lished by my order in the Department of the Interior to assist in the administration of the act. The administration of the Act is so essentially a field activity that, of the 78 persons employed, 60 are in the field and only 18 in Washington.

This is not elaborate machinery. The Federal office in the east Texas oil field is at Kilgore, within a few hundred yards of the State office, and is readily accessible to every operator in the field. It is required that each application for a tender must be checked and ready for consideration by the Board which has exclusive jurisdiction within 24 hours after the application is filed. Emergency tenders are provided to meet special conditions.

During the past fiscal year, 6,207 applications for tenders, covering 224,778,000 barrels of crude petroleum and petroleum products, were received by Federal Tender Board No. 1 and Federal Petroleum Agency No. 1. Of this number, 5,968 tenders involving 222,034,000 barrels were approved; 197 involving 2,212,000 barrels were not approved; and 42 involving 532,000 barrels were pending on the last day. The cost, including field inspections, record keeping, and examination, was about one-tenth of a cent per barrel.

The fact that it has been necessary to withhold approval on only about 1 percent of the oil for which applications have been received indicates that the system of checking is so thorough that applications for tenders are not submitted unless the applicant has a reasonable basis for assuming the legality of the oil involved. It does not throw any light upon the extent to which contraband oil might be shipped if control should be relaxed, suspended, or terminated.

The prosecution of cases arising under the Connally Act rests with the Department of Justice, which maintains an office at Tyler, Tex. The annual report of the Attorney General shows that, during the past fiscal year, 98 criminal and 6 civil cases were instituted by the Government under the act. Five civil cases were brought against the Government. Sixty-one criminal cases were terminated by pleas of guilty and the imposition of fines, 18 were dismissed, and 19 were awaiting trial. Nine civil cases were won by the Government in the lower courts, one was dismissed by the Government, two were pending appeal and two awaiting trial.

It has been necessary to establish but one tender board that in the east Texas oil field-under the act. The law is effective, however, in other fields, although the tender system is not employed. The Rodessa field in Louisiana is under constant observation and regular examinations are made in other areas, such as that surrounding Corpus Christi, in southwest Texas, Conroe, Talco, and other Texas fields. Reports covering operations in Oklahoma, New Mexico, and Kansas are received and checked periodically. Should the need arise, additional tender boards can be established by the President.

The need for a tender board in the east Texas field is evident when the magnitude of the area is understood. This field is about 50 miles long and from 3.5 to 10 miles wide. It contains about 130,000 acres of productive territory and approximately 22,000 oil wells. Twothirds of the flowing oil wells in the State of Texas are in this area. The field produces currently about 15 percent of the national crudeoil output, or nearly as much as the aggregate production from all of the wells in Louisiana, Kansas, and New Mexico, the three States which rank fourth, fifth, and sixth in output.

At the time of its discovery it contained at least one-fourth of the oil reserves of the entire United States. Gasoline is shipped by tank car from refineries in the field to every State from the Rocky Mountains to the Appalachians. During the last 4 months of 1936, these States received slightly more than 1,000,000 barrels of gasoline by tank car from plants located in the East Texas field.

The operation of the East Texas oil field shows clearly how the State and Federal Governments may work together to prevent waste and increase the ultimate recovery of oil. Although the market demand for East Texas might exceed greatly the present output, the orders of the Railroad Commission of Texas, since June 1933, have been based upon the engineering principle that, if the withdrawals of oil, gas, and water from the structure are uniform throughout the field and equal approximately to the encroachment of the edge water, the pressure, or energy, in the reservoir is uniformly maintained. The studies of its engineering staff have indicated that a production rate of from 425,000 to 450,000 barrels daily will result in the maintenance of an approximately constant reservoir pressure and prolong the flowing life of the field.

According to testimony before the Texas Railroad Commission on October 17, 1935, this method of control has conserved energy to such an extent that most companies and individuals have raised their estimates of recovery of oil from the field at least 30 percent. Such an increase would amount to about 600,000,000 barrels, which would be equal to the discovery of 60 average-sized oil fields. To my mind, this is true conservation.

It has been pointed out that the withdrawals of oil and gas must be uniform throughout the field, if the objective of increased recovery is to be attained. If excessive amounts are withdrawn in some portion of the field, pressures adjacent thereto may be lowered to the point where gas will escape from the oil and render it less fluid or water may intrude and trap portions of the oil and gas. Such localized excess production would violate the Commission's orders. Were it not for the prohibition of the Connally Act, the contraband oil that could be thus produced would be shipped surreptitiously and find its principal market, directly or in its products, in other States. With the Federal Government prohibiting the shipment of such contraband oil in interstate commerce and the State government disapproving its movement intrastate, there is no present market for contraband oil and hence no incentive for its production.

