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Has no recollection of having discussed what competitors would do
about price rise. 793 It is a common practice in the industry to notify the trade and the
public when a price change is made.
Even though other companies may institute price increases they do
not always institute an equal amount. 795 "Chronological record of dates on which various companies put into
effect crude oil price changes subsequent to Humble's increase effective January 3, 1957,” inserted at this point in the record.
Opinion in the industry was general that a price increase was needed.
If a big company like Humble had absorbed the price increase in its refining operations without increasing the cost of gasoline, the small refiner would have been put out of business, as he could not have afforded
the absorption. 799 Senator Barrett said the industry had absorbed some increases, and it
was "inevitable" the prices had to go up.
Humble is the largest domestic producer of crude oil, with a stockholders' investment of over $1 billion. Has large reserves of both oil
Mr. Baker contended that in spite of improvements “in technology and notwithstanding higher investments, our unit costs are going up,
Although earnings and dividends have been going up, the rise has not been "in proportion to our increase in investment."
The capital used for investment over a 5-year period was taken out of
earnings except for some money borrowed for the pipeline company. 805 Net earnings for 1956 were $179 million. "Depletion allowance was
taken into account in the determination of our tax, and our tax was paid before net earnings was computed.” Total revenue was $1,079,
888,000. 806 If a dry hole is drilled it “is an expense that is written off. It is not capitalized * * *
The depletion allowance is taken out before determining net income.
The price rise was instituted to help increase oil supply, but more important was obtaining more return on the investment.
Even though oil prices increased about 120 percent from 1945 to 1947, return on the investment still was not high.
However, from the 1947 period to present there have been only two general increases in the price of crude oil, while other costs rose disproportionately.
Technological improvements have led to better refining and producing operations. Although labor productivity may have increased, “the productivity factor is made up, not alone of labor's contribution, but to the heavy capital investments that are made."
Cited for the record some figures on labor costs.
Made the point that “the price of gasoline has not gone up proportionate with these other costs, and that a laborer, a worker, can buy more gasoline now than he has ever been able to buy in his life on the compensation he gets for an hour's work."
Agreed with Senator O'Mahoney's proposition “that more benefits are obtained by any industry that produces a commodity for mass distribution by having a mass purchasing power among the workers.”
Senator O'Mahoney. “So those who contend, or seem to try to contend, that the responsibility for these increased prices must lie at the door of labor are overlooking the fact that when industry increases the wages and the working conditions of labor, industry is increasing and broadening its own market?"
Mr. Baker. “It can only do that within the limits of its ability to earn such returns as enable it to continue to produce the goods that are needed."
Humble buys more crude from sources other than its own than any other company in Texas. In 1956 their capital investments in production came to about $126 million, for dry holes and exploration about $96 million.
They import no oil. Are not against importation of oil, only excessive importation. 90507–57–pt. 1
Even if the European shortage were to continue for 6 or 8 months more, sees no "reason why the American petroleum industry could not supply that deficit.”
"With present allowable, production in the various States now, and with changes in refinery yields that have been made and changes in refinery runs that have been made to adjust this situation, I would think that we are not in any serious situation today, nor will we be for the next short period, in meeting the needs of Europe.”
Is not too familiar with Latin American imports, but believes "for the most part, those imports were fuel oil, which were needed in this country because we do not make enough fuel oil in this country to meet our fuel oil needs. But the importation of Latin American oils has been a little higher than was anticipated for this period.”
Is his understanding that "some" of the Latin American imports have been diverted to Europe.
It is Mr. Baker's personal belief “that we do not need, as an ordinary procedure in this country, exemptions from the antitrust laws.” However, he felt unqualified to comment on the specific case of the exemptions granted MEEC companies.
Senator O'Mahoney had been surprised to find that during the hearings on bills to amend and extend the Defense Production Act in 1955 the Office of Defense Mobilization had proposed that the President be allowed to extend the exemption from the antitrust laws for up to 20 years.
Standard of New Jersey acquired 50 percent of Humble's stock in 1919. They have continued to increase their holdings until they now own 87 percent.
Humble's earnings, out of which dividends are paid, are not highthey are now “lower than the earnings for the average corporation engaged in manufacturing, which is a much less risky enterprise than the one in which we are engaged."
Senator Carroll's reason for raising the question of Standard's stock ownership and the dividends paid by Humble was only to show Humble's economic and financial strength and the impact its actions have on the economy.
Mr. Baker felt that if Humble had not raised the price of crude, some other company would have. Plowing back of profits is necessary to maintain the country's supplies.
Even though the price increase did not immediately stimulate production, it does do so over a period of time.
The price increase varied according to relative value of the crude. Sees no further price increase in the immediate future.
Senator O'Mahoney read from a document dated December 12, 1956, entitled “Possible Changes in Humble's Financial Outlook” which was subpenaed from Standard of New Jersey. Showed how Humble's net income would be raised by price increases and increased output. The document also stated, “If increases in volume and in the price of crude are both assumed, Humble might be in a position to deposit with Jersey a sum on the order of $28 million."
Mr. Baker said he had never seen the document before. “I don't
A. N. Lilley, vice president
Said he wanted “to state emphatically that The Texas Co. has neither participated with any other person or company nor does it know of any combined, coordinated, or other effort within the petroleum industry to fix, control, or in any way adjust petroleum prices." Feels the "recent price increases are fair, reasonable, fully justified, and required for a progressive and economically healthy petroleum industry.”
