Page 873 874 875 876 877 878 879 DIGEST OF TESTIMONY WEDNESDAY, FEBRUARY 27, 1957 Statement of Hon. Robert S. Kerr, United States Senator from the State of Oklahoma Wanted "the record to show that the Oklahoma congressional delegation, including myself, support the position taken by Mr. Delaney today, and Mr. Paul Schultz, tomorrow." Statement of Hon. A. S. Mike Monroney, United States Senator from the Expressed his thanks to the committee "for the searching inquiry that they are making not only into the effect of imported crude oil on the American market but also on the difficulties of the independent petroleum producer in competing with foreign oil, and in their willingness to invite the leaders of our independent oil industry here, to hear their experience and to document their case of higher costs of production that have been occasioned by the general inflationary trend in almost everything that goes into the oil-production field.” Statement of W. A. Delaney, Jr., Ada, Okla. Statement of identification. He operates, and speaks, as an individual, not as a corporation, except in the natural-gas field. He is president of the Louisiana & Nevada Transit Co. Is actively interested in the conservation of oil and gas resources. "The seizure of the Suez Canal and its subsequent closure by military action, together with sabotage of pipelines in Syria, has created a condition without parallel in the oil industry. * * Believes the domestic industry "has performed creditably since the Suez Canal was closed." However, "inability to produce more oil in the United States stems from both its unavailability and from what may have been an overoptimistic appraisal of the productive capacity of the industry." "The reserves of west Texas and New Mexico, in large part, might just as well be located in Iran as far as their availability at needed points of delivery is concerned So much reliance has been placed on imports that the domestic transportation system is inadequate. The major pipelines servicing major producers in Oklahoma are controlled by major oil companies because no one else can build them. "*** the reason why a group of independents cannot get together and build an oil pipeline is that they lack terminal markets." These markets are largely controlled by the majors. Those who "supply those markets with foreign crude are thereby able to depress and restrain the construction of pipeline-transportation facilities by people who do not own large segments of terminal markets." Does not mean to imply this is the result of a conspiracy. situation does not obtain with regard to natural gas. This As imports have increased domestic reserves have decreased in comparison to demand. Due to the world pricing system, based on the gulf price, the cost of Mideast oil in New York City would be only slightly lower than that produced in the United States, even though Mideast production costs are far less. IV Page 880 881 883 884 885 886 889 890 891 If a scarcity of a product like oil is created "through the restriction of market demand, that will have the effect to maintain a price level in our country." As long as imports can be delivered at a lower cost the companies will bring them in. However, in his opinion the difference is not reflected in consumer prices "because the gallon of gasoline that is refined from a barrel of Texas crude or a barrel of Oklahoma crude or a barrel of Wyoming crude in New York sells for identically the same price as if it had been refined from a barrel of Venezuelan crude, Sumatran crude, or crude from the Middle East." International companies can maintain high profit margins because if price goes down on one thing it can be maintained or raised on another. Discussed production in Oklahoma and showed "some of the reasons why we are living off the fat of previously accumulated reserves." Record of court case involving Gulf Oil Corp. and the Oklahoma Corporation Commission together with the decision in the case discussed. If Gulf's position is sustained in the Supreme Court "that is the end of State regulation of the petroleum industry." It would mean that there would be no way in which "the marketable oil in any State having regulations could be put into interstate commerce against the will of the purchasing companies. Senator O'Mahoney asked if that meant that "every State which has oil reserves would therefore be dependent upon the ruling of the major corporations engaged in foreign commerce unless Congress should act." Mr. Delaney replied, "That would be true as far as the regulated States are concerned. * * *"' The Senator said the type of situation where buyers controlled the independents' market had prompted him a few days earlier "to warn the major oil companies that unless they adopt a completely fair attitude toward the independent producer and the independent refiner, the call for Federal regulation much more rigid than, perhaps, might be necessary, would have to be met." Mr. Delaney said he "would oppose with every ounce of ability that I have the establishment of any form of Federal control cast in the mold of such agencies as the Interstate Commerce Commission, the FCC or Federal Power Commission." Stated his reasons. One of them was lack of understanding on the part of the independents of the relief that is available to them through administrative procedures. Another is that many of them are afraid "to take a position before an administrative agency against one of these major companies because of fear of reprisals." If the do go before an administrative body, they are usually represented by counsel that cannot equal the resources of the major companies, so get beaten. "Now as far as the public is concerned, the problem of policing the oil industry with all its ramifications would make it utterly impossible, in my opinion, for any form of Federal regulation or control such as is applied by Interstate Commerce Commission to be effective." However, he believes "that by strengthening, if necessary, the Sherman Act and seeing to it that prosecutions are vigorously concluded under it against those who endanger the national security of the Nation or restrain the commerce of the country through importation of oil or any other commodity over and beyond the point necessary to meet the normal requirements of the country where they act simultaneously, should be subjects for investigation." Resumed discussion