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committee and there is enough concrete fact in it so that it is readily understandable.
Senator O’MAHONEY. It is a well-prepared paper.
Senator DIRKSEN. When you talk about cost changes, for instance, if you anchor it and say a pump cost so much in 1947 and so much today, anyone can understand that.
Mr. WHITEFORD. Thank you, Senator, very much.
Mr. McHugh. Mr. Whiteford, on page 2 of your prepared statement you refer to several situations where you engaged in transactions pursuant to the plan of action under the Middle East Emergency Committee.
I wonder, with reference to No. 2, if you can describe for the committee who the parties were with whom you dealt there, what the nature of the transactions was, how they were effected, and how that was brought about.
Mr. WHITEFORD. May I call on Mr. McGranahan, our vice president in charge of transportation, who has a more intimate knowledge of these facts than I do, or would you want me to answer?
Mr. McHugir. If you think Mr. McGranahan can answer it, fine.
Mr. McGRANAJIAN. When the problem came up of diverting supplies to Europe, the question arose as to who had suflicient tankers under the United States flag to move domestic crude, and in trying to find companies that were in a position to supply that service, we found that the Standard Oil of New Jersey had ships available to more domestic crude and had refineries in Europe that were short of crude.
As a result of discussions with them, we made arrangements to move 35,000 barrels a day of Kuwait crude that had been coming to this country to points in northern Europe and in turn they moved domestic crude from the gulf coast to our refineries at Philadelphia to make up the oil that was being diverted to Europe.
Does that answer the question ?
Mr. McHugh. The crude that was moved from Kuwait to Western Europe was moved in whose tankers?
Mr. McGRANAHAN. In our tankers, our gulf tankers—foreign flag.
Mr. Mcllugh. Did Esso acquire title to purchase the crude put on board tankers?
Mr. McGRANAHAN. We sold them on a delivered price basis, f. o. b. price at loading.
Mr. McHugh. With reference to the crude that was carried to your refineries by Standard, that, again, was carried on Esso tankers?
Mr. MCGRANAHAN. That is right.
Mr. McHugh. What were the pricing arrangements of the mechanics for transmission of that crude!
Mr. McGRANAHAN. That was part f. o. b. to the gulf coast and transportation was adjusted separately.
Mr. McHugh. What do you mean by saying transportation was adjusted separately? How was that handled ?
Mr. McGRANAHAN. Well, we arrived at the fact that there was a differential in the volume of ton-miles between moving on United States-flag ships versus a foreign-flag ship. We arrived at a differential of 10 percent of that value. It costs more to build and operate a United States-flag ship than a foreign-flag ship and moving over a
differential mile route and we took that difference into consideration. That was the only adjustment that was made.
Mr. McHugh. Ordinarily this shipment would have cost your company a considerably larger amount if it was delivered directly from Kuwait to the east coast than the cost of the transportation from the gulf coast to your refineries. Was the extra expense divided between the two companies?
Mr. MCGRANAUAN. Yes.
Mr. McHugh. In other words, you added the total cost of the transportation both ways and split it down the middle.
Mr. McGRANAHAN. That is right.
Mr. McHugh. Do you know whether that has generally been the arrangement of the various companies with reference to sharing transportation costs pursuant to the schedules which have been entered into?
Mr. McGRANAHAN. I don't know. Would you-
Mr. McHugh. Were the details of this arrangement reported to the MEEC?
Mr. RHOADES. Yes. That is right. All arrangements made pursuant to the Middle East Emergency Committee action have been reported.
Mr. McHugh. How soon after the transaction was completed are these reported?
Mr. RHOADES. I could not answer that, sir. I have not made the reports myself, but I know that the requirements of the arrangements within the Committee specify that that should be done and I am sure they were done in the proper timing as required.
Mr. McHugh. Were the transactions approved by MEEC?
Mr. RHOADES. I don't say the transactions are approved by the Committee, because the Committee does not have that function. They make the recommendations for certain scheduling and under those schedules, the companies are expected to cooperate to the extent they can.
