Record oil earnings fuel California backlash against industry profits

The timing is important. Oil companies are rolling out earnings announcements as lawmakers in California are poised to hold hearings on a Newsom proposal to cap profit margins — an idea he floated last year as pump prices in California rose to the highest in the nation even as the cost of a barrel of oil dropped around the world.

Meanwhile, the price of gas in California is inching up again — reaching an average $4.55 per gallon in the state this week, up 10 cents from a week ago, according to AAA figures.

Even though Democrats control both houses of the Legislature, the governor’s assault on oil profits faces an uncertain fate. The industry wields considerable influence and some lawmakers see it as a misguided approach in a state where gas consumption is already starting to fall with the transition to zero-emission vehicles.

Newsom’s proposal, which state Sen. Nancy Skinner (D-Berkeley) is steering through the Legislature, would target California refineries. It still lacks the most critical detail: the amount of profit that would generate a penalty.

But Newsom’s continued messaging, along with a recent surge in local advertising from both sides of the issue, suggest a battle is brewing — even if major players in the Legislature are keeping quiet so far.

“We are continuing to review the proposal, and on anything this big, there will be a thorough vetting,” state Senate President Pro Tempore Toni Atkins (D-San Diego) said in an emailed statement. “One thing that’s already clear is that Californians are tired of paying high prices at the fuel pump. Gouging Californians will not be tolerated.”

Chevron, Marathon Petroleum, Phillips 66 and Valero — four of the five big companies with refineries in California — each released annual earnings in recent days, setting new records with a combined $74 billion in profits for 2022. The companies are projecting another strong performance this year. The fifth major refiner reports next month.

Oil industry executives are pleased with their results after a tumultuous period caused in large part by Russia’s invasion of Ukraine.

“It’s good that markets have calmed,” Chevron CEO Mike Wirth said during a Friday earnings call. “I mean the high prices really were creating a lot of stresses out there that are not good.”

Executives also said they expect oil supplies to remain limited, a big factor in higher prices.

“We believe that the current supply constraints and growing demand will support strong margins in 2023,” Marathon Petroleum Corp. CEO Mike Hennigan said in a Tuesday earnings call.

Supply constraints also spotlight a concern oil industry lobbyists and executives have expressed regarding a profit margin cap: They say it could lead to supply shortages that caused long gas station lines, and deep political pain, for former presidents Richard Nixon and Jimmy Carter.

Oil industry representatives have accused Newsom of being more interested in scoring political points than targeting the factors that increase prices at gas stations. They say he should look at other factors in higher prices, including retail competition and state taxes.

“The governor’s tax is targeted at the industry as a punishment, not as a way to lower costs for consumers,” said Western States Petroleum Association spokesperson Kevin Slagle.

Newsom has consistently rejected the industry’s arguments as “lies” and promised to hold the companies accountable.

His proposal is welcome even among people in oil-producing Kern County, said Cesar Aguirre, director of the local branch of the Central California Environmental Justice Network.

Even though the industry provides jobs, people in Kern see the proposed penalty as a way to address not just gas prices but other concerns such as contamination from wells, Aguirre said.

“We can hold them responsible, we can hold them accountable,” he said.