REGULATION OF SHIPMENT OF PETROLEUM IN INTERSTATE COMMERCE AND FOREIGN COMMERCE

MONDAY, FEBRUARY 15, 1937

UNITED STATES SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON FINANCE,

Washington, D. C.

The subcommittee met, pursuant to adjournment, in room 450, Senate Office Building, at 10:30 a. m., Senator Tom Connally presiding. Present: Senators Connally and Townsend.

Senator CONNALLY. The committee will come to order, please.

I have here a telegram from Governor Marland, of Oklahoma, dated February 13 and reading as follows:

DEAR SENATOR: I am very sorry that I will be unable to appear before the committee in support of the reenactment of your hot-oil law. Secretary Ickes is reported by the press to have testified that the Connally amendment made possible the enforcement of our oil conservation and proration laws. I sincerely endorse that view. In the interest of conservation of our petroleum resources I consider it most essential that the Connally amendment be reenacted and made a permanent law. Hope that you will express to your committee my regret at my inability to be present. If you think it necessary I will send a personal representative to Washington to appear for me.

I have also a telegram from Reford Bond, chairman, and A. S. J. Shaw, commissioner, of the Oklahoma Corporation Commission stating:

The Corporation Commission of the State of Oklahoma wishes to add their endorsement to and urge the passage of the bill extending the Connally hot-oil law.

Now, we have a number of witnesses this morning from distant points, and I want to try to hold these hearings in such a way as will be convenient for them.

Chairman Thompson, would you like to go on early?

Mr. THOMPSON. I believe I would defer to the attorney general, Senator. He is here and he comes ahead of me in dignity and rank. Senator CONNALLY. I do not know about rank; we do not pay much attention to rank here.

If you will come right around here, General, and give your name to the stenographer.

STATEMENT OF HON. WILLIAM C. MCCRAW, ATTORNEY GENERAL OF THE STATE OF TEXAS

Mr. MCCRAW. My name is William C. McCraw. I am attorney general of the State of Texas and have been for a bit more than the past 2 years. Among the duties of the attorney general is the representation of the Railroad Commission of the State of Texas, which by

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law was charged with the conservation of the natural resources that are embraced in the purposes of what is commonly known as the Connally Act; I think that is sufficient to describe me.

Senator CONNALLY. General McCraw, we have before this committee the matter of Senate bill 790, whose effect is to make permanent law the act sometimes called the Connally Act, which prohibits the interstate shipment of oil produced in violation of State laws or regulations. I will ask you whether or not in the course of your duties as attorney general in enforcing the State laws of Texas, if you have had occasion to observe the operation of this act and whether or not you care to express any opinion as to the desirability of its continuance.

Mr. MCCRAW. Senator, I would say that Texas, I would feel, practically unanimously, both those in the industry and the general citizenship, are highly appreciative of the Connally Act, and I certainly feel deeply indebted to you as its author and to Congress for the passage of that act. At the time it was passed we were beginning for the first time to take control of the industry in Texas from the standpoint of conservation and its effect has been to close one avenue for the disposal of illegal production that could not have been closed in any other way.

During its almost 2 years of life, in conjunction with the Railroad Commission and the Federal Tender Board at Tyler I am certain that its efficacy has been demonstrated in two ways; first of all, so far as Texas is concerned, no other State has suffered by reason of any illegal production that might have taken place in Texas, and in the second place it gave to Texas an opportunity to judge the full effect and force of its conservation program as set out in the statutes. After these almost 2 years of operation under this law, illegal production in Texas has become negligible. The Connally Act has enabled Texas to clean up to a large extent the overproduction that has been in storage for a good many years. That disposal was made under our statutes providing for confiscation. The Attorney General's Department of the Federal Government has held that illegal oil may not in any way be blessed, if I may use that term, by any State proceeding, and that it must be disposed of within the State.

Senator CONNALLY. Let me ask you right there, General-I believe Texas has a State law authorizing confiscation of illegally produced oil?

Mr. MCCRAW. That is correct.

Senator CONNALLY. Under the regulations of Texas, after that oil has been confiscated, may it or not be sold within the State?

Mr. MCCRAW. It may be sold within the State, but it may not be shipped and put in interstate commerce.