Mr. McHugh. Are the transactions required to be approved by MEEC or Government agencies?
Mr. RHOADES. No. The requirements are that the reporting of the action taken, any arrangements made are reported and submitted to the Government through the companies making the arrangement.
Mr. McHugh. You are simply required to make a report of it?
Mr. McHugh. Does MEEC, after making any review of this, ever question the method in which it is handled, or ask for any details concerning it?
Mr. RHOADES. Not to my knowledge, no. As I understand, the Committee's function, it is to specify how this emergency may be met, by moving oil from the Middle East that comes to the States to Europe or by diverting other oil to Europe in the emergency, and there are schedules under which that can be done.
The Committee then is finished. It is up to the individual companies who, after examining their situations, find that there is an arrangement between them that could come within that schedule.
Mr. McHugh. Before the particular transaction referred to in 1 was entered into, did the two companies communicate that information to MEEC or your plans for making the type of exchange?
Mr. RHOADES. Well, I think the Committee in its subcommittees did have information that here were two companies that had a situation and they could get together. Now, the Committee was not concerned with which companies did what, but only to examine the situations and see where these pieces could be fit together.
Mr. McHugh. Were the details of this particular exchange discussed at any of the subcommittee meetings of MEEC?
Mr. RHOADES. I would not know that because I am a member of the Committee, but not a member of any subcommittee. So I would not know that that actual transaction was discussed as such. I would rather suspect that it was not in the details of it because that isn't the way the committee functions.
They do submit material from the various companies so that the subcommittee knows what the situation is with respect to supply and requirement. But actually whether they examine what kind of a deal Mr. McGranahan here made with Esso, I am not aware of the facts on that.
Mr. McHugh. Where were the details of the commercial transaction arrived at ? Where were they made?
Mr. RHOADES. They were made between representatives of our company and representatives of Jersey.
Mr. McHugh. Where?
Mr. RHOADES. It might have been done in New York; it might have been done between New York and Pittsburgh by telephone, or other discussions. Mr. McGranahan may indicate what his part of that is, so far as transportation is concerned.
Mr. McHugh. Will you tell us, Mr. McGranahan?
Members of the Tanker Subcommittee of the MEEC furnishing schedules, you could see that certain adjustments could be made.
Mr. McHugh. Are you on the Tanker Subcommittee !
Mr. McGRANAHAN. No, I am not. We have a representative on that committee.
Mr. McHugh. Who is he?
Mr. McGRANAHAN. Mr. H. B. Brown, and Mr. Thompson. We have two representatives.
And, in looking at those schedules, you could see there was a possibility of making adjustments along the line the MEEC wants, to help improve the situation in Europe, and everybody was asked to try to work that out.
Representatives on the Tanker Subcommittee and Esso's representative got together to discuss the possibilities of trying to improve the delivery situation in Europe by this exchange, and that is how the matter started and came about.
Mr. McHugh. Your representatives, I assume, did discuss that at the meetings of the Tanker Subcommittee?
Mr. McGRANAHAN. They discussed the desirability of such moves for the industry, and for everyone to try to get behind and improve it.
Mr. McHugh. You are speaking of these particular transactions?
Mr. McGRANAHAN. I don't think it was discussed specifically in that Committee, but it was as a result of the work of that Committee that this work came about.
Mr. McHugh. Did other members of the Tanker Subcommittee know that this particular transaction was to be effected between Gulf and Esso?
Mr. McGRANAHAN. I think they did—trying to work it out.
Mr. McHugh. Would they be familiar with the details of the commercial transaction?
Mr. McGRANAHAN. I don't think so; not that far.
Mr. McHugh. Were the reports that you made, which would set forth the nature of the transaction after it takes place, be available to these
Mr. McGRANAHAN. Be available to whom?
Mr. McGRANAHAN. A report was made of the change in volume, but not in any detail.
