Now, the only conclusion we could reach from that was that, having removed that one factor in local price wars, and the local price wars having thereupon dwindled, it must have been the cause of the local price wars.

Senator CONNALLY. When these people bought this "hot oil" or "hot gasoline", either one, and were able to sell it at 2 or 3 cents below the price that other legitimate producers were able to produce it for, were, or were not, the reduced prices, in effect, below the cost of production of the legitimate dealer?

Mr. SWANSON. Absolutely.

Senator CONNALLY. They were?

Mr. SWANSON. They were materially below cost.

Senator CONNALLY. Is, or is not, the practice of permitting so-called "competitors" to sell a product below the cost of production, for the purpose of killing off competition, a healthy economic condition to permit to continue?

Mr. SWANSON. It is not; and one of the most troublesome problems of the whole petroleum code administration was to prevent that very thing.

Secretary ICKES. Another factor, Senator, was this: The producer of "hot oil", in many instances, was producing his neighbor's oil. That was the reason he could afford to sell cheaper.

Senator CONNALLY. He was stealing his neighbor's oil?
Secretary ICKES. Exactly.

Senator CONNALLY. Because his neighbor was obeying the law, and he was not obeying it?

Secretary ICKES. That is it. It was stolen oil, to begin with.

Senator CONNALLY. From about the time of the Connally Act, or shortly before that, between February 1 and 15, 1935, and until December of last year, was there, or not, a rise in the price of wholesale gasoline?

Mr. SWANSON. There was an increase. I do not recall exactly how much it was, but I believe it was about the same as the increase in the retail price, or around three-quarters of a cent.

Senator CONNALLY. Was that rise in both crude and in gasoline prices helpful to the independent producer, who had his pipe lines, and who has not his refinery, or was it harmful to him?

Mr. SWANSON. It would be helpful, primarily, to the independent crude-oil producer, and the independent refiner.

Senator CONNALLY. Why?

Mr. SWANSON. Because it gave him a price for his product which permitted him to receive the return of his costs of operation.

Senator CONNALLY. In other words, it enabled him to compete? Was it such a price as enabled him to compete with other producers, and stay in business?

Mr. SWANSON. To stay in business; yes, sir.

Senator CONNALLY. In other words, he was able to get enough for his gasoline to compensate him for his costs and his operating, and do business; is that correct, or not?

Mr. SWANSON. That is correct. I have received from a number of independent refiners-those are refiners who purchase their crude oil at posted prices, and sell their product on the tank-car market-from a number of refiners of that class, I have received their own figures, as to their operations, and the profits which they made from their opera

tions. Yet these figures show that, beginning about March or April 1935-in other words, about the time that the Connally Act became effective they changed from losses of as high as 20 cents a barrel, per barrel refined, to profits which ranged from 1 cent a barrel to 3 cents a barrel, 5 cents a barrel, and, in some months, 10 and 15 cents a barrel. From the time the Connally Act became effective, these independent refiners were able to make money. Prior to that time they constantly lost money.

Senator CONNALLY. In that connection, allow me to ask you, what was the relationship during that period, between the crude and the retail price of gasoline? Did it maintain a fair relationship?

Mr. SWANSON. I think it did; yes, sir.

Senator CONNALLY. And was the public being held up?

Mr. SWANSON. Not to any degree, so far as we can determine. Senator CONNALLY. I was trying to develop whether or not the advances in the prices of crude, which enable the independent operator to do business and make a little profit, whether all of that came out of the consumer, in the advanced price of gasoline, or whether it arose from other causes?

Mr. SWANSON. I do not believe that it did.

Senator CONALLY. HOW?

Mr. SWANSON. I do not believe that it did come out of the con

sumer.

Senator CONNALLY. You do not believe it did?

Mr. SWANSON. No, sir. Mr. Secretary, you called attention to the difference of 3.5 to 4 cents a gallon between present prices of gasoline and the higher prices of '27, 28 and '29.

Senator CONNALLY. Thank you, Mr. Swanson. We may We may call you a little later, but we will finish with the Secretary, first.

Mr. Secretary, you discussed the legal attacks on this Act. Has any Federal court, anywhere, held the act invalid?

Secretary ICKES. No; it has not, Senator.

Senator CONNALLY. It has been maintained, as I understand it. Secretary ICKES. It has been maintained in every court where the issue has been presented.

Senator CONNALLY. I will state that I will later put in the record here a report of the Department of Justice, with regard to the enforcement, and of their operations under the act. I think it contains data with regard to the different rulings of the courts.

Secretary IсKES. Yes.

