over a period of years is another item. Furthermore, the field would immediately go on the pump.

The difference between producing oil under pump and flowing method would amount to 65 to 75 cents a barrel, and the cost under the flowing method would be 65 to 75 cents a barrel, and under the pumping method $1.15 to $1.20. If you pump the oil at $1.20, if the producer is to make a margin of profit, it would be necessary to get a price to sustain that cost. Therefore, through the method of operation of the East Texas field, in my opinion the consumer will be saved, I would say, at least a billion dollars over a period of 15 or 20 years. That is true all over the United States, of every other oil field. We have gone a long way in the conservation of oil in the last 20 years. I will go back to 1933, when the price of crude got down to 25 cents a barrel. I was operating in a field that had about 300 wells on it. That 25 cent price was inaugurated in May. So I shut those 300 wells down, thereby throwing a lot of men out of work. In addition to that a great many wells were abandoned which were capable of producing a little oil over a period of years. When we started that property up again in November-before that time I had been putting gas in the sand and the property had been producing 600 barrels a day. I made arrangements to get a gas supply and reintroduced that gas into the sand under pressure and in 10 months' time I had production up to 2,300 barrels a day.

Senator CONNALLY. You artificially pumped the gas into the sand? Mr. ROESER. I did by artificial means what they are doing by natural methods in the East Texas field.

That has been at 2,300 barrels ever since, without drilling any more wells.

That is the theory as far as the State and consuming public are concerned. Under methods of that type there is not any doubt you can produce 100 percent more oil from the same field and at a lesser cost.

Senator CONNALLY. You speak about storage on top of the ground; is it true, or not, that oil authorities and experts generally agree that underground storage is better for oil than overground storage?

Mr. ROESER. There is not any doubt in the world about it. It should be left in its natural storage until such time as the consumers need it. That is simply a reasonable and logical conclusion.

Senator CONNALLY. The theory of all this regulation, proration, and conservation is to do that very thing?

Mr. ROESER. Fundamentally it is pure conservation, and nothing else. Conservation has a great effect, I think, on stabilizing prices, which, certainly from the oil industry standpoint and the Government standpoint and the consumer's standpoint, is a good thing. I will say that for his reason: Under the old wide-open flow we had prices of crude oil that ran from $3.50 a barrel in the Midcontinent field in 1919 down to 25 cents a barrel in 1933. If you will check up the period of 3 years from the inauguration of the Connally Act, the 3 years prior to this against any 3 years which you have had in the history of the oil business, you will find your price of gasoline and lubricating oil to the public is 40 percent lower than under the open-flow wasteful methods. Senator CONNALLY. Wholesale?

Mr. ROESER. And retail. The ultimate consumer has had the nefit of that. That will continue as long as we prohibit the waste

ful methods of production. The Connally Act, what it does is to assist the regulatory bodies in enforcing their powers. In the East Texas field we had men shipping oil in interstate commerce over which we had no control. I would be observing the orders of the railroad commission and some neighbor producing a thousand barrels a day would not be and I had no defense against it.

Senator CONNALLY. And in addition, that neighbor was outcompeting you, was he not, and drawing your oil out?

Mr. ROESER. Yes; and selling four or five times as much as I was getting. It was the same thing as if you had a farm next to mine and I tunneled under the soil and took your cotton and sold it. I have no regrets if the other fellow takes my oil, and once we start to do that, prices go to pieces and the industry suffers.

Senator CONNALLY. Let me ask you this: In periods of wild flush production without conservation, that oil has to be stored; who gets the advantage of that, the big companies or the little companies?

Mr. ROESER. It has been the history of the oil business, and I think some of the great profits made out of that have been due to the fact that three or four companies not only had the storage facilities but the natural ability to do it and we did not have the money and could not store our crude. If we had a pipe line, that would be different, but we did not, and during a great many years that is what happened. I can show you where flush fields came in yielding $2.50 a barrel and went down to $1, or below; down below the cost of production. Our costs remained constant; that is, the cost of drilling, labor, and pipe-line transportation. When the price of oil got down to 50 percent of what our costs were, we were out of business, with the sheriff right behind us. When this oil was put in storage and sold,

there was a scarcity in storage

Senator TOWNSEND. What effect has your conservation policy had on the development of new wells?

Mr. ROSSER. On the new drilling?

