the suit are serving as ceo's of your company were passed -- were asked whether they agreed with president bush paused statement. $55 oil, we do not need incentives for oil and gas companies to explore. conditions today are pretty much like they were in 2005. record profits, a price hikes, but certainly above inflation.

you were at the hearing and would i would like to do for the committee, we played a portion of that hearing were the oil company ceo's said they did not need incentives from the federal government when oil was at $55 a barrel. could you just showed that video briefly? >> would $55 oil, we do not need incentives to oil and gas companies to explore. there are plenty of incentives. today, the price of oil is above $55 per barrel. is the president wrong when he says that we do not need incentives for oil and gas exploration? if i could have a yes or no answer.

>> no. i do not think our companies asked for incentives for exploration. >> agreed. i said we do not need, but we do need access. >> just a yes or no. >> yes. >> correct. >> yes, yes. >> the reason i wanted to get into this is today's conditions are much like they were into a dozen 5. that is why i mentioned the profits. with respect to oil and gas production, we do not need incentives. oil is now right around $100 a barrel and my question -- if

your company did not need incentives to drill for oil at $55 a barrel, how in the world can you possibly need incentives when oil is at $100 a barrel? >> at $55 -- we look at the past. the easy to find oil has already been found. taxes have gone up trade quarrel is more challenging to find. -- taxes have gone up. the oil has more challenging to find. we do not give the items that we are talking about, foreign tax credits, section 199, we do not view those as subsidies. we've you those are a similar types of provisions that are made available to other companies, all industries in a similar way.

we do not need incentives to drill. >> i am talking about industry specific incentives. percentage depletion, intangible drilling costs, deal logic and geophysical costs, these are industry specific incentives. you said that you did not need them in 2005. markets were global into a dozen 5, it's just as they are now. i cannot understand how even if you account for all of the possibilities in the world, how you can make the case that you need these industry specific incentives when oil is at $100 a barrel. >> intangible development, we view these similar to research and development, technology, similar types of provisions that are made available through

other industries. >> those are industry specific incentives. >> they are very similar to what is offered to other industries as well. >> you also get the research and development credit as well. your predecessor at chevron said that he did not need incentives at $50 -- at $55 a barrel. >> i would like to offer several comments. you talked about percentage depletion. these companies are -- perhaps there is so -- there is some confusion about what we are eligible for. >> we're talking about industry specific provisions. that is what the president was talking about. that is what i am talking about today. he just said incentives and to you all said you did not need them in 2005. there seems to be a different story today. >> we are not eligible for percentage depletion.

>> you are eligible for a lot of incentives. >> we have seen cost rise dramatically in our business. any number of industries would tell you that the cost of doing business has more than doubled. we are not asking for special treatment, we are asking for the same treatment to other industries. >> if you look at what the congressional research service has said, and they said that recently, you will continue to go way beyond inflation in terms of your costs. if you took inflation-adjusted prices today, the price of oil is higher than it was into it doesn't buy, that is adjusting for inflation today. >> thank you. >> thank you, mr. chairman. i welcome all of you here today. i feel like i was in a time warp. i was there as well in 2005. the greatest travesty for this

country is that we do not have an energy policy. i do not know how many energy crisis there has to occur in more than a generation to prompt and compel the president and congress to develop a comprehensive energy policy. it has transcend -- it transcends many administrations. if the hearings did not result in action, increasing debt policy, we let down the american people. we should be examining all aspects and all facets of what we do at. we should examine all the subsidies and all the tax incentives that we provide. we put many of them on cruise control for so long. the challenge that we're facing today -- we of not looked at them in terms of their effectiveness. we need to have the energy

policy. the congress ought to do eight and that is why people are asking. i think that is an abject failure without question. the real issue for us here today is to address these effectiveness of the tax incentives that you are given in your industry. you provide a very basic commodity to the american people. in my state, they paid $3,500 for oil and electricity and another 600 critics 6 $200 for gasoline. their pay in the third highest consumer bill. we have to look at everything in terms of what we can do to mitigate those prices not go back into a dozen 5, -- mitigate those prices. oil has gone up 87%. gasoline was $3 and now it is

more than $4. what can you tell us that we can tell the american people how effective these benefits have been to your company in helping to mitigate those prices? there was a report that was done for the american petroleum institute last august and it talks about removing these taxes that would alter the break-even point for oil. if oil is priced higher than $80, the removal of these incentives will not result in any lost oil production. is there a point at which we remove these incentives, a price point beyond $80. i would like to have your response to that as well.

first, what about the effectiveness? what can we tell the american people? how are they benefited? that is what we have to examine. >> i understand some of the concerns. in california, we have very high unemployment -- we have very high gas prices and a very high unemployment rate. the policies that we have had over the last decade have provided some benefits in terms of u.s. oil production. last year, we did increase will production because the open deck acreage to development and we had a stable tax policies in place. what we have seen recently is that we have not conducted -- we have had a moratorium on drilling and you're contemplating tax increases that will only new production in the other way.

some of the studies and i have seen indicate that the impact of a $5 billion increase on our industry would have a dramatic impact on production going forward. they talked about a reduction in production of some 400,000 barrels a day. that is the dilemma that i think we have been we think about increasing taxes on the producers in this business. >> even in the context of record profits? >> we make about 6 cents on sales. we make about 6 cents a gallon on gasoline business. if there is a big concern about gasoline prices, federal and state governments make 50 cents a gallon. >> i could not agree with you more about needing a long-term energy policy. we have to get to the fundamental issue here, which is something that has to be addressed.

you need a real strategy to execute to do that. has the current tax structure held investment? we are in a position today where the u.s. is competitive. we have made about $3 billion and gear in in come from just the u.s. and we have invested about $6 billion a year in capital projects for new energy projects. that shows you that this business is competitive. the issue and to address the more fundamental issue, to provide more access, bring more production online. i can give you a very clear example. it the look at offshore alaska, the university of alaska has done some studies there, it is an enormous resource potential. of the estimated number of jobs associated with developing that

resource is over 50,000 for a multi decade. of time. the amount of revenue that would come from developing those resources is something on the order of $200 billion. there is a real opportunity, but we have to take a longer-term view. >> thank you very much. >> thank you, mr. chairman. thank you for coming. one of my colleagues suggested that this hearing is nothing more than a dog and pony show. you would have an easier time convincing the american people that a uniform just flew into this hearing room that these big oil companies need taxpayer subsidies. that is a real fairy tale. the average american family in dallas at the gas pump across america and being asked to sacrifice because of the budget deficit, certainly does nothing this is a dog and pony show. i would like to ask my

colleagues here about the question of priorities. we sit in different seats than you do and your job is to maximize what is good for your stockholders and good for your employees and be all understand that. we have to to his priorities in right now, we have a huge budget deficit. many have said that the budget deficits says we should cut aid to students who need to go to college. we should cut cancer research, we should cut a homeland security investment funds. it boils down to priorities. we have to get the deficit to a certain level and we have choices. i want to ask you, did about your priorities. do you think that your subsidy

is more important than the financial aid we give to students to go to college? could you answer that yes or no? >> that is a very difficult question. >> we have to weigh those two things. we have to wait because we have to get the deficit down to a certain level. if you had a choice of one or the other, which would you choose? >> senator, that is a choice that legislative leap you will have to be making. for our company, we are asked to provide energy in an affordable way for the american public. >> you would choice -- you would choose the oil subsidy? that is what you're telling me. most americans, even those who worked in the oil industry, would probably agree with.

your company put out a press release yesterday. here is what the headline was. conocophillips highlights solid result and raises concerns over un american -- are they gonna -- are they on theamerican, too? >> nothing was intended artfully or anything like that. r. release specifically refers to tax proposals. >> i want to ask you a specific question. do you think anyone who advocates cutting necessities is unamercan? it was released that sent its. yes or no? >> maybe you could hear me out. it is a very important question.

