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(The table referred to is here made a part of the record, as follows:)

TABLE 16

Wholesale prices on Dec. 6, 1941, compared with parity price level as determined

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Paper and pulp.

99.5

100.4

0.9

Rubber, crude.....

65.1

46.3

-18.8

Other miscellaneous.

98.5

92.7

-5.3

Mr. BROWN. I have two graphs that are premature in their development in that I did not get to them in time, but would like to show them to the committee, and then will draw a better graph and submit it if you desire it done. One indicates the price of crude petroleum 36 gravity Oklahoma and Kansas, which is taken as the ordinary average base. Beginning back in 1914 and from the time the first war started the price started up immediately and went to a very high price during 1920.

It was reduced drastically in the first part of 1921. Comparing that with other raw materials, we find that almost the exact trend was followed, and if you apply the 1919 to 1929 base it will strike an average not a great deal above the present and very greatly below the height it went to during the last war. I suspect the same result would be effective now with an assurance of a price that would bring about an established level and stable condition so far as petroleum is concerned.

I want to introduce in that connection a letter that was sent to one of the trade papers. I just received it from Mr. Harold L. Ickes, Petroleum Coordinator for National Defense. In it he discusses the general needs of the petroleum industry and points out the necessity of further exploratory work and other things necessary to be done. I would like to offer that for the record, if I may.

Senator BROWN. Yes. You may place it in the record.

(The letter referred to and submitted by the witness will be found at the conclusion of his statement.)

Mr. BROWN. The lack of a formula in this present price administration has caused a great deal of uncertainty. One of the purchasers of our crude petroleum has just recently put out a full statement showing his willingness to pay more for crude and showing his efforts to get the approval of it through the Price Administration. It is a comparatively short statement, and I would like permission to put it into the record.

Senator BROWN. It may be placed in the record.

(The document referred to and submitted by the witness will be found at the conclusion of his statement.)

Mr. BROWN. As an indication, further, of the need of a formula, the Price Administrator, in response to that letter, gave out a statement on October 10 that he was making a study of price conditions in cooperation with the Petroleum Coordinator. So we looked to that for relief, and then we find that on December 7 there was another statement in which he says that he is cooperating with the Tariff Commission in a study. In other words, there are two separate agencies, neither one of which is available to us, to determine what chance we have of getting an understanding of our price situation. Any price that does not take into consideration the necessity for exploratory work for more oil will not get the new reserves that the folks in the Government think are necessary. It is not a lack of interest; it is not a matter of striking. That is not the point at all. It is just that the exploratory man cannot get the money because the pay-out is so long on the low prices that the banks cannot afford to loan the money.

So, that phase of it I would like the committee to consider. The only formula that I have found so far that suggests possibilities is that indicated by the 1919 to 1929 base.

Senator TAFT. Mr. Brown, do you think these prices should be fixed by an administrator or by a board?

Mr. BROWN. I think it would be a terrible mistake to leave it to one administrator. I state that from experience. We find that subconsciously, instead of having a forum before which we present the price question, we go in and have a forum against which

Senator TAFT (interposing). You get into an argument with the Administrator instead of making a presentation?

Mr. BROWN. That is it, exactly. For that reason I think it would be a mistake.

Thank you.

(The documents referred to and submitted by the witness are here printed in full as follows:)

Mr. RAY L. DUDLEY,

Publisher, The Oil Weekly, Houston, Tex.

DECEMBER 9, 1941.

MY DEAR MR. DUDLEY: It is a pleasure to answer your friendly and encouraging letter of November 12 in the same spirit in which it was written. I want you to know that as long as I am Petroleum Coordinator I will always welcome frank inquiries and helpful suggestions of the type contained in your letter. I want to thank you, too, for the pledge of cooperation by the Oil Weekly. In return, I hope that you and the petroleum industry will always find the Office of the Petroleum Coordinator more than willing to meet you halfway in mutual cooperation.

The specific questions asked in your letter are of great importance to the petroleum industry and to those military and civilian consumers who depend upon oil. I know you will be interested to learn that the questions you ask were among the first that I asked of members of my staff, and placing ourselves in a position to answer those questions has occupied a large part of the time of this office and of the various petroleum-industry committees. Your letter arrives while the data necessary to the answers are being assembled and I am glad at this time not only to agree with you that it is high time that these questions are answered, but also to offer preliminary answers to some of the questions.