Mr. McHugh. You say not in any detail. Would the question of price and the method by which the transportation costs are shared be set forth in your report?
Mr. McGRANAHAN. It is not my impression; no.
Mr. McHugh. Can you tell us what kind of information would be set forth in your reports, describing the transaction?
Mr. McGRANAHAN. Describing the fact that we were substituting 35,000 barrels of Middle East crude that formerly came to this company, now going to Europe, and in Europe using domestic crude to link that up. That flow of oil, that general shift, was reported to the Committee.
Mr. McHugh. But, then, there is no requirement that the specific details of the transaction would be made available in your report?
Mr. McGRANAHAN. Not that I am familiar with.
Mr. RHOADES. I believe that the details of the report would show the members in the Government departments that are interested. I am sure that they were not distributed to the members of the Committee. The Committee, as such, is not interested and does not function that way. The exchanges and arrangements between the companies are purely outside the Committee, as such.
The Committee only is to bring information to bear which, as I said a little bit ago, indicated that here were two situations that could be matched, and then it is up to the companies, and if they can find in the framework of their economic position, find it well to go ahead and make the deal, they will. There is no compulsion in it at all.
Mr. WHITEFORD. Mr. McHugh, our conception of this MEEC Committee, it is a scheduling of the information, a cross-check scheduling of the information on the tankers available, and it is purely a transportation unit.
According to the understanding I have, it has nothing to do with the financial arrangements which are made between any companies. It is outside of the framework of the MEEC.
Mr. McHugi. There are some discussions, I understand from the testimony, of the Tanker Subcommittee concerning the availability.
Mr. RHOADES. The possibility of those two companies making an arrangement that will amount to moving so much oil this way, and
so much that way. But the economic factors involved in it, whether it is going to cost one this much or one that much, is not an affair of the Committee.
Mr. McHugh. You are telling us that this commercial data is not discussed at the MEEC meeting or at the meeting of any of its subcommittees?
Mr. RHOADES. So far as I know, it would not be, but I cannot speak for the subcommittees because I have not attended any of their meetings, but the meetings that I have attended of the main Committee, that sort of thing has never been discussed at any meeting I have attended.
Mr. McHugh. The main Committee of MEEC?
Mr. McHugh. Presumably, if it arose, it would be at the appropriate subcommittee, I presume?
Mr. RHOADES. I don't see how there would ever be an occasion for it to arise, Mr. McHugh, because that is not in the area of the committee's function.
Senator O'MAHONEY. Now, then, if I understand your testimony correctly with respect to this first sentence in paragraph 1, page 2, it is that MĖEC does not review the financial arrangements that any of its members may make to procure the transfer of oil for delivery?
Mr. RHOADES. To the best of my knowledge, that is true: yes. Senator OʻMAHONEY. Now, this sentence reads as follows: We made an agreement with another companyand, I take it, it means Gulf made an agreement with another company which is not named?
Mr. RHOADES. Esso.
Senator O'MAHONEY. With Esso-"whereby 35,000 barrels daily of Kuwait crude ordinarily refined in the United States”—that is to say, oil which had been imported from Kuwait
Mr. RHOADES, Right.
Senator (MAHONEY. And refined in the United States—“was diverted to refineries in Western Europe substituting an equal volume of domestic crude delivered to us”-the Gulf_"in the United States."
Now, the contract was made with Esso. That is clear. Was it Esso which refined this Kuwait oil in the United States?
Mr. RHOADES. No.
Senator O'MAHONEY. So that you made a contract with Esso, whereby 35,000 barrels daily of this Kuwait oil, which Gulf ordinarily refined in the United States, was diverted to refineries in Western Europe. What refineries!
Mr. WHITEFORD. I don't know which ones, but I judge they would be Esso refineries.
Senator O'MAHONEY. Esso refineries in Western Europe?
Senator O'MAHONEY. “Substituting an equal volume of domestic crude delivery to us in the United States." Does that mean that Esso substituted United States domestic crude?