Senator TOWNSEND. Yes.

Mr. ROSSER. It has been a fine thing for it. Today you have 12,000,000,000 barrels of reserve in the United States as a whole. Last year we lost ground, we probably developed seven or eight hundred million against a consumption-we lost about 400,000,000 barrels last year. Last year, but under the stabilized process everybody can make new explorations, whereas if you had a lower price it would kill it and the first thing you knew you would have a large quantity of oil and at the same time you would have high prices.

Senator CONNALLY. When oil is so low as to make the price destructive, who are the people who get the benefit of it? Is it not true the big rich, powerful oil companies can buy this distress oil and put it in storage and keep it, and then when the price goes back up they can sell it for a higher price and reap a profit, whereas the little fellow probably sells below cost of production, and that flush production operates to the advantage of the big companies?

Mr. ROSSER. That is undoubtedly true. The benefits of wide-open flow have been to the advantage of companies who are able to store it at the low price and sell it at the high. That has been proved. Five or six years ago an independent operator could not borrow money on his reserve in the ground. Our theory is if we can borrow money

for operation, for drilling, it prevents our losing any of our oil through drilling on adjacent land

Senator TOWNSEND. You do not know whether your neighbor is taking oil away from you or not?

Mr. ROESER. On oil, if someone drills a well opposite you, you are forced to drill. For that reason the oil industry is peculiar and different from any other commodity and will always be from a conservation standpoint because it is a one-time, irreplacable crop; you cannot grow it again next year.

Senator CONNALLY. There are certain folks here, representing marketers' associations, and others who are opposed to the reenactment of this law on the theory its operation is hurtful to the consumer because it affects adversely the price of gasoline; what have you to say to that argument?

Mr. ROESER. I would say those men are wrong in their analysis, and I can take them over a period of 20 to 30 years and prove it conclusively to their own satisfaction.

Senator CONNALLY. Are there any other matters you care to develop Mr. Roeser.

Mr. ROESER. I do not believe so. My association through Mr. Brown is going to offer a brief. Mr. Brown is going to appear on behalf of the association and you may ask him any other questions.

The CHAIRMAN. It is now 5 minutes to 12, and I do not know whether we can finish with another witness before noon. Mr. Collett, it will probably take you some time to develop your views? Mr. COLLETT. Not very long.

(Discussion off the record.)

Senator CONNALLY. Are there any out-of-town witnesses who cannot be here tomorrow?

Mr. McNEELY. I would like to be heard today.

Senator CONNALLY. Come around and give your name to the stenographer.

STATEMENT OF R. M. McNEELY, CHICAGO, ILL., REPRESENTING THE CHICAGO WHOLESALE PETROLEUM MARKETERS' ASSOCIATION

Mr. McNEELY. My name is R. M. McNeely. I represent the Chicago Wholesale Petroleum Marketers' Association.

Senator CONNALLY. Are you a lawyer?

Mr. MCNEELY. No, sir.

Senator CONNALLY. Tell us what your business is and all about yourself.

Mr. McNEELY. In our organization there are about 48 companies at the present time. Our function in the oil industry is the buying outright of finished products from the refiners and selling to the wholesaler or jobber.

Senator CONNALLY. You are, then, a sort of supersalesman?

Mr. McNEELY. If it might be called that. In other words, back when the industry started a great many refiners had no outlet at all for many of their products, such as fuel oil, and our company wasSenator CONNALLY. What is your company?

Mr. McNEELY. Refiners Petroleum Co., of Chicago.

Senator CONNALLY. Do you have a list of the members of your association?

Mr. MCNEELY. Yes, sir.

Senator CONNALLY. You might put that in the record.

Mr. McNEELY. I will put that, if I may.

Senator CONNALLY. You are not engaged in the actual production of oil?

Mr. McNEELY. Not in either production or refining, but merely marketing.

Senator CONNALLY. You are just oil merchants?

Mr. MCNEELY. Yes.

Senator CONNALLY. Go ahead.

Mr. MCNEELY. Our objection to this act, Senator, is not the factwe have no fight with the producers; we appreciate the fact the producer of necessity must conserve his oil and must get a profit out of it. But, for instance, during the past 3 weeks I have just completed a tour of the so-called independent refiners of Texas, one of our semiannual trips, which, from a pleasure standpoint, was very nice, but from a business standpoint it was a miserable flop. It was not possible for us to secure the product for our territory. The demand at the present time seems far in excess of the supply.

