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Mr. VAUGHEY. I will attempt to be as brief as I can, and still try to do justice to what we are talking about.

Senator O'MAHONEY. I will say to you that all of your testimony will be entered into the record as though read.

Mr. VAUGHEY. Thank you.

I'll attempt to complete what I started to say there with reference to the importance of me as an individual remaining in the business. Certainly I would not expect to stop the wheels of industry, and it should not be America's primary concern, but, as we have stated here today, there are a great many people like me who, through the course of the years, are responsible for drilling 75 percent of the wildcat wells that are drilled. It is from that source that domestically we have derived this reserve capacity that our own Defense Department has told us is necessary and essential to our security.

So, in that way, trying to be abstract about it, what happens to me is not important, but what happens to these other independent producers the world over and in our own country is important.

Senator O'MAHONEY. What percentage of the wildcat wells in the United States are drilled by the majors?

Mr. VAUGHEY. Approximately-the domestic and independent segment accounts for about 75 percent of the wildcats, so that would leave the remaining 25 percent to the others.

To be completely fair and factual about it, in drilling the 75 percent as independents, we receive money or contributions and support from the majors. Otherwise we would not be able to drill.

Senator O'MAHONEY. After the discoveries are made, the fields are frequently sold to the majors.

Mr. VAUGHEY. If we don't do something about making this price stick, and if we don't preserve equity in the future as to what price it shall sell for, you will have nothing but majors, Senator O'Mahoney.

In my judgment, the domestic producer has already been curtailed. The deficiency in price has already curtailed and caused many of our substantial independents to be selling out or withdrawing or drawing back into his shell. That would mean that ultimately if that was carried to excess and extreme, eventually you will have nothing but your large major companies dominating your industry in toto here.

The most realistic way to determine whether or not the price for any commodity is too high is to analyze the elements which enter into the cost of producing it or making it available for sale. There are many factors which enter into the cost of finding, developing, and producing crude oil over which, as I have said, the producer has no control.

For example, most of the items which an oil producer must buy for the drilling and completing of an oil well are made of steel. Finished steel prices have increased steadily, year after year, since World War II.

There have been just two overall increases in the prices of domestic crude oil since December 1947. One, in the amount of 25 cents per barrel, took place in June 1953 and the other, with which you are most conversant, in January 1957.

And if I may say so, gentlemen, it has become almost vulgar to talk about what you should get for a commodity which costs you money to produce. An adjustment was inevitable because unless, again, we are

to abandon our national security and forget expanding national economy and resign ourselves to the belief that our way of life and our continued way of life is unimportant, then we had to have this raise. Since June 1953, line pipe and oil well casing (alloy) prices have increased about 35 percent. Oil well casing (carbon) prices have gone up about 25 percent and oilfield machinery more than 20 percent. This is all since 1953. During this same period and including the January 1957 increase, crude oil prices have increased less than 10 percent. Since December 1947 there is an even greater gap between oil prices and the factors entering into the cost of production. During the period since 1947, line pipe prices have increased more than 100 percent, oil well casing, which goes into all of our wells, 87.5 percent, and oilfield machinery 55.6 percent compared with an increase of about 21 percent in crude oil prices.

And just to make certain that we don't have an easy moment, I notice in the Wall Street Journal dated February 11, steel prices have again been granted another 32 percent increase. When I say "granted," they have just taken one. Steel prices, according to this article, are moving up another notch despite a continuing moderate decline in demand for steel products.

In the interest of saving time I won't go on, but this article, which I would like to, if I may, make part of the record since I am not reading it, goes on to say that in this increase tubing and drill pipe will be affected by this raise. May I submit that, Mr. Chairman? Senator O'MAHONEY. I beg your pardon?

Mr. VAUGHEY. In the interest of saving your time, I made reference to the article in the Wall Street Journal of February 11 showing another stiff increase and I would like, if I may, to have it in the

record.

Senator O'MAHONEY. It may be received.

(The article from the Wall Street Journal of February 11, 1957, is as follows:)

STEEL PRICES CLIMB ANOTHER NOTCH; UNITED STATES STEEL CORP. INITIATES SOME BOOSTS, MEETS COMPETITION ON OTHERS.-PIPE GOES UP AN AVERAGE OF 3% PERCENT; SCRAP MARKET OFF AGAIN IN KEY CITIES

(By Edward J. Lally)

PITTSBURGH.-Steel prices are moving up another notch despite a continuing moderate decline in demand for steel products.

United States Steel Corp. during the weekend raised mill prices of steel pipe an average of about 31⁄2 percent and adjusted "extra" charges on a number of other steel products by somewhat less than 4 percent.

It was one of the broadest increases made by a steel company since a new round of price boosts got under way 2 months ago. Most of the increases have been accomplished through adjustments of so-called extras rather than on base prices. The last general base price increase, amounting to an average of $8.50 a ton, came last August after settlement of the 34-day nationwide steel strike.

PIPE, RODS, AND WIRE RAISED

In some of the increases made effective Saturday, United States Steel followed the lead of competitors but in others, notably pipe, rods, and wire, the corporation took the initiative.

The pipe increases covered seamless standard and line pipe 2 inches to 12 inches; all sizes of butt-weld pipe; oil country casing, tubing, and drill pipe, and carbon seamless mechanical and pressure tubing. Larger sizes of steel pipe were raised about 3 weeks ago, also by about 3% percent.

Unlike some of the light flat rolled steel products, pipe is one of the strong features of the steel market, with oil country goods ranking right up with plates and structural shapes as hard-to-get items.

Among products in which certain extra charges were boosted by United States Steel were carbon hot-rolled bars, concrete reinforcing bars, tube rounds, skelp, rerolling and forging semifinished steel, rods, wire, and alloy products. rounds and skelp are semifinished forms of steel that are processed into pipe and tubing.

