OIL: Exxon: Testing the International Tiger

(9 of 10)

President Nixon, who eventually decided to keep the quotas. In retrospect, that was a grievous error. The quotas helped prompt U.S. oil companies to build their new refineries overseas, where they had access to then plentiful and cheap foreign crude. U.S. refineries have about 3 million to 4 million bbl. less daily capacity than they would need to meet "normal" domestic demand of close to 20 million bbl. That lack will contribute to keeping supplies tight for years after the Arab embargo ends. Now Exxon, which accounts for about 10% of the nation's refinery runs, is almost doubling the 300,000 bbl.-a-day capacity of its refinery at Baytown, Texas, and adding 100,000 daily bbl. to the capacities of other U.S. refineries.

No amount of new building, however, will head off the political onslaught that the oil industry faces in the U.S. At minimum, Exxon will have to put up indefinitely with much tighter federal regulation. For instance, under a Government allocation program, it must sell 140,000 bbl. of crude a day to American competitors whose refineries are less well supplied than Exxon's are.

Senator Jackson is drafting a bill that would require major oil companies to add to their boards a "public" director appointed by the President and confirmed by the Senate. He would act as a watchdog, scrutinizing every aspect of the company's operations. Republican Senator James Buckley of New York, who opposes the idea, says: "Any bill with 'Scoop' Jackson's name on it must be given a good chance."

Flak From Friends. Even the industry's former best friends in Washington now find it politic to make anti-oil noises. House Ways and Means Chairman Wilbur Mills, who opened hearings on oil taxes last week, says he has told oilmen that they receive unwarranted special preferences. The Nixon Administration has proposed a "windfall-profits tax" (actually an excise tax on sales), and will also seek to limit the amount of foreign tax payments that oil companies can deduct from their U.S. taxes. Treasury Secretary George Shultz calculates that if the limit were in effect now, oil companies this year would pay $400 million more in U.S. income taxes -about as much as Exxon will spend to expand the Baytown refinery. The windfall-profits measure will die if Congress legislates an oil-price rollback, but some increase in taxes seems certain.

Emilio Collado, an Exxon executive vice president, says that any tightening of the rules that permit foreign taxes to be subtracted from U.S. taxes would hurt Exxon worse than many of its competitors, partly because the company's foreign operations are so extensive. Collado insists that critics of the industry should look at not just the U.S. taxes but also the worldwide taxes that it pays. Exxon last year, he asserts, paid 60% of its global taxable income to various governments. The industry's defenders argue further that tax rules have given it no profit bonanza. Until last year, U.S. oil companies' profit return on investment was only about average for all manufacturing industries.

The figures are correct but subject to an altogether different interpretation: that tax benefits for years in effect subsidized unrealistically low oil prices, which in turn tempted corporations and consumers to burn the fuel wastefully. The best thing to do now would probably be to