Senator CONNALLY. You mean you could not buy any oil or gasoline in Texas?

Mr. McNEELY. For northern shipment.

Senator CONNALLY. They do not discriminate against northern shipment, do they?

Mr. MCNEELY. Interstate shipment. In other words, the prices at the Gulf were far in excess of what we could pay in the Midcontinent area.

Senator CONNALLY. Oh, I see; you could buy it, but not at your price?

Mr. McNEELY. At a competitive price. The product known as no. 2 gas oil, which is used for domestic heating, sold at the Gulf at 6%1⁄2 cents for delivery in New York, and the New York market at that time was 6% cents, which meant, from a competitive angle, we naturally could not get in there.

Senator TOWNSEND. Where were they getting this oil from, these other sections, so they could make a price of 6%?

Mr. McNEELY. I would say practically all of it was coming from that same section. That is material that has been contracted for at the established retail price of 6% in New York.

Senator TOWNSEND. Were they selling to New York cheaper than to your section; is that your contention?

Mr. McNEELY. Yes. I might cite our own particular condition in Chicago today. On no. 1 furnace oil we have an established retail price of 7 cents a gallon. The price in the field is 4 cents today, which means that the freight rate added to it, delivered in Chicago, would mean $6.15 a hundred gallons

Senator CONNALLY. Is that controlled by freight rate; do you mean the freight rate is higher to Chicago than to New York?

Mr. MCNEELY. Naturally, that would not be sold by rail, but shipments by water to New York move at a lower rate. I am just citing the fact that the margin of profit in the burning-oil business at the present time is not really a profit at all, but it is a loss.

Senator CONNALLY. You are not kicking, then, about what the consumer is paying, but you are kicking because you cannot charge more?

Mr. McNEELY. I am coming to that.

Senator CONNALLY. Maybe the antitrust laws are being violated in Texas. Whom did you approach in Texas in an effort to buy this oil; give us the names of some of the concerns.

Mr. MCNEELY. Do you want all of those refiners?

Senator CONNALLY. I want you to tell us some of the people that you approached in an attempt to buy.

Mr. McNEELY. The Humble, McNeil, Barnsdall—all of those small refiners in east Texas.

Senator CONNALLY. That is what I want to get, the little ones you could not buy anything from.

Mr. MCNEELY. The Gainesville Refining Co., Gainesville, Tex., the Tyler Refining Co., the East Texas Refining Co., the K. D. Refining Co.-I could just go along with a long list here. We contacted every small plant in the State.

Senator CONNALLY. I am talking about when you were down there and not letters that you might have written.

Mr. MCNEELY. I actually saw these men.

Senator CONNALLY. And as I understand you, none of them would sell you any oil?

Mr. MCNEELY. I am not saying they would not sell it, but they were only willing to sell it at prices we could not use for northern shipment.

Senator CONNALLY. You could have bought it if you paid what they asked for it?

Mr. MCNEELY. Absolutely.

Senator CONNALLY. But they would not sell it as cheap as you wanted to buy and therefore you say there was not any oil for sale for northern shipment, but any buyer could have bought it at their price?

Mr. MCNEELY. Yes.

Senator CONNALLY. They had a right to say what they wanted, did they not?

Mr. McNEELY. Absolutely. I am not saying there is anything that would come under the antitrust law.

Senator CONNALLY. Will you put the rest of the names in the record, the parties with whom you had actual contact?

Mr. MCNEELY. Yes. I might add that the bidding for crude oil at a premium of 15 cents a barrel is being offered at Houston for East Texas crude

Senator CONNALLY. What do you mean by premium?

Mr. MCNEELY. 15 cents over the posted price. That shows the amount of crude produced did not meet the demand.

Senator TOWNSEND. Your contention is the amount that is permitted to be sold is not as much as the market requires; is that your contention?

Mr. McNEELY. That is one.

Senator TOWNSEND. That is one of the things, I will put it that way. Mr. MCNEELY. Yes. Also, to bear out that contention, Senator, I believe any of these publications like the National Petroleum News will show a natural decline in the trend of stocks above ground; tremendous withdrawals of stocks of crude oil.