of crude production. Copy of the appearance sheet at the market-demand hearing held in Oklahoma City on December 27, 1956, for the purpose of fixing the allowable oil production for January 1957, inserted at this point in the record. Outlined for the committee the additional burdens imposed on an independent producer when the common purchaser doesn't take his oil. The purchasers, "in order to keep from assuming the obligation of a common purchaser under the law," require the producer to sell his oil to a trucking company and then agree to buy a certain amount from the trucker. "They are thereby enabled to control the amount of oil that you sell from your well by simply telling the trucker that they won't take more than X barrels next month, they are going to have to cut back on their field outlet." This is "fairly common practice." Page 991 892 "So when these people talk about the raise in the price of domestic crude oil Oklahoma independent producers have received, they do not know all the facts concerning what Oklahoma independent producers actually get, or what it costs them to get it." Some of the so-called independents are very large in comparison to Mr. Delaney. These companies could not establish a crude-oil price increase. 893 The independents benefited from the price increase instituted by Humble on January 3. When Humble increased the price of Oklahoma oil by 35 cents many companies followed suit. However, Standard of Indiana increased the price by only 25 cents and almost all companies have reduced their prices to the level established by them "because they are a very large purchasing and marketing concern in that area." Inasmuch as the price of Oklahoma crude had been reduced in 1956, the actual increase is even less than the 25 cents. 894 895 896 897 899 900 901 902 903 904 905 Discussed action taken by Gulf Oil Corp. against the Oklahoma Corporation Commission. Cited figures showing that in 1955 “the major companies of Oklahoma were responsible for 24 percent of the newly discovered reserves and independent producers were responsible for 76 percent." Costs of finding oil are much greater in the United States than in Venezuela or the Middle East. "It is utterly impossible for a nonintegrated producing company or an individual to meet the costs of American operations and successfully compete with international concerns under domestic market demand regulation.' The financial resources available to the large independents and the majors are not available to the regular independent companies. "If the independent oil producer has a place in the national economy, it is absolutely necessary that steps be immediately taken to provide a climate in which he can survive." There are two prices for oil in the industry. "The producer who has a pipeline connection to his lease receives the posted market price for his oil; whereas, his less fortunate counterpart who has not received a pipeline connection *** receives the posted price less from 20 cents to 50 cents per barrel in trucking charges which he must absorb." Prices paid for Venezuelan crudes have advanced more than those paid for Oklahoma crudes. "One of the unsolved questions in my mind which has arisen since the closure of the Suez Canal is the reason for the tremendous increase iu imported petroleum products which reached a maximum during the first 2 weeks of January 1957. * * *" Reserves of oil and products in storage in this country have risen. Tanker costs have more than doubled in the last year. Mr. Delaney sees no "logical reason why oil should first be transported from the Middle East to eastern seaboard points in the United States and then move from the United States to Britain." Believes a crude-oil pipeline to the east coast "is one of the crying needs that the Nation has, both from the standpoint of normal economic conditions and to meet the emergency conditions of any kind." Also believes it necessary to have crude-oil lines to the west coast. However, Texas oil could not be economically pipelined to the west coast unless there were a refinery there that would accept it. Is not attacking the majors just because of their size. He said: "I recognize the fact that we have got to, at all times, import reasonable amounts of foreign crude and to encourage and develop foreign reserves to supplement our own. But I have taken this position, that the larger a business concern is, the greater its public responsibility becomes and the higher standard of ethics and conduct it must have if it performs the function that its size places the duty upon it to perform." May have been justification for increasing price of Venezuelan crude, but cannot see any justification for great increase in tanker rates. The Oil and Gas Journal of January 21, 1957, has the following: "Value of foreign holdings to major oil companies is pointed up in recent figures on the source of the companies' earnings. Several firms bring in more money from abroad than they earn in the United States." Is not optimistic about "resumption of normal world commerce in Middle Eastern oil." Page 906 907 909 910 911 912 913 914 915 916 917 918 "*** Since we have at present no effective means of controlling imports of oil and since no regulation, either State or Federal, is being applied to the pricing of crude oil or marketing its products, a condition is brought about whereby those who control imports and markets, control the industry and may price their products as they please." In his opinion, "a short paragraph amending the Sherman Act to provide that any unified, concerted, or simultaneous act endangering the national security or imposing unreasonable restraint on trade or an unreasonable burden on interstate commerce, would have the effect to keep imports in line with national requirements as a supplement in domestic production and to prevent undue pressure in domestic market-demand determination." Suggestions for legislation inserted at this point in the record. "If self-executing legislation is not the answer, then I feel that a board or agency having the sole power and the duty to fix the market demand for and to determine the volume of imported oil necessary to supplement the domestic supply, should be established. ***” Letter from the president of the American Association of Oilwell Drilling Contractors to Representative John Jarman relative to drilling costs inserted at this