>> do you apologize for it? >> make no mistake, were these proposals enacted, if they were enacted into law, they would place the u.s. companies -- >> i have limited time and i know your view on the issue. did you consider it on american to have a different view? >> proposals under consideration are going to have a very adverse impact with respect to energy policy. >> sir, there are many people disagree with that not " you have your point of view and that is why you are year. do any of you others consider it unamerican to be against the

subsidy that you are for? >> thank you, mr. chairman. >> very difficult to follow the unicorn from york. [laughter] who has a very sharp corn. are you all right about there? [laughter] sometimes a unicorn can morphed into a rhinoceros and you do not want to mess with eight rhinoceros. i met with a young man yesterday's new was the manager of a small exxon refinery. partly owned by citgo.

he was seriously concerned about his job security and his other employees working in the refinery because of the legislation seeking to repeal 199. because this refinery is partially owned by citgo, a repeal would not the fact his interest. i call that unamericna. why would be taxing the u.s. company and letting him do his thing and not -- in central america. there might be some confusion when some of my friends claim that removing these tax expenditures will not have any

impact on the domestic oil industry. why would this young man think differently? has the refining sector read scene is much profitability as the oil exploration sector? our jobs juliet risk of these taxes are revoked? >> if you look at our own refining operations, refining has lost money five of the last eight quarters. we made some money in the first quarter and lost money in the fourth quarter. it gets back to what is the price of gasoline. it is fundamentally the cost of the crude oil. we are one of the largest refiners in the world. we produce about 2.5 million barrels of crude oil. we are in the market having a purchase every day to feed our refineries. when the cost of the oil is high, the refiners margins get squeezed.

refiners to struggle with very thin margins, so when you increase the tax burden on the refiners, you erode his margin. when you lose money five added eight quarters, it is pretty skinny already. >> i appreciate your answer. it was my marching orders -- now a and understand, to present the statement by a -- i have one minutes 37 that i will yield back and i would like permission to express his statement at this point if that would be permissible. i do not want to tread on anybody's time. >> bill add. -- go ahead. i will skip a beat thank you's.

he goes into how important this issue is, a multitude of areas impacted on the cost of gasoline, that we do not overlook the main factor. 70% contingent upon -- it is easy to understand any fluctuation in its global supply and demand. he goes into the fact that we are already reliant on foreign countries and this commodity is traded on a global scale. increase production cannot serve as an immediate magic bullet for solving rising gas prices, but it is a strong start.

he supports the domestic exploration and drilling and to fight against our 9% unemployment rate. while they pursue any policy that is counter to any job creation? he indicates that the proposals would be counterproductive. he has a video. i am not a video man, but we have a video. over already. >> there is no other senator. >> i appreciate that. we were not joined at the head.

if we could play this thing and i will be a lot better shape with my colleague. >> it is only 30 seconds. >> 30 seconds. here we go. >> you are right in front of the television. >> could amount to twice the reserves we have in the united states. when you are ready to start drilling, we want to be one of your best customers. >> that was 30 seconds. the president called for reducing foreign imports by a third. there is a serious discontent and that is the comment that i truly appreciate. i appreciate your lenience and your treatment of this poor minority member. >> thank you, mr. chairman. i know the subject of this hearing is about tax subsidies

and the effect on the deficit, but i would also like to get your opinion on this issue on the price of oil because many americans are feeling the impact at the pump. his testimony talked about how oil is a global commodity and that oil companies are price takers not price makers. i am assuming that people agree with that generally would that statement. what role do you think excessive speculation in the futures market is having on elevated oil prices? i know that some of your colleagues -- you talked about speculation and a weakening dollar having more effect than supply and demand. can you comment about speculation? >> it is very difficult to

precisely say what impact it has and is also difficult to separate in the marketplace speculation and risk management. the two are quite intertwined in terms of how people manage the rest of the price of the fuel, whether there are -- whether they are a consumer or producer. i would give you one benchmark. immediately after the libyan outbreak, within the next day, the price of oil went up $12. it nothing had changed in the global supply the next day, but what was the market reacting to? it was reacting to some level of insecurity about what the future supply was going to be. that is people pricing end -- in what they believe their costs is going to be some time in the future, a building in their concerns and their worries about other possible supply disruptions and the ability of the market to respond to that. as people see how the market

response, it just back. >> what you think the price would be today if it was based on the fundamentals of supply and demand? >> if you were to use a pure economic approach, it would be said at a price to develop the next barrel. >> what do you think that would be? >> it is pretty hard to judge, but it would be -- is gone to be somewhere in the 60 or $70 range. if i had access, that is the assumption, to the next marginal beryl, what would it cost? as -- as a design developed that, the next barrel goes up. the industry has done a very successful job of mitigating facts through technology advancements, and efficiencies, the things we have learned how to do better to keep the cost

down. in a purely economic -- if people did not risk managers, it would be set at the marginal cost of the next. >> 60 or $70 a barrel sounds pretty good today, i can tell you that. oil dropped 5.5% yesterday. lastly, it was 8.6% grade i do not think it has to do with the dollar or whether it has to do with a lot happening and the volatility of the market. i am curious as to what you think that the volatility, what we should be doing about the volatility? >> some of the factors that i mentioned are clearly factors. at either one may be dominant in the current week we're talking about, but all those are very

real factors on the price. on the topic of trading, i am anything but a trading expert, but it has been studied many and -- many times. tried to understand some of the questions that you are asking. what is the increase in price that can it does serve a very important function. >> with 70% of that market now being made up of speculators, that it is going to have been the market made up of people who legitimately have to hedge dominated by 70% of people who are just getting in on this oil gain. that is a problem.

do you agree? is that ok to have the market dried up? i see you smiling. do you have any comment? >> we are not traders. we are physical buyers and sellers of barrels. the market decides based on their view of the teacher. it is been $8 a barrel of tonight. during my career.