Senator CONNALLY. The circuit court of appeals, I believe, has acted upon it, and the three-judge Federal court.

Secretary ICKES. Yes.

Senator CONNALLY. And, in each instance, it has been held constitutional and valid.

Secretary ICKES. It has been upheld, yes.

Senator CONNALLY. Mr. Secretary, you only have one tender board, at present, in the East Texas field, have you?

Secretary ICKES. That is right.

Senator CONNALLY. What about the Monroe and Corpus Christi fields, and other fields?

Secretary ICKES. We really keep very close watch over those fields, from our Kilgore office, and we are prepared, if there is a showing at any time of a necessity, to set up other tender boards, by

asking the President to authorize us to do that. We have seen no occasion, so far. We want to keep expenses down to a minimum. Senator CONNALLY. What are your views at present, as to the efficacy of this act, in so far as its being enforced, or otherwise?

Secretary ICKES. Oh, I think that, with the cooperation we are receiving now in Texas and in other States, it is working beautifully. It is doing the job that it was set up to accomplish.

Senator CONNALLY. In the matter of the recommendations of the Bureau of Mines, as to the quotas properly produceable by each State, have the States, in general, pretty much followed those recommenda

tions?

Secretary ICKES. In general They do not feel bound by them, and of course, there may come a time when they may depart very widely from them, but we have no reason to complain about it, so far. On that point, Mr. Holland, I think, can enlighten you, more than I. Senator CONNALLY. Is there any other matter, Mr. Secretary, that you care to develop?

Secretary ICKES. I have none.

Senator CONNALLY. We are certainly very much obliged to you, Mr. Secretary, for your appearance, and we thank you for your testimony.

Secretary ICKES. I was glad to be here.

Senator CONNALLY. Since we brought up the legal aspects of this matter, I understand Mr. Charles I. Francis, who is a member of the oil attorneys division of the American Bar Association is present, and we understand that committee has taken some action. We would be glad to hear Mr. Francis.

STATEMENT OF CHARLES I. FRANCIS, HOUSTON, TEX., CHAIRMAN OF THE SECTION OF MINERAL LAW, AMERICAN BAR ASSOCIATION

Senator CONNALLY. Just tell the reporter your name and who you are, and where you are from.

Mr. FRANCIS. My name is Charles I. Francis, from Houston, Tex. I am the chairman of the section of mineral law of the American Bar Association, which section has a membership of approximately 1,000 attorneys, all over the United States, and we have devoted a considerable amount of time to study and investigation of the Connally Act, its practical operations, and the desirability of its renewal.

At the recent meeting of our section, at Columbus, Ohio, the council of the mineral section unanimously recommended the estension of this law, believing it to be a valid constitutional law, and one that has worked in the interest not only of the oil industry but of the public. Our recommendations, after that study, were made, that this law be extended, to the house of delegates of the American Bar Association, a representative body selected from the entire bar, and, after considerable discussion, the house of delegates of the American Bar Association unanimously recommended the extension of this act, and also the extension of the Oil States Compact resolution. It was our judgment and opinion that not only the Connally Act, but the resolution of Congress authorizing the Oil States Compact, should be renewed and extended, and I was directed, on behalf of the American Bar Association, to present, Senator Connally, to your committee, a resolution

which we adopted, and which I would like to put into the record, which explains our views in respect to this matter.

Senator CONNALLY. We shall be very glad to have that carried in the record as an exhibit.

(The resolution referred to is as follows:)

REPORT AND RECOMMENDATION OF THE SECTION OF MINERAL LAW OF THE AMERICAN BAR ASSOCIATION, APPROVED AND ADOPTED BY THE HOUSE OF DELEGATES OF SAID ASSOCIATION ON JANUARY 7, 1937

To the House of Delegates of the American Bar Association:

At its last session, the Congress of the United States enacted a law known as the Connally Act prohibiting the interstate transportation of petroleum and its products where such has been produced in violation of the valid laws, rules and regulations of any sovereign state. This act was adopted for the purpose of aiding in the enforcement of State legislation on this subject.

Shortly thereafter, with the consent of the Congress, the oil-producing States of Texas, Oklahoma, Kansas, New Mexico, Colorado, and Illinois entered into a compact for the sole purpose of preventing actual waste in the production of oil and gas.

The constitutionality of these acts has not been questioned, and experience has demonstrated that they have been effective aids in the conservation of oil and gas in the oil-producing States. Both measures were adopted, in the first instance, with little or no opposition, and it is believed that a similar general unanimity of well-informed opinion in their favor exists today. Both laws, as enacted, expire during the current year unless extended by act of the present Congress.