point in the record. Thinks separation of international oil companies from control over pipelines and tankers would promote competition. Senator O'Mahoney said Mr. Delaney's presentation had led him to the conclusion "that the 15 giant corporations which make up the original members of the MEEC, having a selfish interest in the transportation of oil and the delivery of oil, have a conflict of interest when they undertake to manage for the Government the oil-lift program, and that the Government itself should be in complete charge, relying upon their cooperation." This is especially true since they are granted some immunity from antitrust laws. THURSDAY, FEBRUARY 28, 1957 Statement of James V. Cresente, executive secretary, the Cleveland Independent Gasoline Dealers Association, Inc., Cleveland, Ohio; accompanied by Joseph A. Thiel, attorney Statement of introduction. Is appearing to "protest this last increase in price that was forced on the public, on January 10." The members of his association are all retailers, no wholesalers. This price increase meant no increased profits for the retailers. Instead, "From January 1940 to October 1956, the dealer suffered a gradual loss of 2.94 percent of his gross profit on his regular gasoline. During the same period, his loss of profit margin for premium amounted to 4.18 percent." In the last 4 years "the oil companies received a 3-cent increase on the price of gasoline, and the dealers in our area have not received onetenth of a cent, the oil companies have taken it all." This pertains to other dealers in the Cleveland area, also. Twentyfive to thirty percent of the dealers are going out of business because they are not making any money. In Ohio "the retail price and the wholesale price is set by Standard Oil of Ohio. That is the basis of our complaint. We do not set the price." This retail price is set at the company-operated stations. The tank-wagon price is set when Sohio sells the gasoline to the independent dealers. Mr. Cresente agreed that Sohio is operating its stations at an uneconomically low price so as to drive independent dealers out of business. Mr. Cresente "would like to see Standard Oil of Ohio divorced from the company outlets-either get into the picture owning all the stations, or get out of the company-operated outlets-because they are in direct competition with their own dealers. They have forced these dealers to go along with the Standard Oil price, not only on gasoline but many times on TBA" (tires, batteries and accessories). Standard of Ohio is a partially integrated company. Page 919 920 921 922 923 924 925 926 927 930 931 932 933 The independent dealer cannot continue to exist under present conditions. He predicted "that within the next 5 years at least 20 to 25 percent of our dealers will go out of business because of labor alone. We must have margins to have more money to buy better labor." About 10 percent of Sohio's retail outlets are company owned, and "are spaced very strategically in every location to set and control the price in those areas." In his area "the jobber is given an extra 3 cents per gallon. And some of these jobbers do operate their own stations." This gives them an extra reduction in cost-an extra margin. In Cleveland the jobbers who own service stations do not operate them themselves, but lease them to other dealers. Only if they cannot get a dealer to operate the stations do they operate them. He assumes that Sohio sells to its own stations at the same price it sells to him. "It should be noted that the 1-cent increase per gallon by the Standard Oil Company of Ohio was immediately followed by all other suppliers in the Cleveland marketing area. This increase, of course, was on the tank-wagon price to dealers, which, of course, then reflected itself in the retail price, which again cut the gross profit percentage of the dealer." Felt this price increase was unnecessary. Although public sentiment is against the price increase, it has not resulted in less gasoline being sold because the business is not competitive, and the automobile owners must have the gasoline, no matter what the price. "Labor, today, is the largest single factor that decides whether the dealer will stay in business ***" Really good attendants are very scarce. Tables showing comparison of compensation between service-station attendants and factory workers inserted at this point in the record. The company-owned service station attendants are much better compensated than the employees of independent stations can be. Does not expect legislation that would limit the pay of labor but feels Sohio should not run filling stations in competition with its own dealers. Questions whether it is legal. Cannot get better workers until the station owner can obtain better margins of profit. The operators are frequently overworked. "Someone has to operate the station. But certainly short leases and narrow margins are not the inducements to entice better operators." "When we realize that gasoline supplies were in overabundance, it can be seen that the law of supply and demand would normally dictate a reduction in the cost of gasoline. I thus believe that it is self-evident that the recent increase had no economic justification, but was put into effect to enlarge the profits of the oil companies at the expense of the public." Newspaper releases showing that "Standard Oil Company of Ohio is the market leader" inserted at this point in the record. "The recent increase in the price of gasoline alone will cost Ohio consumers some $27 million per year Map showing "concentration of the company-operated stations" inserted at this point in the record. "I could discuss the overbuilding of service stations, the short-term leases, the pressure tactics, and other matters which deeply affect the livelihood of the independent dealer; however, they are merely more evidence of the dictatorial position of the oil companies." Thinks prices should be rolled back to level of January 2, the day before the recent price increase, and that Sohio should be divorced from company-operated stations. Is not condemning the whole oil industry, but "power in industry, as well as in Government, carries important responsibilities. If these responsibilities are abused then the power must revert to the people. This is our democratic form of government and the people are the ultimate judge in this country." |