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5. Maintain surface stocks of crude oil at adequate levels with respect to refinery requirements for the various grades and qualities of products as well as stocks of the products sufficient to protect against any unusual demand that may arise.

6. Make the most efficient use possible of the limited supplies of material and equipment to meet the demand upon all branches of the industry-finding, producing, refining, transporting, and marketing.

I want to thank you again for your concise letter, raising such important questions. I hope that you find my answers helpful and indicative of the extensive studies which we have been prosecuting for months, with the able assistance of the experienced oil men now serving on our district committees for national defense. And now may I look to you, and other members of the petroleum press, to keep your readers fully informed of our activities so that we may have their cooperation and support as well as yours?

Sincerely yours,

HAROLD L. ICKES.

Petroleum Coordinator for National Defense.

STATEMENT BY FRANK PHILLIPS, CHAIRMAN OF PHILLIPS PETROLEUM CO.

The Phillips Petroleum Co. has submitted to the Office of Petroleum Coordinator and the Office of Price Administration a proposal to increase the price of crude oil 25 cents a barrel on October 15, 1941.

We called upon the Office of Price Administration about July 15, 1941, and advised them of our views and suggested that early action should be taken to increase the price for crude petroleum. They suggested that we delay any price increase for a period of 90 days. The company gladly acceded to this request and the 90-day period has almost expired.

On October 7, the company submitted to the Petroleum Coordinator the following proposal and asked that the Coordinator transmit it to the Office of Price Administration with the request that it have their early attention:

"MEMORANDUM ON THE PRICE OF CRUDE PETROLEUM

"The United States is approaching a shortage of crude oil and of petroleum products because of the decrease in discovery of new reserves. This is in spite of the fact that we have abundant potential supplies of petroleum which can be made available to meet our unprecedented demand if there is an adequate price.

"The demand for crude oil is now 20 percent larger than in 1937 and 10 percent above 1940 and is steadily rising. Meanwhile the annual rate of discovery has fallen 60 percent since 1937. In addition to the increasing demand, each barrel is relatively more important because of the present national emergency. Obviously, therefore, the discoveries of new reserves should be increasing. It is equally obvious that the large known reserves under wells of settled production should be protected. Instead, these wells are facing abandonment because of greatly increased costs and shortages of steel and equipment.

"An adequate and assured reserve supply of petroleum is the Nation's primary and fundamental concern. This is true in times of peace and increasingly important in wartimes. Because price controls exploratory effort and because price determines the economic life of small wells of settled production, it is the most important single factor affecting the Nation's reserve supply.

"We have now reached a stage in the petroleum industry where normally the price of crude petroleum would have advanced and exploratory work would have increased. Under present price restraints, however, we face an election of courses. Low prices may be forced on the industry for a time. This will eventually involve the necessity of abnormally high prices as a result of an actual shortage of supply. If reasonable prices are permitted now with an assurance that there will be proper price adjustments, exploratory work will be encouraged and there will be an assurance of plenty and a reasonable price. "In conclusion, the price of crude oil should be increased immediately for the following reasons:

"(1) The declining rate of discovery must be revised. The stimulating effect of price on exploration is the only effective and practical means of accomplishing this.

"(2) The cost of finding new reserves has risen threefold since 1937 and is steadily increasing.

"(3) The cost of finding, acquiring, and producing crude oil has increased 42 cents a barrel since 1937.

"(4) Rising costs of labor, material, and taxes are affecting the entire production situation and are threatening the small wells of settled production with premature abandonment.

"The needed increase in crude oil prices is relatively small when translated into the prices of refined products.

"For these reasons the Phillips Petroleum Co. believes that an increase in the price of crude petroleum would not be contrary to the fundamental purpose of the Office of Price Administration and the Petroleum Coordinator.

"This company therefore proposes that with the approval of the Price Administrator and Petroleum Coordinator, on October 15, 1941, at 7 a. m., it will increase crude oil prices 25 cents a barrel on purchases of 25,000,000 barrels annually in Kansas, Oklahoma, and Texas, the territory in which it operates. This proposal is made in the best interest of national defense in order to stimulate exploratory work, protect our present reserves and guarantee a continuing supply of crude petroleum. Attached hereto is a study on crude oil costs and prices.

"Submitted by Phillips Petroleum Co. By Frank Phillips, Chairman. "OCTOBER 7, 1941."

On the 10th day of October, we received the following reply from Mr. Henderson, Administrator of the Office of Price Administration:

FRANK PHILLIPS,

WASHINGTON, D. C., October 10, 1941.

