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EMERGENCY OIL LIFT PROGRAM AND

RELATED OIL PROBLEMS

THURSDAY, MARCH 7, 1957

UNITED STATES SENATE,
SUBCOMMITTEE ON ANTITRUST AND MONOPOLY
OF THE COMMITTEE ON THE JUDICIARY, AND

SUBCOMMITTEE ON PUBLIC LANDS OF THB
COMMITTEE ON INTERIOR AND INSULAR AFFAIRS,

Washington, D. C. The subcommittees met, pursuant to recess, at 10:35 a. m., in room 457 Senate Office Building, Senator Joseph C. O'Mahoney presiding.

Present: Senators Kefauver (chairman), O'Mahoney (presiding), Wiley, and Dirksen, of the Subcommittee on Antitrust and Monopoly of the Committee on the Judiciary.

Senators O'Mahoney (chairman of the Subcommittee on Public Lands), and Carroll, of the Subcommittee on Public Lands of the Committee on Interior and Insular Affairs.

Committee and subcommittee staff members present: Donald P. McHugh, cocounsel, Antitrust; James De Maras, Jr., research consultant Public Lands; Gareth Neville, assistant counsel, Antitrust; W. B. Watson Snyder, consultant, Antitrust; Peter Chumbris, counsel for minority, Antitrust; Carlile Bolton-Smith, counsel to Senator Wiley, Louis Rosenman, attorney, Antitrust; Paul Banner, economist, Antitrust.

Also present: Robert Murphy, professional staff member, Senate Interstate and Foreign Commerce Committee; and Stewart French, chief counsel, Senate Committee on Interior and Insular Affairs.

Senator O'MAHONEY. The committee will be in order.

Mr. McHugh. There are four witnesses from Gulf Oil Co.-Mr. Whiteford, president, Mr. R. O. Rhoades, senior vice president, Mr. C. J. Guzzo, vice president, and Mr. Ray McGranahan, vice president.

I think Mr. Whiteford has a prepared statement to give. I think all four witnesses could come to the table together for questioning.

Senator O'MAHONEY. Please do so, gentlemen.
Mr. Whiteford, you have a prepared statement, I understand.
Mr. WHITEFORD. Yes; I have, Senator.

Senator O’MAHONEY. You may proceed. If you prefer to make the statement without interruption, that will be the order of the day. If you are willing to have questions asked as you go along, that could be the order of the day.

Mr. WHITEFORD. Senator, I think it may save your time and be helpful to you—I don't have a long statement–if I could read the statement and then, when the questions are asked, there will be, I know, a number of questions that I can't answer as well as some of my colleagues, and I think it would save your time and probably make a clearer picture if that is agreeable.

Senator O’MAHONEY. Very well, you may proceed.
Mr. WHITEFORD. Thank you.

STATEMENT OF W. K. WHITEFORD, PRESIDENT, GULF OIL CORP.,

PITTSBURGH, PA.; ACCOMPANIED BY R. O. RHOADES; C. J. GUZZO; RAY MCGRANAHAN; W. B. EDWARDS; AND F. L. SCOFFIELD Mr. WHITEFORD. My name is W. K. Whiteford. I am president of Gulf Oil Corp. I welcome the opportunity to appear before you and comment on many issues and reply to statements which tend unfairly to discredit the oil industry in the eyes of the American public. I believe Gulf's policies as concern our contributions to the program for shipment of oil to Europe since the Suez Canal crisis, the pricing of crude oil and products, and imports are all on a sound footing,

The Middle East Emergency Committee functions at the express request of the Government. Congress enacted the statute which permits continuance of the petroleum industry voluntary agreement relating to foreign petroleum supply in the public interest as contributing to the national defense. The Attorney General reviewed and approved both the amended voluntary agreement and the plan of action for the organization of MEEC. The Middle East Emergency Committee, acting within the limits set by the Government, can only develop facts and make recommendations for the Government's use. Action by member companies is carried out only after the Government has approved schedules for the same. Government representatives watch in the everyday operations of this committee and they have every opportunity to be intimately acquainted with all of its proceedings.

Frankly, we would prefer not to be a participant in either the voluntary agreement or MEEC, but in view of the Government's request for cooperation we feel it is a duty and we cannot rightfully refuse. At the same time, we do not believe the sort of criticism that has been leveled at Gulf and other companies for so doing is justified in any degree.

Gulf has made and will continue to make arrangements for substantial shipments of oil to Europe. Out of our domestic inventories alone, we made available during the last quarter of 1956 an average of 67,400 barrels daily, totaling 6,250,000 barrels of crude and finished products for Europe. Of this total, 98.5 percent was crude and only 1.5 percent was finished products.

In the last few weeks our refinery runs have beeen reduced 60,000 barrels daily, which has been or will be made available for shipment to Europe. For the month of January we made available out of domestic supplies an average of 68,000 barrels daily, totaling 2,103,000 barrels of crude and finished product for Europe.

In addition, we have cooperated with MEÈC in making arrangements with other oil companies whereby transportation saving in tanker time has been accomplished through rearrangement and substitution of ships and sources of crude, both domestic and foreign, making possible shorter hauls to Western Europe, resulting in an overall increase in crude availability. I will give you some examples of what we have done.