The effect of this method of control upon the physical conditions within the East Texas oil field is shown by the following comparison. During the 15 days following April 25, 1933, when production virtually was without control and East Texas crude oil was selling for from 10 cents to 25 cents a barrel, 12,000,000 barrels of crude was produced with a reservoir pressure decline of 65 pounds. The order inaugurating the present method of control was dated June 12, 1933. In the 3% years from June 10, 1933, to January 12, 1937, the average reservoir pressure in the East Texas oil field declined 64 pounds, but in the interim 526,000,000 barrels of oil was produced. This indicates that, under control, the reservoir energy has done 44 times as effective work as it did when the oil was permitted to flow with little, if any, restraint. While on the subject of State activities relating to oil and gas conservation, I want to give due credit to Texas for its drastic cut in the

waste of natural gas in the Texas Panhandle and to Louisiana, under the leadership of Governor Leche, for enacting its new conservation law, as the result of which the gas waste in the Rodessa field is being eliminated. Appreciation is also due to Louisiana for its cooperation with the Department of the Interior in adopting rules and regulations which aim to increase the recovery of oil.

I recall that, when I spoke before the American Petroleum Institute at Dallas, Tex., on November 14, 1934, I quoted from a report which showed that in June of 1934 gas was being blown into the air from the Texas Panhandle field in the amount of approximately one billion cubic feet daily. In the following summer, the Texas legislature enacted H. R. 266 and I am advised that the Texas Railroad Commission's report for November 1936, shows that 92 percent of this gas wastage has been stopped. This is indeed a fine showing.

I recall also that early last summer natural gas was being blown wastefully into the air in the Rodessa, La., field in an amount equal to at least one-half of the consumption of natural gas in the whole United States for domestic purposes. I am advised that an emergency order under the new conservation law of Louisiana cut this wastage approximately in half and that the permanent order, effective January 1, 1937, aims to eliminate waste altogether. Here is competition in conservation of which both States may well be proud.

The principal merit of the Connally Act is that it supports State oil and gas conservation laws and thereby increases their effectiveness. The act, however, has contributed also to the stability of wholesale and retail markets by eliminating the destructive influence of contraband gasoline upon such markets.

In the administration of the Petroleum Code, we learned what systemic aches and pains could result from a "hot" gasoline sore. During the spring, summer, and fall of 1934, committees representing the industry in cooperation with the Petroleum Administration struggled continuously to maintain a "living wage" for the independent crudeoil producers and still make it possible for the independent and nonintegrated refiners and distributors to operate their plants without suffering the substantial losses which then were all too common. In order to make this possible, it was necessary for tank-car-gasoline prices to bear a normal relationship to crude-oil prices. We received hundreds of appeals from dealers asking for relief from the disastrous results of gasoline price wars as well as from small refiners who, with their backs to the wall, were fighting off the shut-downs that appeared to be inevitable. Several well-considered and efficiently managed efforts were made to achieve a normal and healthy gasoline tank-car market but, individually and collectively, they were always negatived by the shipment of excess, or contraband, gasoline from the East Texas area. Some improvement was seen when the first tender board was established in East Texas on October 23, 1934, under the authority of section 9 (c) of the National Industrial Recovery Act, but there was no definite or sustained improvement until the Connally Act was approved on February 22, 1935, and Federal Tender Board No. 1 was established thereunder on March 1, 1935. Then the response in wholesale gasoline prices was immediate and they were strengthened further when the act was upheld in the Federal courts.

Granting then that this law has been of economic benefit to independent producers, refiners, and distributers, what has been the

change in retail gasoline prices since it was approved? On March 1, 1935, when Federal Tender Board No. 1 was established, the average service-station price of gasoline, exclusive of taxes, in 50 representative cities was 13.22 cents per gallon. On December 1, 1936, it was 13.97 cents per gallon. This increast of three-fourths of a cent per gallon represents a gain of 6 percent in the retail price of gaoline, exclusive of taxes, during the period. It is interesting to note, however, that the average retail price of gasoline during 1936 was from 321⁄2 to 4 cents a gallon less than the averages recorded for 1927, 1928, and 1929, when oil fields competed with one another with but little restraint and storage tanks were being filled with unneeded crude oil.

My office has received two pamphlets objecting to the continuance of the Connally Act. If I could be as optimistic as the authors of these pamphlets regarding the future oil supply of the United States, I would be in perfect accord with their philosophy that "good oldfashioned competition in every department of the petroleum industry is the best protection to the public." I said as much in 1934, when the report of the Committee of Eleven of the American Petroleum Institute was under examination by a subcommittee of the Interstate and Foreign Commerce Committee of the House of Representatives. By reference to page 189 of the hearings, you will find that I said on that occasion:

We ought to have a free flow of flush production, so that oil could be produced at 10 cents a barrel, provided we have this inexhaustible supply, as that report indicates. If there is no question of conservation involved at all, we should have a free flow of oil and ought to be able to develop a program by which gasoline could be sold for 2 or 3 cents a gallon.

