only such amounts of oil should be imported into this country as is absolutely necessary to augment our domestic production when it is produced under conditions consonant with good conservation practices. The Senate has had a special committee studying for a long period of time the question of a national petroleum policy. They filed their report recently. I will refer only to a portion of that report, which is a quote from their final report: This Nation now faces two alternatives: Either (1) to await with hope the discovery of sufficient petroleum within our boundaries that the military require ments of the future will occasion no concern, and in the meantime to depend upon foreign oil and trust that war will not cut off our imports; or (2) to take steps to guarantee a domestic petroleum supply adequate for all eventualities by means of: (a) Incentives to promote the search for new deposits of petroleum within the boundaries of the United States and in the Continental Shelf; and (b) The continuation of the present program looking to the manufacture of synthetic liquid fuels to supplement our domestic crude supply. This hearing is of particular importance to us because petroleum is essential to our national defense. It is essential, of course, to those of us who produce it, to our own welfare; but it has, we think, a far greater import than just what our safety and our own comfort is. We feel that the attitude on importation will be controlled by the peculiar situation with relation to petroleum, by the policy of the Government as pronounced by Congress, more than by any fixed limitation through dollar tariffs or taxes. We say that because practically all of the oil we import will be imported by companies resident in the United States, but who have foreign holdings. In the year 1932 when we were threatened with a pretty serious condition with relation to the importation of oil, the Congress did make a pronouncement in the form of a tax on importation, not a tariff but a tax on the importation of oil. As a result of that we enjoyed a rather fixed basis of importation for a long period of time and during which time, in spite of the fact that other elements tended to give us some difficulties, we did build up a fine reserve of oil that was available and was actually used during the recent war. However, in 1939, without authority of Congress, we think, and contrary to the expression at the time of the passage of the trade agreement, the State Department determined to make a trade agreement with relation to petroleum. As a result of that agreement, they reduced the import tax on crude petroleum and fuel oil by 50 percent. In other words, crude petroleum and fuel oil had a 21-cent tax on it, or a half cent a gallon; and they reduced it to a quarter of a cent a gallon, or 1012 cents a barrel. At that time no reduction was made on gasoline or kerosene. At the same time a quota was fixed above which the old rate of tax would take effect. However, later we made an agreement with Mexico where they reduced kerosene and also, at the same time, removed the quotas on that. The effect that that had was a pronouncement of policy of our Government toward the importation of oil. At the time we make these agreements, the most favored-nation clauses have given to any and all countries the benefit of the reduc tions. The thing that concerns us immediately now is that we are faced with a proposal to reduce the tax rate on petroleum products still more at the Geneva Conference. Should that take effect, we will be endangered by it because prior to the present war there was not sufficient refinery capacity outside of the United States for the refined products to threaten us very greatly. During the war and subsequent to the war, we have done a great deal of work in building up our refinery capacities throughout the world, so that now the threat of imports of refined products is of equal consequence to the threat of import of crude petroleum. We think that a trade agreement with relation to petroleum violates every principle that has been pronounced here before your committee by the State Department. First they refer to the fact they do not want customarily to make a trade agreement where there is a domestic supply adequate to meet the requirements of our country. At the time of making the Venezuelan agreement and the Mexican agreement, we were producing far in excess of our requirements, and were exporting a large amount of oil; and we have continued to be able to produce. We have expanded our production to furnish and make available for those countries who fought with us during the war a large part of their supply of oil. The further statement was made by Mr. Clayton, I believe, that the unit cost of producing products in the United States was cheaper than that of the other countries. I think he must have been thinking and referring to manufactured products, because that certainly is not true with relation to the raw materials and is particularly not true with relation to crude petroleum. For instance, the production in foreign countries, is under grants from the governments where the leases are in large volume. Their wells are capable of producing a great deal more than our wells. The Texas field, our greatest field, has at least 24,000 wells in