It is the only company that markets in all 48 States. Cost of finding and producing oil has been increasing steadily. Cited “four major reasons for this."
Page 837 "The higher postings made in January 1957 were a reflection of com
petitive conditions and took account of quality and transportation as well as cost factors. It should be emphasized that these adjustments
began well before Suez." 839
It requires more people to run an oil rig in the Middle East than in the United States.
Senator Kefauver asked if they would not have improved competition by not raising prices as much as the others—he "always thought the best way to meet competition was to lower your price." Mr. Foley said it "works both ways.” Sometimes they raise prices as much as others, sometimes not.
Does not know how much this price increase will increase profits as he doesn't know whether the product price rise will hold.
Have had to increase prices in Europe “because of the higher freight rates and other factors," but does not know exactly how much.
The Texas Company increased the rate of return after taxes from 15.5 percent in 1954 to 16.5 in 1955. This reflects foreign as well as domestic investment.
Posted their crude price increase on January 7, retroactive to January
3. 840 Senator O'Mahoney asked why, with all the inflationary effects on the
business, that Texas didn't act until after Humble raised posted prices. Said, “You were not watching as competitors to keep under your competitors' prices but to be on the same level up with them.”
Mr. Foley replied that if they had “failed to meet the crude price change, and I assure you we felt that it was certainly due, had we failed to increase the price of crude, we would soon have found oursleves without sufficient crude to run into our refineries." They buy some crude and sell some crude.
Inflation caused price increase, but Senator O'Mahoney asked if it compelled him “to raise the prices of the products all the way down the
Mr. Foley siad if they continued to pay more for crude without raising product prices whey would "be popular, perhaps, for a short period of time, but our popularity would soon be eliminated by the elimination of us as marketers of petroleum products."
They do not instruct service stations as to what price they should sell; only post tank wagon prices in the bulk plants. The prices to the bulk consignees vary widely.
The consignees sell at Texas' posted tank wagon price. Texas "raised the price of gasoline immediately where competition raised it."
Dealers within a city or specific area will charge different prices for gasoline.
There was no windfall profit when the price was increased on gasoline stocks on hand as the supplies had to be replenished at increased cost.
If they drill a dry hole it is charged to operating expenses-depletion
allowance is available only after crude is sold. 862 Texas has "about 40 directly owned subsidiaries and affiliates at the
present time.” This changes from time to time. The Texas Co. is
Discussed with Mr. Lilley subsidiaries and affiliates operating in the
Mr. Lilley said The Texas Co. operates “only through affiliated companies in Europe. There is very little direct operation that I can identify."
Statement by A. N. Lilley, vice president and director of The Texas Co., in charge of its Eastern Hemisphere operations, inserted at this point in the record. Mr. Lilley is also the company representative on
the Middle East Emergency Committee. 863 Texas net worth supplied for the record.
Mr. Foley said California does not have sufficient crude supplies to meet west coast demand, so it is being piped in from Canada and brought in from overseas by tanker. They have made no attempt to tap reserves in Texas and New Mexico for west coast consumption.
Mr. Lilley explained some of the arrangements made pursuant to the Plan of Action which enabled them to divert tankers to Western Europe.
Did not advise MEEC of these arrangements because they were not activated at that time.
Explained why they still import Caribbean crude into the United States instead of shipping directly to Europe.
Shipping arrangements of two companies would be worked out between the companies not through MEEC.
EMERGENCY OIL LIFT PROGRAM AND RELATED
TUESDAY, FEBRUARY 5, 1957
UNITED STATES SENATE,
SUBCOMMITTEE ON PUBLIC LANDS, OF THE
Washington, D. C. The subcommittees met, pursuant to notice, at 10 a. m., in the Caucus Room, Senate Office Building, Senator Joseph C. O'Mahoney presiding.
Present: Senators Kefauver (chairman of the Subcommittee on Antitrust and Monopoly), O'Mahoney, Neely, 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), Anderson, Bible, Carroll, Malone, Dworshak, Barrett, and Allott, of the Subcommittee on Public Lands of the Committee on Interior and Insular Affairs. Committee and subcommittee staff members present: Donald P. McHugh, co-counsel, Antitrust; James De Maras, Jr., research consultant, Public Lands; Gareth M. Neville, assistant counsel, Antirust; 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; Wilbur Sparks, attorney, Antitrust; George Clifford, attorney, Antitrust.
Also present: Harold J. Boynton, chief counsel, Senate Interstate and Foreign Commerce Committee; James E. Bailey, assistant chief counsel
, Senate Interstate and Foreign Commerce Committee; Robert líurphy, professional staff member, Senate Interstate and Foreign Commerce Committee; and Steward French, chief counsel, Committee on Interior and Insular Affairs.
Senator O'MAHONEY. The committee will please come to order, or I should say, committees, because both the Committee on Interior and Insular Affairs and the Committee on Interstate and Foreign Commerce have jurisdiction as well as the Antitrust and Monopoly Subcommittee, and they are all represented here.
May I say that we have present this morning Assistant Secretary of the Interior in Charge of Mineral Resources, Felix E. Wormser. Secretary Seaton, who was to have been here at the opening, was absent in Alaska at the time that the date of this hearing was announced, and his return to Washington, which was expected yesterday, did not give