>> i'm not sure that is how they were established. these are not the end take years. thank you. >> thank you. >> i really appreciate them spending so much time on their research. even if they are prescribed to a comedian. they are being hit really hard. i am sure my colleagues will be

happy to tell taxpayers what he supports that. i agree about the dog and pony show. these companies on average are making about $25 billion projected this year. only in washington they would be eliminating those tax increases. i am glad i did not hold my breath for that. calleday's your company proposals to eliminate wasteful oil subsidies on america. do you make those accusations lightly?

they are co-sponsors. t think that president obama is an american a cassie has the subsidies? we have expressed cutting oil subsidies. >> there was the title of our media. it is not intended to be personally directed to you. it was merely utilize in a way that we felt the tax proposal was under consideration. it was inconsistent with the treatment of all taxpayers and to highlight and select five different companies. >> if you believe that the proposals, which to classify

them as un-american? i think that is beyond the pale. i was hoping he would come here and apologize for that. are you willing to apologize? >> you are not willing to apologize? >> the tax ones were under consideration. they were inconsistent with out that energy policy. they are unwilling to apologize. last year, eco phillips spent $4 million buying back its own stock. it helps raise stock prices. this seems to me that they could not simply buy back more.

>> we have announced him in the neighborhood. it equates to the sale of the interest. we thought they were not as great. they were better treated than their own. they took the profits. he put it in the hope. as for tax payments they get a u.s. foreign tax credit.

ho that they are not. those are royalty payments.vernt >> they are legitimate income taxes paid in indonesia. as i said in a statement, one of the ways our industry is treated differently by foreign tax code is we must prove that these are income tax payments and not royalty payments, said the internal revenue service, which rehouse 35 auditors, 365 days here in our offices look at those very thoroughly and we must prove to them that theypree represent income taxes and not royalties. >> clearly if you pass a strture structure taxes to a foreign the country, the irs doesn't have a lot of opportunity to dispute that. but if in fact you divide your

agreement in such a way thatg having the payment of royalties be acked, you get a deduction here inni taxat means u.s. taxpayers are subsidizing it. i find it hard to understand how you can come here to the american people. you simply cannot do it. the market is driving the to exploration. you did not need this to pursue this. somehow the loss of $2 billion a year means the only make $123 billion in profits. it is still punishing. somehow unique to go back at them to make it operate. it is hard to understand. i really thought you come here and a different context.

you are really surprising to me. i am shocked that you are not willing to the knowledge that your company statement is also the only passing an aspersion upon all of us. >> thank you. i think all five of our witnesses for being here. i think the best thing we can do is have a growing family was stable energy prices. i do not think they have less to do with the ability of the pension system. the math here is so overwhelming. i do not want to say that 4

billion is insignificant. it is a small amounts of money. i think we have to put this in the proper context. it seems to me this is one area we should be able to reach some common understanding. the long-term impact will allow us to make sacrifices. there is a reason why we are looking at this. we had championed this. that issue is the supply of oil globally. that is with government and

transparency. the countries are incredibly ploy report. -- are incredibly poor. it is used in many cases to define this. it leads to the instability of when you have systems that are not transparent. people will stand up to that. we have an unstable supply causing investors to put money there. we have been looking for some time to support the transparency initiatives. many of the oil-rich companies do not participate in these industries. we were successful in getting

part of this. it is being related to the sec. it is being paid by the oil and gas companies to other countries. then we can have more transparency in better government. the industry has been helpful for us? there seems to be a reluctance a this applies to all companies. we have friends in europe and other countries that want to see this worldwide. then all companies will have to disclose these payments. time they paid to

other countries. we stood up to that. we knew this is not in the u.s. long-term interest. i would like to get your response. we can get more stable countries around the world. it is in our interest. we need your help. i am curious as to why we seem to be at odds on this issue. we hope that you comply and help us make sure this is implemented in a fair way. this is the reason why i directed the question. >> i appreciate your comments. it is pretty clear that we support the intent of transparency.

we were quite hard the various initiatives. some of the comprehensive and cut that we have tried to get is that we try to do it in a way that the stop force them into an uncompetitive situation. it recognizes the challenges we have in terms of searching out that balance. there are complications associated with it. we try to get to the right answer. we have exclusions. it seems to me that we are in complexed with the standard contract. >> the bike and offered a couple of comments. we have been very active. we have a comprehensive human rights policy. we are forcing u.s. registrants.

this is required under the law. it is very one-sided. >> work with us and everyone has this. there are friends around the world that want to work across the nation. >> it is interesting to observe this that started it out and then the view. and you know, you are doing very

good things for the boy scouts that affects my state of west virginia, but i can thank you for that, but i can't thank you for a lot of other things. i get the feeling that it'ss almost late to fight the view oe saudi arabia, that you are caught up in your profits, highly defensive, you'll done nothing the concept of sharing means almost what you said that you have to move to another country, which i don't accept because they are already not kinds of other countries all over the world. i guess most of you. i don't know though if you are. but soared as being out ofre ou. touch, not only what we're going through in terms of chuck schumer's question, the with th. american people. i don't think you could blame the nature of your travel and the size, i do not think you

have any primary idea of what the scientists of this does to the american people's willingness to accept what you have to say. i think you are really out of touch. they will cut this and have. there are all kinds of things. i come from west virginia. i care about hedge funds.

a lot of things will take enormous guess. my guess is that you will be able to protect yourselves. of companies have been able to do this through friendships and lobbyists. you are able to prevail. you've seen me will prevail. it increases the details between us of india. i do not know how serious you are about this. we were terrified appear. we have a meeting with the president yesterday. it means all kinds of things just happen.

let me stipulate that. i think you are out of touch. we are deeply committed. we share nothing. if the share nothing, you are slow. if you give up something, what have you, that is the rest of it. they may be point about the $55 a barrel. now your at $102 a barrel. you talk about moving overseas. how much profit to you have to make to not be needful of the subsidies? you say your life depends on it.

you would not need the subsidies at some time. we have a reasonable return. i do not think the american people want shared sacrifice. do you understand how out of touch that is? we do not get to share prosperity. we are unable to work today. they feel this. your federal tax rates are

substantially, 3% lower than what the average individual tax rate is. does that appeal to you? it has to be dealt with in a very large way. we are well aware of it. the united states income tax rate on my united states and, 2005 to 2010 was 32%. if you look at any individual, it could be as low as a single-digit fantasize 38%, 39 we recognize cloning -- closing

of our issue. your tax rate was the best. theirs was about 20%. that leads into the next round of questions. >> thank you. we appreciate all of you coming here. this is about our priorities. we have a responsibility to meet

everyone. they are experiencing as tobacco questions and determine priorities. this is our job. it was 1960 -- 1916 when one of these were put into place. we were drilling. it is roughly 15 to $17 a bill. banks have changed since then. it is healthy to look at whether or not when we were developing then, it this a hundred dollars or more. it is very different. it makes sense for them to subsidize.

it subsidizes what you are doing. there is not enough competition. they can choose not to pay. people are extremely concerned only have to make choices. the question i would have is looking at the last three months. they enjoy corporate profits together. there is one cermet to 2% of the profit. you have massive profits.