it. One of the British oil experts made a statement recently in which he said in one field in the middle east, 24 wells produced half as much oil as our entire 24,000 wells in this Texas field produced, which gives you an illustration of the fact that the theory that the unit cost is cheaper here than abroad does not apply with relation to petroleum. What has been the effect of the trade agreement that has been executed with relation to petroleum? As I stated, in 1939, which was when the first agreement was made, we were producing more than we consumed. For the period of 1935 to 1939, our net exports were 311,000 barrels a day. For the last 3 months of 1946, we changed from a net exporting nation to a net importing nation, and our net imports were 21,000 barrels per day. So we had a loss in the market with a domestic production of 332,000 barrels a day. That trend has increased instead of decreased. During that period of time the price on our domestic oil was held down and is capable of being held down. Five companies plus two who joined up with them, one British and one British and Dutch company, control about 90 percent of the oil outside the United States. They also purchase a large supply of their oil in the United States that they distribute here. You can see how easy it is for them to affect the price the domestic producer will receive by the fact they control the imports, and that has had a very serious effect on our activities. I think probably the most serious effect has been due to the fact that he State Department, in order to justify the mistake they made first, are constantly talking down the domestic industry. What they have done has probably caused us more harm from a constant hammering at the fact that the domestic industry is impotent and that we should send our steel and send our materials abroad, to the end that the domestic industry has been denied much of the essential materials. In other words, they have their money on the Arabian horse. They play down the American horse constantly. I can use this illustration, taking 1939. I am giving you these figures because they do come from the Bureau of Internal Revenue and are, therefore, official. In 1939 the corporations engaged exclusively in the production of oil and gas in the United States were 5,974. That of course means the corporations who made income-tax returns to the Bureau. In 1944, which was the last year for which we had published figures from that source, there were 3,802, a reduction, as you will see, of about 2,100 corporations. Our investigations have indicated to us that the individuals and partnerships in the industry have been affected in very much the same way. The independents have historically been the explorers for our oil and have found most of the oil in the United States. The figures have been presented and never denied that they have found 72 percent of the new oil in the United States. At the same time that we have lost those companies, the importing companies, the five principal companies to which I referred, have increased their share of the domestic production better than 5 percent in the over-all. Other large companies have also increased. So, the production in the United States that was formerly enjoyed very greatly by the independent and smaller companies has been very greatly reduced, and consequently percentagewise the large companies have enjoyed a much greater supply of oil. The effect of the independents going out of business and the effect of steel shortages as a result of an effort to build up the foreign oil market has had a decided result on the safety of our market from a reserve petroleum standpoint. In other words, foreign uses for steel have gone up so rapidly and so greatly, we are today exporting about 23 percent of the oil well and oil field equipment steel. That has gone up, as I say, by an effort to build up and support the operations abroad. I am not trying to give you all of the details of this, so that I may present it to you quickly. Here is a quotation from the Journal of Commerce of Monday. April 21, in which they refer to oil plants abroad, to expand output. Mr. REED. I am sorry to interrupt you at this point. I am keen to discuss some of these problems with you. Do you recall an address delivered by Ralph T. Zook, president of the Independent Petroleum Association of America, at Los Angeles, Calif., on February 6, 1945? Mr. BROWN. Yes, I do. Mr. REED. Do you agree with most of the statements he made? Mr. BROWN. I read that very carefully. In fact, I read it a number of times, because I had a number of questions with regard to it. I agreed fully with that statement at that time. Mr. REED. Do you have any objection if I would insert that address in the record at the end of your testimony? Mr. BROWN, I would appreciate it very greatly. Mr. REED. It would save my asking a lot of questions, because it goes into all this foreign development they talk about in billions of oil reserves over there. Mr. BROWN. Billions of barrels. That is quite true. Mr. REED. I ask permission at the conclusion to insert it in the record. Mr. BROWN. I would be very glad to have that in the record. Mr. BROWN. As an illustration and for the purpose of showing we have been faced with this, I refer to a headline in the New York