I was referring, of course, to the refinery price.

One pamphlet says that the "cost of flush production is probably not over 25 cents a barrel" and this undoubtedly is true. But flush production means a wide-open flow, an unrestrained gushing forth of oil which exhausts the reservoir energy quickly and uselessly and leaves underground and unrecovered fully 80 percent of the oil originally in place. If the supply of oil were such that the needs of the Nation could be met by skimming off the cream and leaving the milk, I never would have advocated any degree of control.

It is an interesting fact that, of the crude oil produced from 1931 to 1934, inclusive, only 10 percent was at a cost of 40 cents a barrel or less. The average cost was 80 cents a barrel, but only 60 percent was produced at or below that average cost. If our oil reserves were 10 or more times larger than they are, we might indulge for a while in the profligate outpouring of oil which is involved in unrestrained low cost flush production. But with our limited supply, we cannot afford to lose the reserves in those fields where oil is pumped to the surface through stripper wells, even though that production may cost

more.

This same pamphlet calls particular attention to the fact that "in 1931 the posted price of Mid-Continent crude oil was as low as 10 cents per barrel." No mention is made of the additional fact that on August 4, 1931, the Governor of Oklahoma established martial law and ordered the National Guard to maintain military control covering a radius of 50 feet around every oil well in 29 fields within that State. Neither is it recalled that the Governor of Texas on August 17, 1931, ordered the absolute shut-down of every oil and gas well in the east

Texas field and proclaimed martial law in the four counties embracing the field. The last contingent of National Guard troops sent into the east Texas field on August 17, 1931, left on December 21, 1932.

It is also set out in the pamphlet that the posted price of crude in 1933, before control by Federal authority, was as low as 25 cents a barrel. Again no mention is made of the closing down of fields in Oklahoma and Texas, of the bombing of pipelines in the east Texas field or of the decline in reservoir pressure in the east Texas field, which was so drastic that it was predicted freely that if a comparable decline continued for the remainder of the year, two-thirds of the wells in the field would be pumping by January 1934.

On June 13, 1933, the Texas Railroad Commission reduced the east Texas field allowable to about 550,000 barrels daily, or approximately 300,000 barrels less each day than under the order previously in effect. On June 16, 1933, the National Industry Recovery Act was signed by the President and on June 19, the posted price for east Texas crude oil was restored to 50 cents a barrel and similar increases were recorded in the other oil-producing States east of California.

On August 19, 1933, the President approved the Code of Fair Competition for the Petroleum Industry. On August 24 the posted price for East Texas crude oil was increased to 60 cents per barrel and a similar 10-cent increase was posted elsewhere. The Code of Fair Competition for the Petroleum Industry became effective September 2, 1933, and on September 6 the posted price for East Texas crude oil was increased to 75 cents per barrel.

The first order allocating crude-oil production among the several oil-producing States under the procedure established by the Code of Fair Competition for the Petroleum Industry was effective September 8, 1933, and on that same date the posted price for East Texas crude oil was increased to 90 cents per barrel with comparable increases in other oil-producing States. The second order allocating crude-oil production became effective September 28, 1933, and on the following day the posted price for East Texas crude oil was advanced to $1 per barrel, with corresponding increases elsewhere. This price level remained constant during the remainder of the period that the oil industry operated under the petroleum code, and continued after that code had been invalidated by the decision of the Supreme Court on May 27, 1935, until January 9, 1936, when the posted price for East Texas crude oil was $1.15 per barrel and average midcontinent crudes advanced to $1.10. On January 28, 1937, the level of crude-oil prices moved up 12 cents a barrel, or to $1.27 a barrel for East Texas crude and $1.22 for average midcontinent crude.

The average posted price of crude oil in the United States today is about $1.20 a barrel. This price happens to be about the average paid for all of the oil produced in the United States since Colonel Drake drilled his well in Pennsylvania in 1859. In 76 years we have produced in the United States 17,600,000,000 barrels of oil of a value of $21,400,000,000, making an average of $1.215 per barrel. Even at this price, the available records indicate that fully 15 percent of the current output is sold below cost. The current cost might not be so high had the present improved method of crude-oil production been developed at an earlier date and it certainly would be appreciably higher had the lid been blown off of the East Texas field within the first 3 years of its discovery, a catastrophe that was avoided by the scant margin of only a few months.