taxpayers to keep providing 1% to 2% of your profit. my question is the opposite. he will bring the gas prices down. >> it is not a subsidy. it is a legitimate deduction. what would it take? the ruling cost structure, the structure to incentivize and help people go out invest in the next supply today it is largely coming from the resources. >> i'm trying to answer a question.

he may get a higher. 2% that weturn to are talking about. we are looking at the site turned to look at it. we have to make choices here. what is affected? what works? it is not credible to say that we are going to raise gas prices because we are asking you to forgo one to 2% of the process. we are held hostage. we take away 1% to 2% of your profit. that cause you to raise their problems. what will give you the lowest?

they will cause you to raise prices. how much more do we have to get you? >> i did not say we would have to raise them. there was a real threat here. >> they want to solve this by getting more there. it would generate additional revenues. this is the role that the structure pays. -- plays. >> i appreciate that. we have to decide where is the most effective place to invest dollars. my people what to expect every single dollar.

how much do we have to give you an order to bring prices down? we are not asking for tax subsidies. we are asking for subsidies. we have to start drilling. with more drilling we will create jobs. that is the best thing we can do. >> we are hoping they will be able to do that as well. i know i am out of time. >> we are not asking for subsidies. it cannot be consistent with increasing investment. thank you.

>> it is striven to the u.s.. this will drive us there. this is simply to look at the enormous opportunities the u.s. has to create the jobs and additional revenue which will help the long-term defic >> senator nelson. >> good morning, gentlemen. the american con consumer naturally is quite concerned when they go to the pump and they pump gas, and what they're concerned about is nay see the -- they see the price of the barrel of oil going up, and they see the price of the gallon of gas that they're pumping go up, and then when that price of the barrel of oil starts coming

down, they don't see the commensurate lowering quickly of that price that they're paying per gallon at the pump, and so they notice that back in 2008, that the price shot up to $147 a barrel, and while they're pumping gas, it raises to $4 a gallon, and now they see the price at around $100 a barrel, and they're still paying $4 at the pump, so i want to ask that question on behalf of the american people that are pumping gas in their cars. >> well, it's the question of

the supply chain. it takes the average time for crude oil produced overseas to reach american refineries somewhere between 35-40 days. that's the transit time. you have inventory at the refinery that's been bought and paid for at a price, you have gasoline and products bought and paid for at some price that are ultimately delivered to your consumer station where the consumer pulls up to the pump and buys it. where that price on crude oil, that price makes its way think the supply chain. now, when the price is going up, the retailer who owns the station and operates on a very, very thin cash flow, and the stations are owned by individual business owners or distributers. they have to think about what's happening to my cash flow as the price comes through. they price up in advance of the actual higher cost barrels

getting to them in order to ensure they have sufficient cash flow to buy the next tanker way gone that delivers. that's why going up, like most business people do, worry about their cash flow. they chase it faster going up, and coming down, they have to recover the cost they spent on the barrels in inventory. until the barrels make their way through the system to the pump, the consumer doesn't see it. they may take two to three weeks depending on how big the movement is. >> i anticipated that would be the answer, and i appreciate that, but the person that's pumping the gas is saying, wait a minute, today i'm paying four bucks for a gallon of gas and oil is selling at $100 a barrel, but three years ago, i was paying $4 for a gallon of gas, and oil was selling at $147 a barrel.

why? >> well, the $147 price didn't last long, and you remember what happened after. it plummeted to the 30s. that is the nature. we talked about this earlier. it is the nature of this commodity with extreme volatility in it. why it moves in that wide of range, a could have an -- we could have an entire hearing on that subject, and i would say there's a part to the speculation that adds to that of people that doesn't use the oil, but mr. mckay, let me register a difference of opinion with bp. you all in your financial report in the fourth quarter last year announced that the gulf oil spill response cost were going to be approximately $41 billion,

and that you reported a tax credit of almost $12 billion. now, for activities that cause such harm, does it not seem wrong that you would take as a tax credit lessening your taxes dollar for dollar on the payments you pay out to make people's lives right? >> let me first just comment that the -- we've pledged all along to meet every commitment under the law with the accident and the economic impacts of the accident. the $41 billion is a financial charge. we did not take a $12 billion credit. we will be following the law, following the tax code in terms of writing off standard business expenses as they occur.

>> so you consider these as standard business expenses that you think that morally you're entitled to take as a tax credit? >> the ones that are under the tax code as standard business expenses, yes, and we will not write off things that are not under the standard of business expenses. >> you know it's interesting that the boeing company when they had those kind of payments, they didn't take them as a tax credit. it was also -- what was the other company? goldman sachs, same thing. they did not because of the sensitivity of the wrong doing that occurred. surely, the gulf oil spill was as a result of wrong doing, and, yet, you. you want to claim that as a tax credit. i respectfully disagree with your position and i urge the chairman and ranking member to

consider as we -- he may be entitled this under the law, but that doesn't make it right, and i would ask respectfully to the chairman that we consider changing the law to follow the example set by boeing and goldman sachs. >> senator, we certainly will consider it, consider any request made by any senators, especially the senator from florida. finished? yeah, next is senator carper. >> thank you so much for joining us today. a month ago sitting right in the middle there was allen blinder who used to be the vice chairman of the federal reserve, and he was on a three or four person panel talking about deficit reduction and we asked a group of smart people of what they thought we ought to be doing. he said the 800-pound gorilla in

the room is health care costs. we live in a country where we spend twice as much on health care than japan and they get better results. i followed up with the comment with respect to health care payments, what's your advice? he said, i don't know much about that. he said, but as a layperson, i say this, find out what works, and do more of that. that's what he said. find out what works, do more of that. democratic senators were at the white house yesterday with the president, and our republican friends were there today. we had a conversation about deficit reduction, and i shared that comment which i think are not only appropriate for health care, but really for the way we spend money throughout the government, and my own view, and i shared this with alan that day, i said, hey, we need to look in every nook and cranny of

the federal government, all the domestic programs, defense programs, entitlement programs, tax expenditures, and really just ask the question is there a way to get better results for less money or better results for the same amount of money. we have to change our culture in government, and that is to focus on, one a culture of spend thrift to a culture of thrift. when it comes to tax expenditures, we need to do the same thing, and there's a strong belief in the country, that you certainly heard today, that some of the tax expenditures relating to your industry don't necessarily get us the best result for the amount of money that's been washed through the treasury. we're going to vote on legislation i think authored by senator menendez next week and we need 60 votes 20 pass it. later this year, we'll vote on

deficit to reduce it in 10 years and do that on the spending side. entied lments are on the table, defensive spending, tax expenditures are on the table. i say to you that when the vote approves next week a we don't get 60 votes, that shouldn't be the end of this conversation, and we should continue to have a conversation to figure out how do we get a better result for less money, really a better bang for the taxpayers' dollars, and your industry needs to be involved in that as well. if i i don't knowed your business, and i don't pretepid to understand it especially well, but i would not consider myself an oil company, but an energy company. most of you do that. i would like for you to talk to us about the efforts you undertake in your company to move us away from fossil fuel to