Senator CONNALLY. This act prevents the shipment of that kind of oil in interstate commerce?

Mr. MCCRAW. This act assures that every State in which illegal oil is produced will have to wash its own dirty linen, and if there is any injury resulting to any other State by failure to confiscate and dispose of that oil within the State, then the State on whose part the failure has occurred must pay for the delinquency.

In a single phrase I am certain that Congress through this act has given to the State interested and the conservation of oil an unparalleled and outstanding opportunity to conserve their own natural

resources. Personally and officially I trust that the Congress will reenact it.

Senator CONNALLY. I want to ask you this question, General McCraw: If that illegally produced oil, after it has been confiscated in Texas is sold within the State, does that liberate an equal amount of legal oil which can be shipped to other States and thereby exert a tendency to hold down the price and not require the consumer to pay more than a just and fair price? In other words, if Texas consumes a million barrels a month of illegal oil that otherwise would take out a million barrels of legitimate oil, it thereby reduces the amount of oil going to other States?

Mr. MCCRAW. That is exactly how it works.

Senator CONNALLY. Senator Townsend, do you care to ask a question?

Senator TOWNSEND. No.

Mr. MCCRAW. If I can add any to my enthusiasm for it, you are free to fill the record up with it, because it is a splendid bit of legislation that has brought tremendous benefit and no injury whatsoever.

I would not be here except for the fact the authorities have been beset with a great many difficulties, because in an industry as highly competitive and which involves as much money as this industry does, it is naturally one that presents tremendous difficulties regardless of the purpose of its regulation, and this Connally Act has done a lot for Texas and has put the industry on the finest footing it has been on since the discovery of the east Texas oil field.

I believe in discussing the price proposition; Colonel Thompson, chairman of the railroad commission has some figures that are quite interesting. The general effect is that a little of the Hoover gasoline has come into the picture, but the price of gasoline has steadily declined. Of course, it did not make any difference in those days what the price was, because we were all broke anyway, but I think his survey shows that the price has steadily declined.

Senator TOWNSEND. I have a letter from New York stating that while Congress passed these laws for conservation purposes they have been used for profit. Do you care to comment on that statement? Senator CONNALLY. Where did you get that statement from, Senator?

Senator TOWNSEND. Rome, N. Y.

Mr. MCCRAW. That is a little out of my jurisdiction. It is a matter of everybody for himself. The little boys in Texas are getting rich and the big ones can take care of themselves. About the New York fellows, I do not know much about them. If they are not doing so well, they could move to Texas. The little men in Texas fuss and fight, but on the whole have a good time, and I am sure they are all well nourished and well fed and that there are good folks on both sides of the docket.

Senator CONNALLY. What would you say as to whether or not the enforcement of the so-called Connally Act is helpful to the railroad commission and to the attorney general's office in the matter of enforcing the State law?

Mr. MCCRAW. I think the commission will very heartily agree with me, and I know I feel it is the greatest thing that took place at that particular period, because we were really out hunting lions with a buggy whip and we needed a lot of help, and the Department of the

Interior, despite our differences over how we ought to run the business, Brother Ickes and his folks have done right well, and I do not think anyone could have any kind of complaint about the board at Tyler. Mr. Hill has done such a good job, he may be elected if he runs for office one of these days. They have all gone thoroughly democratic, and I do not see any trouble in the way at all.

Now, if you will excuse me, I will get back to Texas, because I am lonesome when I am this far away from home.

Senator CONNALLY. Any questions, Senator Townsend?

Senator ToWNSEND. No.

Senator CONNALLY. General McCraw desired to testify early because he wanted to go back on the 2 o'clock plane.

We have present this morning, Col. Ernest Thompson, of the Texas Railroad Commission, which agency has had the jurisdiction over the enforcement of all of our Texas oil-conservation laws since their incipiency. We would be glad to hear Colonel Thompson.

Just give your name to the stenographer, Colonel Thompson.

STATEMENT OF ERNEST O. THOMPSON, COMMISSIONER, RAILROAD COMMISSION OF TEXAS

Mr. THOMPSON. My name is Ernest Thompson. I am a member of the Railroad Commission of Texas and am chairman of the Interstate Oil Compact Commission.

