updated 4/25/2006 6:01:32 PM ET 2006-04-25T22:01:32

The country’s three largest oil and gas companies are expected to report combined first-quarter profits this week in excess of $16 billion, a 19 percent surge from last year that is sure to complicate life for the industry in Washington, where elected officials are scrambling for ways to assuage angry consumers and businesses.

President Bush on Tuesday gave the Environmental Protection Agency the authority to temporarily waive regional clean-fuel regulations to promote greater gasoline-supply flexibility, but members of Congress have other ideas. Some are renewing calls for a windfall profits tax and some want federal regulators to investigate industry consolidation. Still others are threatening hearings and expressing outrage at how the industry invests cautiously in new refining capacity yet rewards its executives lavishly.

“These members of Congress are fit to be tied,” said Paul Cicio, executive director of the Industrial Energy Consumers of America, a trade group concerned about the soaring cost of natural gas.

The combined earnings expected from ConocoPhillips, Exxon Mobil Corp. and Chevron Corp. will be 14 times greater than the combined first-quarter profits of Google Inc., Apple Computer Inc. and Oracle Corp.

“That level of profit is not justifiable,” said Tyson Slocum, a consumer advocate and energy expert at Public Citizen.

But with world oil prices trading around $72 a barrel, analysts say full-year profits for the oil majors are likely to surpass the record-setting earnings of 2005, when Exxon reported a $36.13 billion profit — the highest ever for a U.S. company. In other words, the hand-wringing in Washington isn’t likely to mellow anytime soon. Still, this hasn’t dampened investors’ enthusiasm for energy stocks.

Shares of Exxon Mobil, Chevron and ConocoPhillips are all trading near the upper end of their 52-week range.

BP PLC on Tuesday reported a $5.6 billion first-quarter profit , though that was down almost $1 billion from the year before in part because of lost gasoline output from a refinery damaged by Hurricane Katrina. In a sign of just how much money stands to be made on the refining side of the business these days, Valero Energy Corp., the nation’s largest independent refiner, said Tuesday its first-quarter profit jumped 60 percent to $848 million.

“The first quarter will be strong, but the way things are going, the second quarter is going to be phenomenal for these companies,” said oil analyst L. Bruce Lanni of A.G. Edwards & Sons.

Lanni and other Wall Street analysts said the most likely fallout for the industry in Washington is more bad publicity in the form of hearings and investigations. But some policy experts say there is growing pressure on Congress to deliver more than just speeches given that pump prices are around $3 a gallon for the second year in a row and elections are in November.

Henry Lee, director of the environment and natural resource program at Harvard’s Kennedy School of Government, said Democrats and Republicans alike feel enormous pressure from constituents to take some kind of action to lower fuel prices. At the same time, they recognize their relative powerlessness to have any major short-term impact on oil prices, which are up 33 percent from a year ago because of supply disruptions in Nigeria, the West’s nuclear standoff with Iran and speculative fervor on Wall Street for all commodities.

So, Lee said, they are left with two types of options: punitive actions such as a windfall profits tax and creative measures to help balance energy supply and demand for the long-term, whether that means raising automobile fuel-efficiency standards or additional funding for alternative fuels research.

Rep. Joe Barton, R-Texas, said more hearings are necessary to determine how oil companies invest their profits. Sen. Arlen Specter, R-Pa., said a windfall profits tax may be necessary and that any future consolidation in the industry deserves more scrutiny. Sen. Charles Schumer, D-N.Y., has asked the Federal Trade Commission to monitor refiners this summer.

“These are all bad ideas,” said John Felmy, chief economist for the American Petroleum Institute, the oil industry’s main trade group.

Felmy said taxing oil company profits would be a “disaster,” and asked “how does that help supply?”

The consternation in Washington about persistently high energy prices and soaring industry profits is not simply a matter of looking out for the little guy, analysts said. With mid-term elections coming up in November, members of Congress must also look out for themselves.

“They hear it when they go back home” to their districts, said Richard Semiatin, an assistant professor of political science at American University. “And they’re getting an earful right now.”

But Andy Weissman, an energy analyst at FTI Consulting in Washington, said members of Congress would be making an unfortunate mistake if they were to attempt to curry favor with voters by holding public hearings and lashing out at short-term oil industry profits rather than working behind the scenes on genuine solutions to the country’s energy crisis.

“It’s not going to make us better off in any fundamental way five years from now if there is a windfall profits tax on producers and it could hurt if it discourages production,” Weissman said. “What is going to matter is a plan for reducing consumption and adding supply, and I think Congress has so far failed to live up to that.”

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