sources of industry that impair health less and oil technologies that we can sell and manufacture and sell around the world. go down the list, and do you want to go first and just tell us what you are doing to help us companies to develop renewables, nonpolluting forms of energy, and what can we do? >> i agree whole heartedly on your comments on the deaf sis, and ultimately, we are an advocate for comprehensive tax reform. these should be on the table in comprehensive tax reform. as to what we're doing in developing alternative fuel, and we have concentrated principally on transportation fuels because that's what we know best. we're not into windmills or solar. it's not our business, but we are into the transportation fuels business. we evaluating technologies out there for alternative

transportation fuels, the one that we believe has the most promise, although it is many years away, is to capture biofuels from algaes. we have undertaken a joint initiative, committed $600 million with a company who has considerable expertise in mapping genomes. we think we have to sin these the algaes, to scale up at and delivered at a cost that the consumer can afford. we think there's a lot of promise in the algae space, but it is a long, long road ahead of us. >> good, thank you. please. >> thank you. we continue to ramp up our spending on research and development for alternatives, and we similarly have a program that stresses algae. i would say though that fossil fuels has and will continue to

represent more than 80% of the energy that's required around the worldment one of the key things that's very important for our country is natural gas. it's been over the last several years, the technology developments that we're blessed with a great deal of natural gas, some thought that decades and some for centuries to come. we are really applying a lot of research and development, how we can develop natural gas, even cleaner and more efficiently, and we think that's just our country is well-blessed with these resources for standard living and development of our economy. >> good, thanks, yes, sir. >> quickly, we think of oil and gas as the main driver in our business, but on top of that and incremental to that, alternative energy. quick numbers, invested $7 billion over the last few years, most in the u.s. around wind, biofuels, solar, and then

carbon, and it's a growing business. it's difficult, but it's growing. >> okay. thank you. yes, sir. >> we consider ourselves an energy company, and i tell you as a company internally, we look and say we want to be the most up no vattive and -- innovative energy company in the world. that's the view we take. we've been in all businesses of wind, hydrogen, and solar and others. the real opportunity is biofuels. we formed a $12 billion joint venture around current technology for producing large scale amounts of biofuels as well as adding to that very intense research and development we have been doing to take that to the next level. it's exciting stuff. we're talking about using enzymes to speed up the con serges to ethanol and another technology that potentially skips the ethanol step to a biomass and gasoline or diesel

equivalent. exciting business. >> in addition to some comments made here, we're the largest producer with geothermals. that's great for us. we, too, are making investments in advanced biofuels and believe it will be some time before those come to market. one opportunity i think is out there during this transition phase you talked about is energy efficiency investments. we have an energy efficiency company that makes investments in educational institutions and elsewhere to reduce energy consumed. it's an opportunity across this country. >> thank you, senator. >> thank you very much. >> a couple of us have a couple follow-up questions here. you mentioned exrenszive tax reform and strongly in favor of comprehensive tax reform. i don't think there's anyone here who doesn't disagree with that, but that's easy to say in questions. what do we mean by comprehensive

tax reform? i ask you, what do you mean? the general feeling is we lower the rate, broaden the base, both in corporate and individual. that's seems to be a trend similar -- on the individual side what we did in 1986. on the compt -- corporate side, lower it, be competitive, and find a way to do this in a revenue-neutral way. by definite, if we're doing that, lowering the rate and broadening the base, that means we're starting to cut back on some incentives whether it's the biofuels, solar, geothermal, you name it, or some of the methods you have. it's a good general advice to us, i want to ask all five of you as we pursue tax reform, does that mean to you that maybe we should lower the rates, but

also cut back on some of the credits, exclusions, reductions, and so-called tax expenditures, because by definition we have to otherwise we lose revenue, and that's hard to do this in debt and deficit climate. >> well, senator, i would support all of that. comprehensive tax reform, and i think everything for everybody everywhere has to be on the table. if you talk about section 199, repeal it for everybody across the board, gone. you say you can broaden the tax base, and if that's coupled with an overall lowering of the overall corporate rate. there's a whole host as you all know of elements to our tax code that is very complex. i think simp simplifying the tax code. >> not a bad example. some use it, some don't. >> when the -- we got to grow

our way out of the deficit problem and make it attractive for people to invest, create revenues, broaden that base, and that's why the lowering of general rates are productive. >> you go along then though of the scaling back the tax expenditures? >> across all business, not just ours. the foreign tax code needs an overall as well. the only principles i live by is make the united states more attractive place for investment. do not harm american competitiveness overseas because that brings enormous benefits and wealth back to the country, and keep the playing field level within industries so everyone competes. we love to compete. i mean, that is what we thrive on is the competition. >> i agree. make it simpler. make it in a way that's consistent for everyone, and

certainty that we don't anticipate changes going forward will promote investment, but i think additional rev news and certainly help with respect to employment. >> but do you agree with the general principle that corporate tax reforms should be revenue neutral? >> yes. >> thank you. >> i agree as well. anything to increase competitiveness for the u.s. in terms of investment are good, and i imrea -- agree with all comments made. the simpler the better. the more predictable, the better. job number one is to get investment up. >> the way to increase competitiveness in your view is? >> exactly as we've been saying, that the overall tax rate goes down and broadened, and some of the complexity is taken out, that should aid in competitiveness. >> as you all know, united

states, much business income now is no longer corporate income, but it's passthroughs. it's worth the individual income taxes, not corporate which greatly complicates this question. >> yes. >> i mean, we have more passthrough business income in this country on a proportioned basis. that's a recent trend. you might want to consider being an investor, but go down the list here, and you can have a chance. >> i'm glad the term stability and predictability came up. that's important. i think reform with everything on the table, yes, i agree with the comments been made, but the driving policy element be ensure competitiveness. >> i agree with the comments made. i hope overtime it raises more revenue because it promotes growth, and that's what we are trying to achieve. >> just on your comment about --

because your point about passthrough and subchapter s partnerships is an important one because as you point out, so many of small to medium size business owners are structured under the tax odes. again, comprehensive tax reform with the corporate tax code, but also the individual tax code we'll have to deal with that, and once that is structured, then allow those entities to check the box on which do they want to follow? they don't fall under the corporate tax code today, but if it's restructured, they may find the corporate tax code more beneficial for filings than filing under individual tax code. >> minor point here, not so minor, but the dual capacity question. i think you'd agree that your company, all companies, should get a tax credit for foreign

taxes paid to a foreign country, and that's the general rule, you get a tax celt. the general rule too is though you don't get a credit for loyalties. you do it for income tax paid in that country, but not royalties. i think the question here is characterizing that payment. is it a tax payment? i think the goal here on the dual capacity, there's various ways to structure it, is to make sure that the company, your company, any company, properly gets that tax credit when it's a payment of income taxes to that other country, but not as a royalty payment, and it's trying to figure out what actually is royalty and what actually is income taxes, and they may have something to do with the law, i don't know, but royalty and contracts for individual taxes