Tube

"Extras" are special charges, on top of base prices, which customers pay for having steel made to their own specifications. A long list of extras was involved in the changes, including those for size, chemistry, grade, quality, length, quantity, and cutting.

INCREASES IN PAST TWO MONTHS

Price increases effected by steel companies during the past 2 months have covered a wide variety of products, among them strip and sheet, plates, and structurals. Their overall effect has been to increase the Nation's steel bill by close to 2 percent, which compares with an increase of 6.25 percent that followed the 1956 wage settlement.

The extra adjustments, and the relatively few base price changes that have been made recently, were designed to bring selling prices more in line with costs, which steelmakers contend have been rising since last summer. One recent cost increase was a 3-cents-an-hour wage boost to steelworkers under the cost-of-living clause of their labor contract. It was effective January 1.

Other cost increases have included coal, iron ore, and freight rates. Until recently, steelmaking scrap had been on an ascent that took its price to record highs, but that important commodity is now falling even more rapidly than it

rose.

Scrap weakened further last week in Pittsburgh, Chicago, Cleveland, Youngstown, St. Louis, and several other areas.

DROP IN PITTSBURGH

In Pittsburgh, a purchase by a large mill late last week dropped the price of No. 1 heavy melting scrap $1 a ton to a new level of $54. That's $13 a ton less than that grade of scrap was priced just about a month ago in this steel center. The mill purchase also included a tonnage of No. 2 heavy melting scrap at $48, a decline of $1.

The rapid drop in scrap has been widely ascribed to dealers' fears of a decline in the steel-production rate within the next several months.

So far this year, despite a downtrend in orders, ingot output is holding close to the record pace of last December. Most of the easing in demand affects light flat-rolled steel products scheduled for delivery in March and April. Many steel men expect to see the production rate drop slightly around that time, although some individual companies say their own order books indicate capacity output through the first quarter and well into the second.

Steel is now being produced at an annual rate of nearly 130 million tons, a total that nobody expects the industry to reach this year. Most optimistic forecasts on the year's production have been around 120 million tons and, although some steelmakers still cling to that prediction, the recent trend has been to shave it a bit to the neighborhood of 115 million tons. If production comes out that high, it will be a mighty good steel year. A total of 117 million tons would equal the 1955 record; 115 million would approximate last year's output.

PRESENT ORDER SITUATION

Concern is being expressed by some steelmakers over the present order situation, which finds the auto industry's buying still lagging below expectations and mill backlogs dwindling. Although 2 or 3 steel companies checked late last week reported an upturn in buying for second-quarter delivery, most mills contacted said they have as yet seen no signs of a return to the fast tempo of fall and early winter.

"The market's in status quo," said one of the country's largest producers. "We see continued good business but we have no feel of an increase, and think there will be a slight drop in the second quarter and another slight drop in the third."

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"There's more caution," said another producer, "and in all honesty, there's been a little dropping down all along the line. We're looking into April and don't see anything real bright as yet."

A midwestern producer, who opened his second-quarter order books a week and a half ago, reported that orders are coming in a "little slower than for the first quarter."

Another midwestern steel official said he figures the auto companies are going to take less steel in April than estimated earlier. "We don't see any signs of a pickup," he said. "There will be a drop in our production rate in the second quarter unless auto demand perks up."

This executive noted there's a time lag of 1 to 3 months between placing of a steel order and delivery. Thus, capacity operations today reflect the high rate of orders 2 and 3 months ago. "When we talk of a steel slowdown," he added, "we're talking about a period 60 days ahead. Right now, April, May, and June don't look too good to us."

At Detroit, 2 of the 3 major auto companies said last Friday they contemplate no increase in their steel buying in the second quarter. The third company reported that its second-quarter buying will be higher.

INVENTORIES OF CAR MAKERS

The auto manufacturers are believed to have their inventories down to desired levels which they hope to hold. In line with such policies, they are said to be seeking to terminate steel-storage agreements under which for some time they have rented outside warehouse space. That indicates they'll now depend almost entirely on direct mill shipments, a reflection of the easier supply of coldrolled sheets and other sheet and strip products.

The feeling that the downtrend in orders is continuing is not unanimous in steel circles. One big Pennsylvania producer said that his orders are up in almost all lines. "We feel better today than we did 2 weeks ago," he said. "Then there were little signs of going backward; now it looks like the good old days." Steel production nationally last week was scheduled at 96.6 percent, compared with an actual rate of 97.6 percent of the week before.

Pittsburgh and Youngstown operations will drop this week, according to schedules, while Chicago will show a slight rise.

In the Pittsburgh area mills are expected to operate at 99.4 percent of capacity, down from last week's 101.3 percent. Youngstown production will slip 2 points to 100 percent. But in Chicago, ingot production is scheduled to start the week at 96.5 percent, compared with last week's 96 percent.

Mr. VAUGHEY. Another major item of expense to the oil producer is the wages that are paid to about 320,000 employees. Oil-production employees have, for many years, been among the highest paid workers in American industry. Average hourly wages paid have increased 14.7 percent since June 1953 and 61.3 percent since December 1947. I keep going back to those dates because those are the dates of our increases. This is compared with respective increases of 9.8 and 21.0 percent in crude-oil prices.

I will just say again to the informed, or those who take the time to become informed, those figures should not be shocking and I think it should certainly make it easier for anyone to reconcile the reasonableness and essentiality of the increase in crude that we have been granted.

The two charts which follow illustrate graphically how the major elements in the cost of producing oil have greatly increased in comparison with crude-oil prices.

And there, in the interest of saving time, I will ask that the charts be made a part of the record. (The charts referred to are as follows:)

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