As your letter suggests, I do know something about the difficulties of curtailing the nondefense use of petroleum products in such a way as not to impair civilian morale, and it is my earnest hope that the demands of this emergency will not increase to the point where the productive facilities of the petroleum industry might prove incapable of meeting both defense demands and civilian requirements.

You ask, "Isn't it high time to find out just how much additional oil can be produced without adversely affecting ultimate recovery, simply by 'opening the valves'? Isn't it time to find out where this oil can be produced?"

This is one of the questions that for months has been receiving the attention of my staff and the district production committees, and it is becoming clear that the extra productivity of this country is centered chiefly in those districts that have consistently practiced conservation. Those fields which have been giving their all in the interests of short-term pay cuts and quick profits now have little to offer our defense program except requests for material and equipment with which to salvage part of the oil which their past practices have rendered difficult to produce when it is needed.

I am intensely and vitally interested in the quantity of oil that our oil fields can efficiently produce 2 years from now, after having produced at not less than those rates during the interim, rather than in what these fields can produce this month. We know where we stand. We can only guess what to expect. Consequently, each flush or semiflush field must be operated so as to yield, under proper conservation practices, the full production which it can supply throughout the emergency. Otherwise, we would have to call upon the geologists and wildcatters for accomplishments which might prove impossible and, at the same time, require an excessive use of critical materials.

You realize, of course, that much of the unconcern with which the public and many officials view the plight of the petroleum industry in its clamor for materials and supplies is due to a widespread belief, industry-nurtured, that the petroleum industry could, without qualification, meet any possible demand upon it. Such are the fruits of the bountiful "potential" trees which have thrived vigorously in many States. Because the petroleum industry has been "oversold" to the public you will appreciate the desirability of a gradual rather than an abrupt correction, lest the reaction be as harmful as the action itself. For this reason, it is hoped that the regulatory bodies of the various oil-producing States may review and modify, if not abandon, the use and application of the term "potential" in its present numerous fallacious connotations, most of which have no reasonable relation to the ultimate yield of a property or field.

The most difficult question you ask is, "Isn't it time to present the industry with some concrete figures as to what will be expected of it in the way of daily production of crude oil and to find out how much drilling will be necessary to do this and to place the crude reserves at a desirable figure?" This can be answered only by preliminary, tentative estimates which doubtless will have to be revised periodically.

The quantity of crude oil required by our own defense effort and by our world-wide obligations is unpredictable because of its dependence upon military successes and failures. The petroleum industry therefore must always remain "at the ready" to give its utmost. I need only remind you that the Bureau of Mines estimate of the December 1941 demand for crude oil is 4,139,000 barrels daily, a truly astounding figure, which is an increase of 17 percent over the December 1940 demand of 3,562,500 barrels daily. A similar percentage increase, should it occur, would bring December 1942 demand to a point which is beyond the capacity of our presently known oil fields to produce on a sustained efficient basis. Although your question did not include an inquiry as to whether we could transport and refine such a quantity of crude oil, that, too, is a very grave problem.

My expressed concern over the petroleum reserves of this Nation has been pointed toward a time when we will have exhausted our resources in advance of the rest of the world and, therefore, will have to depend upon costly substitutes or look to imports to fulfill our requirements. Although the time must inevitably come when year after year the production of crude oil will exceed the new reserves discovered, as is now the case with the depleted States of the Appalachian area, I do not believe that such a time has yet come for the United States as a whole. Every year in which our discoveries of oil are less than the amount produced finds our task of regaining position much more difficult. This task of maintaining known reserves at a desirable ratio to current annual rate of consumption now is doubly difficult because the more and more elusive reserves must be found in even greater volume to attempt a maintenance of the reserveconsumption ratio in the face of a skyrocketing increase in crude oil demand.

This task will continue long after the present emergency has passed. If our sustained productivity is allowed to diminish because of the demands for defense, we will have even more serious problems confronting us during the post-war reconstruction period. Then, as now, we will face the necessity of operating our fields at the rate of maximum efficiency while continuing to bring into sight additional reserves to meet equally important demands.

