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. McHUGH. Available to the other members of the MEEC.

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. McHUGH. 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

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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. RHOADES. Right.

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 MEEC 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 O'MAHONEY. Now, this sentence reads as follows:

We made an agreement with another company

and, 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 O'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.

Mr. WHITEFord. No.

Senator O'MAHONEY. Who refined it?

Mr. RHOADES. Gulf Oil.

Mr. WHITEFORD. Gulf Oil, at our Philadelphia refinery, Senator. 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?
Mr. WHITEFORD. I would think so.

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?

Mr. WHITEFORD. Yes.

Mr. RHOADES. I believe I can make a statement, Senator, that helps clarify it.

The crude that we haul from Kuwait, as Mr. McGranahan has said, was hauled in our own ships, and ordinarily they would have continued the voyage to Philadelphia. On the barrel-for-barrel arrangement, we delivered crude to Esso at the gulf coast. They bought it, the crude. They delivered that crude to Philadelphia, and it went into our refinery just as if our own ships had pulled up and discharged barrel for barrel the oil that we discharge at a port for them in Europe.

So the oil that we were talking about substituting, the domestic crude that came to Philadelphia, ordinarily would not have reached Philadelphia, would not have gone into our plant.

Senator O'MAHONEY. It was Esso oil?

Mr. RHOADES. It was Esso oil when it was delivered.
Senator O'MAHONEY. When it was delivered where?

Mr. RHOADES. Well, they purchase the oil from us in order to have oil to exchange for the oil that we unloaded to them in Europe. Senator O'MAHONEY. I don't follow you.

Mr. WHITEFORD. No. That is a little

Mr. RHOADES. That is

Mr. WHITEFORD. Senator, let me try again. We are all trying to get more oil to Europe.

The first part of this deal was in order to get more oil to Europe after the closing of the canal, to make more efficient utilization of the tankers, both foreign flag and American flag, by pooling them where it could be done, in the opinion of the companies, without too great an economic sacrifice.

This is a voluntary proposition. So, the first move in this deal was to use our tankers on a shorter haul, to haul Kuwait crude to these European refineries.

Senator O'MAHONEY. Right.

Mr. WHITEFORD. That part is clear.

Now, the second thing was that in order for that domestic oil to reach us in Philadelphia, we used Esso tankers, American-flag tankers, which were in the regular run from the gulf coast to the Atlantic seaboard.

Senator O'MAHONEY. Did these Esso tankers transport your oil or Esso oil?

Mr. WHITEFORD. That is where it sounds complicated. We sold them, in other words, so they did not want to take out of their stocks, because they were trying to ship all the oil they could to Europe. So we sold them out of our stock of oil in Texas 35,000 barrels of oil and they, in turn, sold us out of their stocks 35,000 barrels of oil.

So, in the end, you can say it was our oil that they transported, or we sold our oil to them to move to Europe, and they sold us their oil to move up to Philadelphia.

Senator O'MAHONEY. Pardon me, sir, if I ask you to help me rewrite this first sentence.

After the words "Western Europe, substituting an equal volume of domestic crude deliveries to us.”

Now, whose domestic crude?

Mr. WHITEFORD. You mean, technically, which barrels? I don't know.

Senator O'MAHONEY. Not the number of barrels, but whose crude? This is a contract between Gulf and another company, namely, Esso. So this was your oil from Kuwait

Mr. WHITEFORD. That is right.

Senator O'MAHONEY (continuing). That you sent over to Europe

Mr. WHITEFORD. Right.

Senator O'MAHONEY (continuing). And there was something substituted for that to you at Philadelphia?

Mr. WHITEFORD. That was Esso's oil. They have title to that oil. Senator O'MAHONEY. The sentence reads:

substituting an equal value of Esso domestic crude

Mr. WHITEFORD. Right.

Senator O'MAHONEY (continuing):

delivery to us in the United States.

Mr. WHITEFORD. Right.

Senator O'MAHONEY. To your refinery?

Mr. WHITEFORD. Right.

Mr. MCHUGH. With reference to this same transaction, Mr. Whiteford, on what basis were the tanker rates computed?