and applicability and trying to do the right thing by separating is a royalty from what is properly a tax payment. that's the goal here. >> well, and i appreciate the recognition of that, and don't disagree with any of what you said, senator, and it is -- it is the complexities of dealing with the host country's tax system and how is it characterized, payments we are required to make to them and how that fits in the u.s. tax code. it is a difficult task, but it's one that we must prove to the irs that, you know, legitimate income tax is not royalty. i understand the challenge. the alternative is a different system which i know we talked with your staff and others talked about going to a system of foreign tax code that is more aligned with what rest of the world has which is a territorial

system, and then again it's getting that system structured so it doesn't violate that principle of mind which is don't structure such an american company that are at a disadvantage to their competitors overseas, and i think that is achievable. of all things, the devil is in the details, but i think we have a way to move to a system like that, and that simplifies an awful lot of the complexities that exist in our current tax code. >> before i pass on, this is going to be incredibly difficult. >> it is, without question. >> it requires good faith of everybody involved, and it's analogous to try to reduce debts and deficits. it's got to be shared. everybody has to give in a little bit here and there for the greater good. senator hatch? >> well, thank you, mr. chairman. mr. chairman, yesterday on the floor, senator landrieu spoke

about this and i ask their statements be placed in the record. >> without objection. >> okay, i want to comment on a few items before the second round of questions. my friend from new york implied the $60 billion in tax incentives that we're discussing today was a key factor in reducing or $1 trillion-plus deficit. my friend from maryland made a similar point. nobody is arguing the number's insignificant. what we're worried about is the effect, the removal of these domestic productions incentives, what the effect would be. the testimony is clear, removing these incentives is going to drive production offshore. it's that simple. that's what's been said here today. i tell you, there were spending cuts proposed by dr. colburn of

similar size, a member of this committee, rejected by the other side. spending cuts, another version of shared sacrifice, to use your terms, did not involve student loans. they didn't involve low income folks. they didn't involve infrastructure investment. here's an example. dr. colburn proposed selling federal buildings that are defective, vacant. that proposal was opposed as reasonable as it is by others on the other side. that proposal involved $80 billion, so let's make no bones about it. we, you know, there's two sides to what's happening here let me ask you this, mr. tillerson, if you took all five of you, all

u.s. oil companies, not just the five of you, but all of them, under one large company, combine them all, that gives the company control over 6% of the world's oil production as i understand it and control over less than -- 6% of the global oil production and control of less than 2% of global oil preserves. yes, it requires them to go into the world of titanic nationally owned oil exans and still -- companies and still provide us with a continued large supply of oil. let me show you this chart. u.s. companies have a wee little sliver there. that's 1 minute 4%. -- 1.4%. look at the opec nations beginning with the saudi arabia oil companies, kuwait, right on down the line. here's where we are. we are this small little sliver here. all these others are opec

companies. opec nations that own those, those production facilities. guess what i'm asking you is, you're the big five american companies, am i wrong on the small slice of pee trap yum -- petroleum oil exploration and production listed on these charts? mr. tillerson? >> no, i think the numbers look about, to my recollection, as well, that we do not represent enormous holding of the reserves or the production. i would say this though that we do represent an enormously important participant in the development of global energy supplies, and we do work in a number of the opec countries. >> but you don't own all of these. >> no, no, what you have represents our share of what we have. >> that's that little slice in the overall pie.

>> right, yeah. >> did i hear correctly you were ready to spend $700 million in the gulf on energy production to power more than 600,000 vehicles a day? i believe you also said that you'll invest $3.5 billion in large oil reserves in alaska. now is your testimony that over $4 billion for domestic oil, but the only thing in your way is government refusing to allow you to go ahead. >> i think the case as you side is emphasized by alaska. we are $3.5 billion in, five to six years of trying to drill in alaska and yet unable to do so because of the situation and coordination of the government agencies, and what i tried to emphasize earlier is the impact of something like that. again, the studies through the university of alaska indicate that developing that part of the

industry could be 750,000 barrels a day on a long-term multidecade basis. >> you can't get the permits to do what you know is there? >> it doesn't reflect well on the u.s. i'm afraid on terms of drawing investment to the country and being competitive in the business. >> one of the first steps was to withdrawal on shore in utah after years of jumping through environmental hoops. we finally got there. it was an agreement between the governor and vom after they had studied, auctioned off and sold to. can you elaborate on your experience or any of the rest of you if you care to? >> again -- >> also answer this question before we finish assuming this

legislation passes, will it bring down the prices of oil at the pump, or is this a big charade? you don't have to use my terms, but answer that for me. why are we doing this? why are we putting you at a disadvantage when you're that little small slice of the overall pie? >> you're competing against oil companies, nationalized oil companies. go ahead. the chart is accurate from what my information tells me as well. we have to be careful not to lose on the chart what i called this enormous opportunity that exists in the u.s.. we have a tremendous number of resources. we can impact the balance in the domestic production of the

energy in the u.s.. >> why don't you do it then? >> a matter of access. >> getting the permits? >> that goes beyond the conversation today with the tax code. to look at a real energy policy providing access to the resources, we could have a significant impact on the economy, the deficit, and the trade balance and the energy security of this country. >> i want to know if any of you believe that this bill will help decrease prices at the pump? >> no. >> no. >> no. >> okay. and by the way, i know that some people are upset i've taken this time. i sat here while every democrat took exfrom time. i'm the only republican side because everybody had to go to the white house, so i would hope i can be granted more time. >> senator wyden. >> thank you. i have one question. i want to know where we are at this point two and a half hours

into the hearing. gentlemen, you have done as major oil companies, a dramatic about faith this morning. in 2005, all of you -- you were there, all of you said you did not need tax incentives to drill for oil, and today you've come to say you've got to have them when oil is at $100 a barrel. i think that position defies common sense and certainly even adjusted for inflation and you're doing better now than you were in 2005. this debate's going to go forward. i just want to make sure that folks are picking up on that as we wrap up. one question to ask of you mr. mckay because of the comments you made, and that's the tax credits given for blending ethanol. you are required by law to have the fuel standard and blend billions of gallons of ethanol into the gasoline that you sell

your testimony says, "bp is already one of the largest blunders of ethanol in the nation." my question, mr. mckay, is why should oil companies, not just yours, but all company, be getting $6 billion a year in tax credits for complying with an existing law to blend ethanol? >> it was to get a fuel mix into the u.s.. we are not opposed to that incentive being phased out. it's important for transitional incentivings for second generation biofuels. >> i think that's constructive, and i'm glad we're noting that as we go. chairman, you and i talked about this. there's no question in terms of energy policy that often you need an incentive to get something off the ground. clearly, what mr. mckay is talking about is that incentive madeceps in the beginning,