(1) We made an agreement with another company whereby 35,000 barrels daily of Kuwait crude oil ordinarily refined in the United States was diverted to refineries in Western Europe, substituting an equal volume of domestic crude delivery to us in the United States. During January, this arrangement alone made available to Europe a total of 1,100,000 barrels of crude and resulted in savings equivalent to 8 T-2 tankers.

(2) We modified a contract for Kuwait crude, otherwise destined for the United States, permitting its diversion to Europe in the amount of 12,000 to 15,000 barrels daily, for which a substitution of domestic crude was made. The overall effect of this single transaction results in a tanker savings equivalent to about three T-2 tankers.

(3) In November 1956, we reversed a pipeline movement and pumped 1 million barrels of Oklahoma crude south into Texas for export movement. At the same time we held in Texas crude that normally would have been pumped north, so that it, too, became available for export. This amounted to 1.5 million barrels, so the total of this one pipeline operation made available 2.5 million barrels of crude for export.

İncluding diversion of Middle East imports, I believe we can say that Gulf has contributed an average of 132,000 barrels daily and a total of 16,250,000 barrels of crude and finished product to Europe during the last quarter of 1956 through January 31, 1957. The figure for February has just come in, and is 1.2 million barrels in addition to those I have just given.

The industry has been called price gougers, and it has been stated that we are not operating in the public interest. Gulf is in business to make a profit, but we follow good business practices in determining the means by which we make a profit.

You should appreciate that our domestic crude and product shipments to Europe in the last quarter of 1956 constituted heavy withdrawals from our stocks. If we had wanted to be price gougers, we could have held this crude in anticipation of a price increase which we believed to be imminent and justified.

In addition, by making these heavy withdrawals, we may place ourselves in a vulnerable position in the event of any long delay in reopening of the Suez Canal. Our policy has been to do everything possible to supply our customers with their normal requirements of oil and avoid prorating our supplies to them.

We have not made any tie-in sales of gasoline with crude. From an economic and practical viewpoint, it is not a simple matter to drastically change refinery yields. Our domestic customers need finished petroleum products, but their requirements of gasoline and fuel oils vary depending upon the seasonal factor. Our duty to our domestic customers is to avoid petroleum shortages here, and at the same time do everything possible to increase the flow of oil to Europe.

When the enormous complexities resulting from the Suez crisis are carefully analyzed, including the economics of refining, the rerouting of available crude both from the Middle East and the Western Hemisphere, and the tanker shortage, it is evident that the industry has been very successful in meeting the emergency.

Turning to the subject of imports, I note that many domestic producers are continuing to press for action under section 7 of the Trade Agreements Act.

Before the closing of the Suez Canal, Gulf was importing a total of 131,000 barrels of crude daily, of which 60,000 barrels were from the Middle East and 71,000 barrels from Venezuela. Immediately after the closing, our imports of Middle East crude dropped to 35,000 barrels daily, and because of our cooperation with MEEC have been entirely eliminated since January:

Presently, all of our imported crude comes from Venezuela and averages 80,000 barrels daily. We are now importing 50,000 barrels daily less than before the closing of the canal.

Our company in the last few years has reduced its import plans on several occasions in view of the increased domestic productivity. In 1954, for example, when we had a large increase in our refinery requirements, our own United States crude oil production was down. But although we had ample supplies of our own foreign crude oil and products available, we increased our total imports by only 2,470 barrels daily while increasing our net purchases of United States crude oil from other producers, at full posted prices, by 37,486 barrels daily. In that situation, although we did not believe there has been any injury to the domestic situation from imports, in our desire to be cooperative, we agreed to conform to the recommendations of the Cabinet Committee.

Gulf was one of the pioneer American companies to venture abroad in the search of oil, and its whole eastern seaboard refining and marketing position was largely developed on the basis of utilizing foreign crude oil, originally from Venezuela, and in more recent years from Venezuela and the Middle East.

Gulf's imports of products have always been, and still are, a very small portion of its total imports, inasmuch as its policy has been to do most of its refining for the United States in the United States. All of the company's imports are to the east coast.

Gulf has complied with all requests from the ODM regarding imports, and even before the ODM was involved in this question, Gulf had many times taken action to reduce or hold back increases in its imports when total oil imports in the United States appeared to be growing at an unusually rapid rate.

The result of the above policy has been that the ratio of Gulf's imports to the total for the industry has been steadily declining. Since 1947 Gulf imports have declined from 17.4 percent of the total for the industry to an estimated 9.5 percent for last year. This has not been due to any lack of adequate foreign crude of our own which we could have imported, but solely to our own voluntary restrictions.

As a consequence of the above and the fact that its own domestic production has not increased fast enough to supply the balance of its refinery requirements, Gulf's purchases of crude from other domestic producers have greatly increased. This year such purchases will average double what they were 10 years ago, and greater than the company's entire imports.

We have consistently argued against maintaining the ODM 1954 ratio of imports to domestic production. Notwithstanding this position, Gulf has complied with all requests from ODM.

Notwithstanding the increased volume of industry oil imports since 1954, the facts are that domestic crude oil production, drilling, exploration, reserves, and production capacity were all at record high levels

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