We moved on

Mr. WHITEFORD. I will have to ask Mr. McGranahan. Mr. McGRANAHAN. We did not discuss tanker rates. ton-miles of oil moved, and split the savings. There was no discussion of rate.

Senator O'MAHONEY. You split the savings?

Mr. MCGRANAHAN. In ton-miles.

Mr. MCHUGH. You had to figure tanker rates at some basis? Mr. McGRANAHAN. No; we didn't use any basis. We had ton-miles. We contributed so many ton-miles, and they contributed so many tonmiles, and we added the 10-percent factor for increased operating costs of a United States flag vessel or foreign flag, and we came out with a savings in ton-miles.

Mr. McHUGH. A savings in ton-miles.

The savings you speak of, savings as a result of reduction of

Mr. McGRANAHAN. The overall movement, the total mile, the unit transportation. And that was to be repaid in unit transportation, without a discussion of a price.

Mr. McHUGH. We have heard testimony before the subcommittee that the rates at which oil is hauled are based upon either the so-called spot tanker rate or the so-called London award. I am trying to determine from you, with reference to the cost of shipping the crude that was involved in this transaction, whether or not it had some relationship to one or the other of those methods of computing tanker rates. Mr. MCGRANAHAN. No relationship. This was a negotiated deal, and no relationship.

Mr. MCHUGH. Is the same true with reference to other transactions entered into by your company under any of the MEEC schedules? Mr. RHOADES. I don't know of any other one of that nature.

Mr. MCGRANAHAN. I don't know of any other deal we have entered into, at this time.

Mr. MCHUGH. Were there no other exchanges or arrangements made by your company pursuant to any of the MEEC schedules besides the one you have just described? No. 2 describes another type of situation.

Mr. McGRANAHAN. I think No. 2 is an example of

Senator O'MAHONEY. Before we leave No. 1, please, the reason I asked the question is because the testimony was given that none of the financial arrangements with respect to this agreement mentioned in paragraph 1 were presented to MEEC.

You don't mean by that to say that there were no financial arrangements, do you? There were financial arrangements?

Mr. WHITEFORD. You mean, between Esso and Gulf? Yes, sir; definitely there were.

Senator O'MAHONEY. Certainly.

And what types of arrangements were they? Did that increase the cost to you or to Esso?

Mr. WHITEFORD. Of the crude oil, as laid down in our refinery, for instance, in Philadelphia? I understand the reason they arrived at this deal, at least in the general policy that I set down, Senator, after we heard about the MEEC, was that we would go as far as we could in cooperating with the MEEC, as long as it didn't cost our shareholders any appreciable amount of money.

Senator O'MAHONEY. Yes; I think that is a common consideration. Mr. WHITEFORD. I haven't analyzed this one, but I would judge from the report I got, and I will ask Mr. McGranahan in a minute, there would have been a deal where it did not cost either company, or save either company any amount of money.

It would be a saw-off to where I could say we were not losing any money by trying to make this exchange.

Senator O'MAHONEY. But if there were any increased costs by reason of increased tanker rates, you would have to pay that increased cost, would you not?

Mr. McGRANAHAN. Senator, we were paid back in kind, not in money value but in ton-miles.

Senator O'MAHONEY. In ton-miles of transportation?

Mr. McGRANAHAN. That is right, sir.

Senator O'MAHONEY. In other words, Esso would deliver you, in return for this ton-miles of transportation, the oil from somewhere else?

Mr. MCGRANAHAN. Ton-miles of tanker time.

Senator O'MAHONEY. Of tanker time?

Mr. McGRANAHAN. That is right.

Senator O'MAHONEY. What particular consideration was given? What was the transaction that completed the agreement?

Mr. McGRANAHAN. Well, we added up the total amount of transportation that was involved in both arrangements and the savings were split, and they agreed to pay us back in ton-miles, service in kind. Senator O'MAHONEY. I think I see it.

Mr. McHUGH. I am waiting for the representative of your company who was on your MEEC. It is Mr. Rhoades?

Mr. RHOADES. Yes.

Mr. McHUGH. Do you know whether there was any consideration given at any of the MEEC meetings to have any Government em