After careful study and investigation by an appropriate committee and by its council, the section of mineral law of the American Bar Association feels very strongly that each of these measures should be continued in force for an additional period of 2 years, and therefore unqualifiedly recommends the adoption of the following resolution:

"Be it resolved, That the American Bar Association recommends:

"(1) That Congress reenact, for a period of 2 years, the 'Connally bill' (49 U. S. Stat. 30-33), originally passed by the Seventy-fourth Congress on February 22, 1935, regulating the interstate_transportation of petroleum and its products; "(2) That the Congress of the United States, by resolution, approve a 2-year extension of the Oil States' Compact for the conservation of oil and gas; "(3) That the legislatures of the several oil and gas producing States, by appropriate State law, become signatory members of said compact; and be it further

"Resolved, That the American Bar Association authorize the section of mineral law, and its proper officials, under the supervision and with the approval of the President of the association, to sponsor such legislation at the present session of the Congress of the United States, and to urge upon the several legislatures of the oil- and gas-producing States the enactment of appropriate legislation making said States parties to the aforesaid compact."

Mr. FRANCIS. I would like to say, in that connection, and in conclusion, that I spent about 10 months, as an attorney for the Petroleum Administrative Board, under the Secretary of the Interior, and became familiar with the practical workings of this law, in the East Texas field, where I was in charge of litigation arising under the old section, 9 (c), of the National Industrial Recovery Act, and I have carefully watched the operations of this law, which became effective in March 1935, and my own personal observation and experience in connection with it is that this is a very desirable and beneficial piece of legislation, which ought to be reviewed and extended by the Congress.

Senator CONNALLY. Let me ask you, Mr. Francis, what was the situation, before this act, or any similar regulation as to interstate shipments, was in effect, so far as the ability of the State authorities to enforce their proration and their order?

Mr. FRANCIS. Senator, when this law was enacted, in February

1935

Senator CONNALLY. I think it became effective in March.

Mr. FRANCIS. It went into effect, if I recall, or it was adopted, on February 26, 1935, and the Federal Tender Board was set up, down in the East Texas field, on March 1, 1935, and immediately prior to that time, and before the effective date of this act, there was pouring out into the channels of interstate commerce multiplied thousands of barrels of contraband oil and gasoline, demolishing the national markets, putting independent refiners in a situation where, operating upon legal oil, it was impossible for the independent refiners to operate at a profit, because they were in competition with refiners, who were using "hot oil", and placing gasoline on the national market, shipping it to other States, at a price much less, below the actual cost of production of those refiners who operated upon legal oil. When this became effective, it was successful in blocking the channels of interstate commerce, to this contraband commodity.

The price structure reacted to that situation, and, in my judgment and opinion, the effectiveness of this act is accountable for the stabilization of the refinery price of gasoline that ensued, during the next 6 or 8 months following the inauguration of your Federal Tender Board in the East Texas field, under this act.

Senator CONNALLY. May I ask you your views as to the relationship of crude-oil prices against gasoline prices to the consumer, since the effective date of this legislation, whether it has been a fair ratio, or whether the consumer has been penalized in any way?

Mr. FRANCIS. Senator, I think that the statistical data that has been given by the Secretary of the Interior is unanswerable on that point. I could not add anything to it.

Senator CONNALLY. Have you any questions, Senator Lonergan? Senator LONERGAN. No.

Senator CONNALLY. Is there any other matter that you want to call to the attention of the committee?

Mr. FRANCIS. No; except, Senator, I do not know whether it comes within the purview of this particular committee, but I think your resolution, authorizing the continuation of our oil States compact, ought to be renewed by this Congress. I do not know whether that comes under your committee, or not.

Senator CONNALLY. I rather think that will go to either the Committee on Interstate Commerce or to the Committee on Mines and Mining. This is the Finance Committee. We have not handled it so far, but we are glad to have your views about it.

Mr. FRANCIS. There is something about it in the resolution which I submitted here, and which I think you are familiar with because it came before you, in your capacity as a Senator.

Senator CONNALLY. We should be glad to hear you on any other aspect of this matter that you care to bring up.

Mr. FRANCIS. I think it is embodied in the resolution fully, Senator, which, with your permission, I have placed in the record. Senator CONNALLY. We thank you, Mr. Francis.

STATEMENT OF PAUL E. HADLICK, SECRETARY, NATIONAL OIL MARKETERS ASSOCIATION, WASHINGTON, D. C.

Mr. HADLICK. Senator Connally, may I be heard a moment? I am Mr. Hadlick. I represent people opposed to this, and I realize they will be given time; but I wonder if I might suggest, before Mr.