Oil Majors Await Obama's Plan

Faced With Calls for Windfall-Profits Tax, Firms Talk Up Aid for Renewable Fuels
By RUSSELL GOLD

Anticipating a stronger emphasis on renewable fuels from President-elect Barack Obama, oil-industry executives say they want to see a substantial increase in federal research funding before they commit considerable muscle.

ConocoPhillips CEO James J. Mulva blames the credit crisis for slowing investment in renewable fuels.

During the campaign, companies were criticized for spending too little of their record profits on developing new fuel sources. But oil companies contend the technology for cleaner energy sources, such as plant-derived fuels, isn't yet ready for wide-scale deployment. Their money is better spent finding new supplies of fossil fuel, they argue.
ConocoPhillips said this week it is deferring an "aspiration" to become a broader energy supplier, and will remain focused on its traditional oil and natural-gas businesses.
"We want to live within our means," Chairman and Chief Executive James J. Mulva said in an interview, citing the credit crisis as part of the reason for postponing more investment in renewable fuels. "We would like to become more of a complete energy company. That strategy has not changed. The timing by which we would do it is going to take longer."
Mr. Mulva said ConocoPhillips took a hard look at diversifying into renewable fuels, as well as coal and nuclear, but only in the past few months decided against it. He said the government should use "more aggressive programs and more resources" to develop advanced fuel technology before throwing its weight behind any particular fuel sources. ConocoPhillips and other oil giants, which have large research operations, would be logical recipients of increased federal support. So far, none have said what amount of federal spending would be needed.
The Houston-based company earned $14.77 billion in the first nine months this year. Combined, the three largest U.S. oil companies -- Exxon Mobil Corp., Chevron Corp. and ConocoPhillips -- earned $71.2 billion during the same period.

ConocoPhillips doesn't plan to abandon current research efforts, Mr. Mulva said. Among them: studying how to turn coal into natural gas and produce biodiesel from animal fat. According to congressional testimony in May, ConocoPhillips said it spent about $150 million last year on research into renewables, about 1% of its capital budget.
Observers say ConocoPhillips and other oil giants are converging on a strategy for working with a new Democratic administration, which they believe is intent on pushing for environmentally-friendly fuels at the expense of traditional fossil fuels. It entails arguing for financial assistance in the form of research dollars, just as the coal sector receives aid for researching clean coal technology.
"It's political judo," said Kevin Book, an energy analyst with Friedman, Billings, Ramsey Group Inc. "If you make a reasoned argument that your enemy can help you to your goals faster than you can get there by yourself, you might actually succeed. It's using the weight of political opposition to your advantage."
Kenneth Cohen, an Exxon Mobil vice president who oversees the Texas company's public affairs and lobbying efforts, said in an interview last week, before the outcome of the election was known, that the government should use tax policy and grants to speed up investigation of new fuel sources. He cautioned that the government should "avoid picking winners and losers" among fuels.
The argument for more study is criticized by those who see it as a delaying tactic. "We need to do a lot more than study at this point. We need to be moving aggressively," says Daniel Lashof, director of the National Resources Defense Council's climate center.
But the oil industry is protecting its pocketbook, arguing that until the market for renewables matures, the global economy needs oil and natural gas, and the federal government shouldn't take steps that could hurt fossil-fuel production. One such step could be the windfall-profits tax that Mr. Obama raised last spring as oil topped $100 a barrel.
On the whole, an Obama administration is expected to pursue policies that could hurt oil companies' profits. Industry analysts expect the new administration to consider climate-related surcharges on fossil fuels. It also could cap greenhouse-gas emissions and auction off so-called emission credits to finance research into alternative fuels.
Still, even oil-industry critics support some role for big oil in the growth of renewable fuels.
Write to Russell Gold at russell.gold@wsj.com