Times of April 23, which reads: Acheson Insists Russia Gets Goods. Renews Plea That Congress Pass and Make It Possible the Delivery of More Goods to Russia. In support of that steel question, I further call your attention to a statement I have on the exports of steel casing and oil pipe line. In 1935 we were exporting 4 percent of our production. In 1945, the last full year I have figures for, we were exporting 23 percent. On seamless well pipes, which is the thing we are short on today throughout the United States, in 1945 we exported 256,770 short tons. I call that to your attention because yesterday I saw this headline in the Washington Daily News, and this is a thing that the entire Congress might well be concerned with, as well as each and every one of us in the United States: Nation Faces Oil Crisis This Fall. I will read only three paragraphs: The Nation is threatened with a petroleum products shortage next winter that could cripple the fleet, immobilize some United States military forces abroad, and leave large areas short of fuel oil and natural gas, according to National Petroleum Council. Max W. Ball, Director of the Interior Department's Gas and Oil Division, revealed the situation yesterday following a closed meeting of the petroleum council. Mr. Ball blamed the shortage on a lack of steel pipe and tank cars, coupled with a greater petroleum consumption rate than at the World War II peak. He said experts advised him that the demand for petroleum products would eventually exceed supply unless there was a depression. That, gentlemen, is getting to the point where it may not only affect the safety of the United States, but may affect our individual comforts during the coming winter. Mr. REED. In the month of August, we exported an amount of steel that would have been sufficient to have built 2,500 of these steel cars. That was the month of August alone. Mr. BROWN. There is a very serious shortage of steel cars to transport. That is particularly true wtih liquid petroleum gases. That requires a heavy pressure steel car and is more and more being used in the homes for cooking and for comfort throughout. We are faced with a very serious shortage on that. I will not read all these figures, but I will read enough to call your attention to the fact that shortage of steel and the depressed condition. and the loss of independence in the industry will affect us. The individual producer has to plan his oil-reserve program a long time ahead. First, it takes a long time to block up the leases. You have the scientific work, you have to locate the oil, then you have to get the lease and block up the acreage. From the time he gets his first machine and his first production, it takes normally about 3 years. Then he has to plan to get his money back over a very long period of time under present production, where we find we must produce it more slowly in order to avoid waste. So it is important that we continue our efforts to find oil. I think the best measure we have is our wildcat effort. The wildcat well is a well drilled out in the area where there has not heretofore been production. It is indicated by the number of dry holes. For the years 1925 to 1929, for every million barrels of oil produced, we drilled 8.6 dry holes. During the depression period, 1930 to 1934, we drilled 4.9. We had to quit going out beyond and had to stay closer inside. Then during the prewar period, when we felt the necessity of going out again and going as far as we could, we drilled 5.3 dry holes for each million barrels produced. In the years 1942-45, the war years, we drilled 4.3 and we are now, based on 1946, drilling 4.9 dry holes per million barrels of oil. Taking another measure of our effort-the number of new oil wells drilled per million barrels in 1925 to 1929-we drilled 17.9 wells for every million barrels we produced. In the depression period of 1930 to 1934, we drilled 11.6 wells. In the prewar period of 1935 to 1941, we drilled 15.5. During the war, we drilled only 7.7. For the year 1946, we have gone back a little more and drilled 9.2. That is your new implements of production. That is the new wells per million barrels produced, which shows that during the war we drilled only half as many as we did immediately prior to the war. Now we are drilling only about two-thirds as many as we did prior to the war. That is the new plants through which we get production, and that will indicate that eventually if we do not implement this and get back to work we will suffer serious consequences as a result of loss of reserves. Another measure that might be taken is the footage, the oil found for the footage drilled. That is most important. I want to read this one. These are the total additions to proven reserves. A lot of people tell you we are not finding oil now because it is so much more difficult to find. I have offered these other figures for the purpose of showing you that it is a lack of effort. For the effort extended, let us see what results we are getting: The total additions to proven reserves averaged 26.9 barrels for every foot drilled in the 1925-29 period. During the depression it fell off because we were drilling inside. We found 14.2: From 1935 to 1941 we found 25.6, and today we are finding 28.3 barrels of new reserves for every foot |