The Wall Street Journal: Some Big Oil Firms See Effective Tax Rates Fall": Royal Dutch Shell PLC's tax rate fell to 37% in the third quarter from 41%...": "A Shell spokesman said the company wouldn't discuss why its tax rate changed because the information was "commercially sensitive.": Monday 14 November 2005

Oil companies operating in the U.S. typically pay taxes at or above the 35% rate on corporate profits. But for about one in four big oil companies, tax rates have fallen recently, even as profits have soared.

Of the 87 publicly traded oil companies with a market capitalization of more than $1 billion, the effective tax rates of 21 companies fell in the most recent quarter compared with average rates paid over the trailing 12 months, Reuters data show.

Royal Dutch Shell PLC's tax rate fell to 37% in the third quarter from 41%, BP PLC's declined to about 27% from more than 30% and Burlington Resources Inc.'s dropped to about 33% from 37%. The rates were derived by dividing the amount of income tax paid by taxable income.

A Shell spokesman said the company wouldn't discuss why its tax rate changed because the information was "commercially sensitive." Burlington spokesman James Bartlett said the drop in the company's tax rate "could well be reversed in the fourth quarter." A BP spokesman declined to comment.

Companies' tax rates can rise or fall because of tax credits, settlement of tax cases, changes in currency values, reinvestment strategies and operating losses, among other factors. Still, the lower tax rates may become a political headache for companies that already are confronting accusations of price gouging.

At a Senate hearing last week, executives from five oil companies were criticized for record profits at a time when many Americans are paying record prices for gasoline and home heating oil. Sen. Pete Domenici (R., N.M.) told the executives there is "growing suspicion that oil companies are taking unfair advantage."

Lee Raymond, chairman of Exxon Mobil Corp., of Irving, Texas, testified that high prices have strained "household budgets." But he argued that industry profits fluctuate and that crude-oil prices are influenced by global uncertainty and, to an extent, by market speculators.

While U.S. lawmakers ponder new taxes -- or even a "windfall tax" on profits -- investors might consider that taxes in place now vary widely among companies and reporting periods.

Murphy Oil Corp., an energy producer and retailer based in El Dorado, Ark., for example, booked $131 million in taxes in its third quarter, about $50 million more than it had in the same period a year earlier, but its effective tax rate fell to 38% from 39.6% in the past year. The company's tax rate declined because of changes in exploration costs, spokeswoman Mindy West said. Murphy's efforts to find oil in Africa and in deep water off Malaysia's coast are costly and carry risks.

"If it's an unsuccessful well, we have to expense it," West says. "If you expense a well, it raises your effective tax rate."

The decline in Burlington Resources' tax rate resulted primarily from lower-than-expected taxes on its Canadian operations, which account for about one-third of the company's output, Mr. Bartlett said. About half of Burlington's output comes from the U.S. Changes in output outside of the U.S. and varying exchange rates mean that taxes gyrate among quarters. In the past six quarters, Burlington's effective tax rate has ranged from 29% to 37%.

If the Houston-based company had the same tax rate in the third quarter as it had a year earlier -- 37% -- it would have paid an additional $44 million in taxes.

Occidental Petroleum Corp. of Los Angeles booked third-quarter taxes of $611 million compared with $495 million a year earlier. The increase came as the company's pretax income from oil and gas operations rose to $1.7 billion from $1.2 billion. In addition, Occidental booked a $590 million benefit from a tax case settled in May.

Add that $590 million to the $1.7 billion in oil and gas profits, and Occidental generated $2.3 billion in total pretax income. That means the $611 million in taxes paid amounted to an effective tax rate of 26%. Set aside the tax settlement, and the effective tax rate rises to about 35%. Or include all of Occidental's domestic and foreign tax liabilities and exclude the benefit of the tax settlement, and the effective tax rate rises to 41%, which is the number Occidental executives mention in regulatory filings and on earnings calls.

"Oxy's world-wide effective tax rate has historically been in the forties," said Larry Meriage, vice president of communications for Occidental.

Oil companies like to point to their global tax rates rather than focus on taxes paid to a single government, because periodic declines in taxes in one region are frequently offset by increases elsewhere.

Write to Steven D. Jones at steve-d.jones@dowjones.com