Socking It to Big Oil

The nation's big energy companies did not know whether to laugh or cry last week. On the one hand, they were flooded with glowing second-quarter earning reports that testified to the industry's basic strength. But at the same time, they were besieged as never before by onslaughts launched by critics in the Carter Administration, Congress and consumer groups. At the very least, their opponents seek to place the companies under extremely tight federal scrutiny; at worst, they want to break up the companies into smaller--and almost certainly far less profitable--parts.

The rising profits were caused mainly by higher sales, typically up 12% or more. Because operating expenses remained roughly the same as last year, when sales were slow, much of the increase in turnover spilled into profits. Among the 19 large oil companies, only two--Exxon and Occidental--showed slight second-quarter decreases. All the rest showed gains. The best performer by far was Amerada Hess, a big independent, whose second-quarter earnings rose 77% over the same period last year, to $51.9 million. Other outstanding performances: Atlantic Richfield (up 41%, to $191.2 million), Getty (up 21%, to $75.8 million), Union of California (up 41%, to $75.2 million) and California Standard (up 34%, to $277 million). Despite the surging profits, oil stocks fell sharply last week, partly because the confidence of analysts and investors alike was shaken by a variety of assaults on so-called Big Oil.

One reflection of the increasingly hostile public climate facing the industry is a new series of television ads sponsored by a feisty anti-oil consumer group called the Energy Action Committee, whose chief financial backer is Actor Paul Newman. One sequence portrays a U.S. oil executive mugging an American consumer, while disguised in a flowing Arab burnoose. The spot's message: "We'd better break up the oil monopoly before it breaks us."

The oil companies last week were also facing more tangible trouble on other fronts:

-- After months of investigation, the Justice Department's antitrust division issued Civil Investigative Demands (known as CIDS) to the major international companies--a move that could lead to an antitrust case against the industry. The trustbusters are investigating various charges, including one by a consumer group, that oil-company pacts with producing countries might keep them from making their purchases from the cheapest source.

> A special Federal Energy Administration task force, headed by the SEC's director of enforcement, Stanley Sporkin, declared that the FEA had failed in its duty to police the pricing practices of the major oil companies. As a result, the task force asserts, the companies had possibly overcharged the consuming public "several billions of dollars." The FEA has begun new hearings aimed at tightening auditing procedures. This week the agency will open an investigation of alleged price gouging on fuel oil used in home heating; one consumer group is claiming the FEA permitted oil companies to overcharge by $2 billion last year.

> Senator Edward Kennedy introduced legislation that would deal the oil companies two hard blows. The Kennedy bill would 1) forbid them to diversify "horizontally" into other energy fields and 2) force those already involved in two such fields, coal and uranium, to get out. Most of the 16 other industry-reform bills in Congress deal with "vertical" divestiture: that is, the production, transportation and marketing operations of the big integrated companies would be broken up into separate, independent entities--a move that industry critics have long argued would promote greater competition and, perhaps, lower fuel prices for customers.

White House officials claimed there was no orchestration behind this latest flurry of regulatory assaults on the oil firms. Still, they provided an interesting overture to the creation of the new Department of Energy, which, if Congress behaves as expected, will be established this week to carry out President Carter's national energy program. Ranking Administration officials defend their tough line against the oil companies as necessary to encourage greater competition. But the hazard in the White House approach is that, while it aims to bring about closer bureaucratic scrutiny of the oil firms, there is no guarantee the industry will emerge any more competitive than before.

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