With respect to the volume of drilling probably required in the future, no precise answer can be given. The recent rate of drilling activity approximates 30,000 wells annually and, if they continue to show the productivity witnessed in the recent past, that might suffice for both the necessary amount of daily production and proving up sufficient available reserves, although it is possible that 15,000 above-average wells would suffice, or, if below average, 45,000 wells might be necessary. We must remember too that 1942 drilling must also prove sufficient additional areas for 1943 drilling.

Your next question. "Then, when the amount of necessary drilling has been calculated, isn't it time to get busy in a big way and see to it that the industry has the necessary supplies with which to do the job?" enables me to say that I sincerely believe we are "busy in a big way" in helping the petroleum industry get the tools it needs to do the job. A considerable portion of the staff of this office is kept very busy in its duty of acting as an end product commodity section for the Office of Production Management. Through the Materials Section of this office are cleared expeditiously and efficiently the multitude of applications for preference rating which require appraisal and recommendation by this office before consideration and action by the Office of Production Management. We have been engaged continuously in the task of improving and expediting this process, and we intend to keep at it.

In addition to this service to the petroleum industry, this office has specifically requested the Supply Priorities and Allocation Board to allot the petroleum industry 5,400,000 tons of steci and other materials to meet its needs for 1942. You will note that it is expected that oil will cost about 7 pounds of steel per barrel in 1942. If less than the requested quantity of steel is allocated in 1942, the industry will nevertheless be expected to do all that is required of it. This will mean the drilling of fewer but better wells and the construction of fewer but more efficient pipe lines and refineries. In connection with our efforts to get the most oil for each pound of steel, we find that the most difficult part of the job is to make people realize that this emergency really affects them. Too many people in the oil business are still trying to conduct business as usual, particularly in the producing and refining divisions.

The suggestion you offer when you ask, "Isn't it time to determine whether or not the crude stocks of the country are at their proper level-at their proper level at the proper points?" is now in the hands of the district industry committees for consideration and recommendation. Our preliminary studies, as well as the opinions of those who actually hold the petroleum stocks, have convinced us that aboveground stocks of petroleum, line underground reserves, are too low in proportion to current demand. These studies also make it apparent that different districts have different stock requirements as expressed in terms of "days' supply." An early report is expected from the district committees, and an announcement will be made immediately thereafter. In the meantime, you will note that the production which will result from the forecast of December demand will likely interrupt the steady shrinkage of present stocks. In this connection it is evident that although the consumed stocks may have come from many States, only a few States will be able to assist in replenishing those stocks.

As your last question you propound, "If there is physical waste in the oil industry which can be cured during this emergency, why not tell the industry specifically where such waste is occurring?" You know, as I do, that whenever an unnecessary well is drilled, an unnecessary pipe line or refinery constructed, there is actual physical waste of the irrecoverable materials that go into such drilling or such construction. Unnecessary wells are perhaps the worst offenders, because, as experience has amply demonstrated time and again, in addition to the amount of steel that is permanently lost when casing is cemented in such wells, their existence almost inevitably leads to inefficient operation of fields at excessive rates of production, with attendant underground loss of recoverable oil. I realize, also, that the waste of a commodity is frequently inversely proportional to its value, which fact may account for the continuing waste of large volumes of natural gas in some areas, the value of which for increasing oil recovery may not yet be fully appreciated.

I am glad to note that during the past 10 years the actual physical waste of oil resulting from inefficient development and production operations has declined steadily as the industry in general, but with some notable exceptions, has become more aware of its responsibilities. Although possibly not actually permanently lost or destroyed, the quantities of oil that inefficient production practices are continuing to leave underground in several States and areas must be considered lost or wasted, until much higher prices for petroleum warrant the application of expensive secondary recovery methods.

You ask for an assignment for the petroleum industry. I have indicated the scope of such an assignment in the foregoing paragraphs, but to recapitulate, here is what is expected of the petroleum industry:

1. Produce at least 1,500,000,000 barrels of crude oil during 1942, if that quantity can be supplied without impairing the ability to sustain the necessary production during the emergency.

2. Drill a sufficient number of wells, efficiently spaced, to furnish that amount of oil next year and to prove up sufficient reserves to furnish at least that amount during the following year.

3. Operate all wells so as to conserve reservoir pressure to the end that the greatest practicable ultimate recovery will be attained at the lowest possible cost, with minimum expenditures required to provide artificial energy to effect production.

4. Conduct an exploration campaign that will result in the discovery of new supplies adequate to maintain a comfortable ratio between reserves and current annual consumption.

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