doesn't make sense now, and it involves $6 billion, and, mr. mckay, it's constructive that you said you could phase it out. i want to have further discussions, and thank you. >> thank you, senator. that's a good point and this committee should and we will look at the effectiveness of all the tax expenditures, all the incentives to see which ones are more effective than others, and maybe we can get rid of a few of them. the oil debate, i'm sure some of you don't know this, but it's a difficult question for all of us. there's about 141 tax provisions that expire every year. we call them provisions. they are a nightmare. it makes no sense for us to reinvest 141 times, you know, every year or 18 months, and they have to be paid for, and it's just maddening. it's time for bigger questions, and so we will be looking at a

lot of these provisions and others. i'd like to eliminate a lot of those or make them permanent so there's no a lot of uncertainty surrounding them from our side and from the industry side, but anyway, we'll look at a lot of expenditures to see what are effective. >> thank you, and let me concur in your comments in regards to tax reform, and i assure you there's great interest in making the tax code more effective and predictable. we agree on that. i want to make one comment response to senator hatch. the numbers here, $400 billion here as i understand it equals about 3% of the profits of the five companies. most of these profits are going back to the shareholders. i just don't see the impact that

senator hatch is referring to on either jobs or any of the issues that you bring up. i just think the math is pretty -- >> my point is that, and i think they are making the point is that if you're going to do this, you should treat them fairly along with all the other companies that receive certain tax expenditures. i agree, we got to do tax reform and that includes looking at everything. >> they are an -- >> i understand. >> let me bring it back to the point here. i understand business is -- the five companies here are taking advantage of the tax incentives. if you didn't do that, you would have problems with your shareholders. understand why we think that this is either unwarranted

incentives or priorities, particularly section 199. section 199 was a response to dealing with the fact that our corporate taxes are not border adjusted versus europes and other countries taxes that are border adjusted. we did something to help the foreign sales. that was the purpose, the genesis of section 199, and we wanted to be able to compensate for the fact that our foreign competitors had an advantage over u.s. manufacturers on the way that taxes were handled at the border. now, my understanding is that in your industry, there's more importer product than exporter product so it doesn't make a lot of sense for you to get a tax advantage when the philosophy of what this bill was originally created for. now, as you know, the world trade organization ruled the provisions out of compliance and went to a general manufacturing

provision, and that's how this came about. well, when two fronts, we have questions as to whether this is a reasonable tax advantage to the oil industry. it's not traditional manufacturing, and it's not the type of export activity that was disadvantaged by the corporate structure to have a product enter the international market place, so i just think we have to get to the rationale and this is the largest single source of the revenues we're talking about today that has its genesis on helping united states manufacturers get a product into the international marketplace which is not the circumstances of the product that you are basically involved with. you import the crude, as as i

understand it, the final product is mostly domestic, i'm sure some is international market place, but it's certainly not the target for why this particular provision was put into the tax code. anyone disagree with that? i knew i would get mr. olson involved there. >> well, if you want to repeal it, repeal it for everyone. i'm not sure that the coffee roasters are growing coffee here and exporting coffee. i'm not sure that the newspaper companies are exporting dominantly their newspapers, so -- >> i don't disagree with your comment or your premise. my point is if you want to get rid of it, do it for everybody. just don't get rid of it were fun company. >> i would rather do it directly as we did with foreign sales. i'd like to reform the tax code so that we have a competitive

base. if we can do that, that's the first choice. if we can't do it, we should tailor this more to its purpose of helping exporters who manufacture in the united states. >> my only principle that i ask you not to violate is do not treat companies within the same industry different, and do not treat industries on your principles of exports differently. >> well, it's tough sometimes to draw a line, and i understand the point that you're raising. all i'm pointing out is that that's why some of us look at the section 199 as it relates to the oil industry as either an unjustified incentive or a sub subsidy because we don't believe it is the original intent to benefit your type of activities. i just really want to put that into the record, and i very much appreciate your response. ? thank you, senator rockefeller. >> thank you, mr. chairman. i want to repeat and expand a little bit about what i said earlier.

i really do believe that you're out of touch. i do believe that, mr. tillerson doesn't. that doesn't mean you're not good people, that you don't participate in your communities, that you don't do helpful things along with the work that you have to do, but i think the main reason that you're out of touch, particularly with respect to americans and the sacrifices that we're having to look at here in terms of trying to balance or come close to balancing a budget is that you never lose. you've never lost. you always prevailed, you always prevail in the halls of congress, and you do that for a whole variety of reason because of leadershippiests and -- lobbyiests and all the places you do business and your friends. i don't know any other business that never loses, that always fails to do as well as you do,

and i think one of the problems, and you can't help this in a way, is the size of just the size of the amount of money you take. it's really hard for average people in west virginia to even come close to understanding. they don't think that that can be come by in the regular order of the way the world treats them. they are always in the process of losing. everything is an uphill battle, so my view of work in west virginia is that i'm -- which is mostly mount mountains, is that i'm holding on to a huge boulder, not too huge boulder, with both hands and trying to push it uphill. that's every day i feel that, and i love that feeling, but i know if i take one hand off, i and the boulder disappear into

the opposite of the ether, the gulch, and so that, then leads me to say this is my opinion, but i really believe it. i just really believe it and i've never seen any industry consistently successful. i think you all have a great sense of assurance as you sit there, more so than usual and we have steel people, mill people, other people there, you have a great sense of assurance. you don't feel threatened by what's going on here, and e don't know that you have any reason to feel threatened because of the way votes line up in this present congress, but i yearn for one of you to see what average people are going through, and to figure out some

way in your mind what can i do as a very, very large and profitable company to make sure that that bad thing doesn't happen to that person, losing health insurance or losing unemployment insurance or all that -- i mean, the endless number of things that people have to worry about every single day. you don't have to worry about those. none of you took a commercial airplane for that. i don't blame you for that. you have the money to have planes, but our people don't. i just want to sort of stipulate that, and then say one more thing. the greatest danger to this country right now, other than the deficit, but the greatest danger in terms of national security is called cybersecurity. we're writing a bill in the congress committee and the security bills is participating in that which comes up with this solution which i hope ce with

pass this year. the -- there's an enormous amount of work that companies have to go to who are being attacked already. the pentagon has been hit thousands of times a day by people hacking in and getting secrets. anybody can do that. how do they defend themselves? well, they have to go through all kinds of security measures, and, you know, i met with most of them yesterday, typically the bigger ones. you have to bear that expense. the government can't do that for you. we don't have the money to do that for you, and because this is going to go on for the next 50-100 years we will face these problems. they didn't object to that. they said, in fact, we think that's the right thing, the way it should be. we should have to pay more, we should have to dig into our profits to make ourselves more