Chairman, Phillips Petroleum Co., Bartlesville, Okla.:

I appreciate the information submitted by you on October 9 respecting the desirability of a 25-cents-per-barrel increase in the price of crude oil in Kansas, Oklahoma, and Texas. I appreciate the need for adequate and available supplies of oil for our expanding economy but you will understand that the price policies of the petroleum industry must not only serve this end but must also accord with the national interest in the avoidance of inflation. My office, in cooperation with the Petroleum Coordinator, has already instituted an investigation of the basic economic and cost factors and will consult with you as well as many other producers in an endeavor to reach a fair solution.

You may be assured that this investigation is being prosecuted with due expedition but the magnitude of the problem precludes even a preliminary finding by October 15 and I must therefore request that you defer the advance proposed for that date. I trust that I may have your expression of cooperation. LEON HENDERSON,

Administrator, Office of Price Administration.

Upon receipt of Mr. Henderson's reply we answered with the following telegram:

LEON C. HENDERSON,

NEW YORK, N. Y., October 10, 1941.

Administrator of Price Control, Washington, D. C.:

I have your telegram in response to Phillips Petroleum Co.'s proposal of October 7 to increase the price of crude petroleum in its territory 25 cents per barrel effective October 15, 1941. You will appreciate that our company first discussed this matter with your office about July 15, at which time we were requested to delay the matter 90 days, which expires soon. We recognized the merit of your request and were glad to comply therewith. I note you again request deferment of the proposed advance. We assure you of our desire to fully cooperate with you. However, you must realize price stimulus is essential to building the reserves necessary to meet the demand for petroleum products. Already evidence of lack of supply is appearing in many sections in our territory. Therefore, I respectfully urge your early action. We appreciate your position with reference to inflation but because of rapidly rising prices of materials, labor, and taxes I am confident our proposed price increase for oil is necessary in order to cover actual cost of production and that further increases may be necessary in order to insure a fair profit. We feel that a producer is entitled to a price based upon actual cost plus a reasonable profit and the increase of price to such level is not in itself inflationary.

FRANK PHILLIPS,

Chairman, Phillips Petroleum Co.

OFFICE FOR EMERGENCY MANAGEMENT,
OFFICE OF PRICE ADMINISTRATION.

For immediate release, October 10, 1941.]

A comprehensive investigation of the Mid-Continent crude oil situation has been begun by the Office of Price Administration in cooperation with the Office of the Petroleum Coordinator, Leon Henderson, Office of Price Administration Administrator, announced today.

The study was undertaken as result of suggestions from several leading MidContinent producers that a general price increase is desirable. The investigation will cover analysis of data submitted by the producers and studies of the cost of producing oil. Basic economic considerations and the role of petroleum in national defense also will be explored.

The producers have been advised that no general change in Mid-Continent crude prices should be made pending completion of the survey.

[Advance release: For Sunday morning papers, December 7, 1941.]

OFFICE OF PRICE ADMINISTRATION

A comprehensive study of crude-oil production costs throughout the United States is being undertaken by the Tariff Commission at the request of the Office of Price Administration, it was announced jointly today by Raymond B. Stevens, chairman of the Commission, and Leon Henderson, Administrator of the Office of Price Administration.

The study is an expansion of the investigation of Mid-Continent crude-oil production costs announced recently. Field work and subsequent compilation of the data will be done by the Tariff Commission which has conducted a similar study of the industry in the past. Staffs of the Petroleum Coordinator's Office and the Office of Price Administration will cooperate with the Tariff Commission staff in making the study. Data collected will be used by the Office of Price Administration in formulating price policies on crude petroleum.

Questionnaires are being sent today to approximately 10,000 crude-oil producers in the United States, accounting for an estimated 95 percent of crude-oil production. By far the bulk of those receiving the request for data will be small independent producers.

An endeavor is being made to send questionnaires to every producer in the United States wishing to submit data. If anyone should be omitted, it is requested he obtain forms from either his local association or by writing the Tariff Commission at Washington, D. C. It is hoped that all the smaller producers will return the questionnaires promptly as, among other matters, a study will be made as between large and small producers and flush and stripper wells.

Material asked for includes information on costs entering into the production of crude oil and the discovery of new crude-oil reserves, engineering and oil reserve data, and earnings data.

The questionnaires are to be completed and returned not later than January 31, 1942. It is hoped, however, that much of the data will be submitted before that date in order to complete the study as rapidly as possible.

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