The Railroad Commission of Texas, as the Senator has indicated, is a regulatory body within the State of Texas which has the duty of regulating the production of oil and gas with a view of conserving the natural resources of the State of Texas. It is an elective body and is composed of three members, who serve for a term of 6 years, and one member is elected every 2 years.

The conservation matter has been an active matter in the State and one of great interest, and naturally the people of the State have become conservation minded, because of the fact that we have in Texas 68,000 oil wells, more than 68,000 oil wells. We have in the State of Texas 254 counties, and of these 254, 141 have oils and gas and are oil and gas-producing counties. This production is widely distributed all over the State. So you can see our State is intensely interested in conserving natural resources of the State. I mention that because in our political economy oil and gas conservation and proration have been widely discussed. In the last campaign it was a vital issue. It was discussed all over the State, and in that campaign I was reelected for a 6-year term.

Senator CONNALLY. You need not be unduly modest, Colonel Thompson-you might tell the majority by which you were elected. Mr. THOMPSON. Since you raise that question I will say my opponent got 60,000 votes and I got 980,000. He was a Republican. Senator CONNALLY. You might also state your primary majority, if you care to.

Mr. THOMPSON. That was 180,000 over my nearest opponent. The reason the Senator has been so good as to ask me for those figures is because the conservation of oil and gas in Texas and the manner and method of the railroad commission in exercising its authority during the past 5 years, during the time I have been chairman, has been under question and was a political issue of the race. So we believe we can speak about how the folks feel in our State about this matter.

The interstate oil pact is a treaty between six oil-producing StatesOklahoma, Michigan, Louisiana, New Mexico, Texas, and Kansas. Those six States have signed that treaty. The treaty is simply an agreement entered into by authority of Congress whereby the producing States agree to pass certain waste-prevention laws and to keep those laws in effect. It has solely the prevention of physical waste in the production of oil as its object. It has been working fine in the 16 months of its existence. We have had our meetings, and at the last meeting held in Oklahoma City 14 oil-producing States were represented by either official delegates from each of the signatory States or unofficial observers from the other 8 States.

The Oil States Compact Commission discusses in meetings all of the modern, up-to-date methods of preventing actual physical waste in the production of oil and gas, and we have found it most helpful to have quarterly meetings and to go into the exchange of ideas as to the best manner of preventing waste.

The compact itself specifically provides that any action by any of the oil-producing States that would make oil scarce or make the price high is prohibited, it being the express and set-out purpose of the compact that it is for waste prevention and nothing else.

I have a couple of exhibits here. (The exhibits referred to are on file with the committee.) This shows the East Texas field. That has 23,000 oil wells in it. This is the oil field that caused all of the excitement about conservation and regulation of production. Up until the time this field was discovered, the question of proration had not been a serious one in our State. With the discovery of that field it soon became apparent that here was an oil field big enough to supply all of the world and put all of the other fields out of the picture. The potential this field is able to produce is 113,000,000 barrels per hour. Senator CONNALLY. Per hour.

Mr. THOMPSON. Per hour. It is so large in its potential ability to produce that we cannot take more than 1 hour potential and we do that only on key wells. The field, if allowed to produce unregulated, would blow its head off in 9 or 10 days.

On this map the wells indicated by the contour lines show the ability to produce. Every well in this contour can produce a thousand barrlels per hour, clear down to zero. The figure I gave of 113,000,000 should be 13,000,000.

Senator TOWNSEND. Not 113,000,000 barrels?

Mr. THOMPSON. No.

Senator CONNALLY. You mean, by saying if they opened them up, if there was no restraint, they could produce 13,000,000 barrels an hour, but that in 10 days they would blow their gas pressure out and would be on the pump?

Mr. THOMPSON. They would be on the pump; yes. If you let them produce as they did in the so-called good old days of letting it flow over the derrick, that would happen. As a matter of fact, the way it has been run, 20 to 30 barrels is the limit. The best wells get 30 barrels and down to 20 barrels. It is limited to 2.32 percent of 1 hour's flow. So a well that would produce a thousand barrels an hour would get 23 barrels per day. Generally, when you take the potential of an oil field you take 24 hours' producing, but that would make this field so big it would make it out of line with any other figure in the statement.