secure, and so that's why i, you know, i just -- when you talk about the research and development, the -- your expenses are like research and development for pharmaceutical companies, somebody else, is where i think it's wrong of you to say that because it just suspect so much of that exploration has been done. i think that's a cost that you could absorb so easily, and still do very well, but not once during this hearing have i heard any resemblance of a willingness to share unless any other company also has to, a way of building up the defense that is can't happen. putting it simply, i vice haven't heard anybody talk about what they are willing to do is share in our budget problem and in this total concept of what keeps americaing together, and

that is a sense of fairness, that everybody has to lose at some time. everybody has to give something up for us to be a real country, and do any of you have any things, if you just srb as long as every other company does it to. are there things you could give up? things you could stop doing? breaks that you now get that you wouldn't get as a way of helping? >> senator, i very much appreciate the comments that you're making. i can only represent how we as a company feel. i don't know how the others do, but we feel like we're constrained and restricted from our opportunities. we feel we're in an industry that provides the energy that has developed this country into what it is and its standard of living, and we're constrained

from what we feel as part of the energy solution for this country, this world. we're constrained. there's shackles on us. we want to invest, do far more. you heard that today. it's not a question of looking for incentives. we are looking for -- put us back to work. open up, give us access to the lands and put our people back to work. we'll develop that -- >> can i just say that, you know, we feel constrained, we can't doe what we want to do, maybe you're right and maybe you're wrong. i think you're wrong. i think the bulk of our people across the country who are suffering in ways that you probably have no idea of just don't understand. i think that's sad. >> thank you, senator, which

opens up another subject which is leases. i just like the information, i don't know the answer, i have not discussed this with anybody in the industry, but i heard you often say and have said previously that you'd like more access, you know, the gulf or whatever it is, more access, permits so you can get to work, as you said. then i hear some people say, this is the question i have, that there are millions of acres of leases issued that are not being use liesed. i'm just curious what response to that, if there is one, because it does come up quite frequently, that question. >> if i could just start, i mean, i'm going to take you back to alaska again and put this in perspective. >> how much -- how many -- >> i'll put it in terms of leases. in the gulf of mexico, we're one of the top three, sometimes the

second or third largest operator in the gulf of mexico. we have between 400-500 leases and 45% of those are producing and some are being drilled and so forth. if you compare that to alaska, we have over 400 leases in alaska that are sitting idle for permission to move forward just to put that question into balance. >> okay. anybody else? >> senator, perhaps i can comment on lease times. a lot has been said about undeveloped leases. we made a final investment decision last year. it's a $7.5 million commitment. we made that on the moratorium with the expectation we would get licenses. those leases were issued in the late 1990s, and we didn't know how to explore or develop in that deep water. technology has advanced. we've done exploration work.

we've done drilling, and now we've made a decision that will result in production in 2014, 10 there's -- so there's a long lead time in the offshore area which are where most undeveloped leases are today. now, we have trouble getting permitting on the leases that we have which is keeping those leases inactive so when you hear us talking about the opportunity that's there, one is to make sure that we have timely issues of permits on the acreage we have to continue to explore, and the other is making sure the outer continental shelf is fully explored and there's estimates that you could create companies twice the size of chevron with resources we vice president developed yet. we don't know what we have until we explore those areas, but that's the opportunity we're talking about. >> the second question is your public reports show, i think,

that -- i think it was 2010, about 60% of the after tax profits were invested, stock, repurchase, or dividends and so forth, and about 40% elsewhere, i suppose, maybe that's reinvestment, i don't know, that seems like a lot of people a lot of money is going back to shareholders and the monal you make is -- money you make is stock repurchase. why is that not going to reinvestment? the second question is how does that percentage compare with other industries with that development, just a question. >> well, last year we earned about $30 billion. we up vested $-- invested $32 billion. we paid the expenses, people, wages, benefits, pay the bills,

pay our taxes, we fund our opportunities, $32 billion worth, and what's leftover, pay the diff depped, and what's left of that, it goes back to the shareholders. it's their money. they entrusted us with their savings to invest it, grow it, and give them income back, so i know it's a novel thought up here in washington, but we give the money that belongs to the investor if we don't need it. >> i appreciate what you said. maybe this is inaccurate, but i have a chart here on 10k exxon mobile and chevron, and shell here for 2010, and it says according to this chart, stock repurchases and dividends as a result of profit in 2010 was 70%, and for conoco phillips it

was 80%. that's roughly consistent with the numbers i just gave you. you answered $32 billion in profit. >> $30 # billion in profits. my recollection is we returned $19-plus billion to shareholders. >> i think if the public sees this, they'll go, oh, gee, it's better to use that money to go back to more jobs, more investment and so forth, but i understand that your board of directors -- >> we'd love to. give us something to work on. we'd love to. >> more leases, give up tax breaks. [laughter] i don't think i came to negotiate a trade, just answer questions. >> senator, i offer that chevron

paid $6.5 billion in diff deppedz to the shareholders. those are taxed, but the government receives revenue. we don't purchase a lot of shares, but when we do, our stock goes up $30 over the years, and there's a nice gain on that, and that generates revenue for the government as welling and the money is reinvested where the government sees appropriate. the country still benefits from it. >> do you have more questions? >> yes, i do. >> senator hatch. >> yesterday, in the "wall street journal" harold ford, a good friend of mine, he asked, "why when gas prices are climbing, would any elected official call for new taxes on energy?" that's an interesting question coming from a democrat. it's a good question. in your testimony you say that,

"changing important tax provisions outside the context of broader corporate tax reform would achieve one unmistakable outcome. it would restrain domestic development and reduce tax revenues at a time when they are most needed." would you folks please elaborate on the negative economic consequences of the proposed selected or slebtive tax -- selective tax increases that the menendez bill poses on only your business and not other the others with similar tax expenditures or tax deductions? >> sure. certainly. to the extent that taxes are increased, it impacts the economic evaluations we go through and spend less. natural gas prices are low, costs more than doubled over the last few years to the extent more erroneous tax provisions are placed on us. that leads to less gas produced

in this country. >> anybody else have a comment on this or you all agree with that? okay. this business of bill capacity rules came up today. generally all u.s.-based companies are entitled to a foreign tax credit based on foreign taxes that they pay. you mentioned that we'd be wise to go to a territorial system like everybody else in the world has, but our system is some screwed up system where we are constantly trying to find ways of resolving some of these difficulties when you earn money overseas and are taxed by the countries overseas, but let me go through this. generally, all u.s.-based companies are entitled to a u.s. foreign tax credit on taxes they pay. in general, foreign-based multinationals do not claim much u.s. foreign tax credit, but it

is essential to most american companies with global operations. now the bill capacity rules in place determine to what extent a payment from a u.s. company to a foreign government is equivalent to an income tax and thus eligible for the foreign tax credit, so -- and to what extent such payment is for specific economic benefit such as for the purchase of oil from the foreign government or from the right to operate gambling can say no, and that's only a deductible business expenses and not eligible for a foreign tax credit. my first question is for the anyone who cares to answer. is it true that repeal of the dual capacity rules is harmful to american-based oil companies, but such refuel is negligent to foreign companies? the dual capacity rules are only a significant benefit