and men who have had more experience in handling it, and as you go along it helps to iron out and smooth out the various difficulties that arise with the enforcement. So, I am unequivocably for the reenactment of the bill, and I hope it will be made permanent.

Senator CONNALLY. Mr. Collett, are you familiar, pretty well, with the conditions in the oil industry and the problems you have had, say, covering the past 6 or 7 years?

Mr. COLLETT. Yes, sir.

Senator CONNALLY. Would you mind going ahead and detailing that situation, and what, if any effect, has resulted by reason of these measures? Were you in the East Texas field during the martial-law days?

Mr. COLLETT. Yes, sir.

Senator CONNALLY. Give us an outline of that. These men make a noise like oil men, but they may not know about all of these things. Mr. COLLETT. The situation just prior to the enactment of the National Industrial Recovery Act was pretty thoroughly demoralized, not only with reference to the production of crude oil, which was being put above ground at an excessive rate and beyond the market demands, or any reasonable consumption of it, and that excess of crude necessarily produced demoralization in the refining end of the business, and from there it spread through the marketing, resulting in a general demoralization of the entire industry.

At the time of the enactment of the Recovery Act and in the inception of the code activities, the original effort, as everybody will recall, in connection with the curtailment of the excess of crude, was order 9-C. That was knocked out later by the Supreme Court, and then the effort of not only the administration but of the industry. was the enactment of what finally was crystalized in the Connally Act. Prior to that time there was a great excess of production of crude oil going out of the East Texas field, particularly. That was our greatest source of trouble. The crude and the crude products were being spread over a tremendous area all over the country, and resulted in puting into the market more crude and more crude products than the market could normally absorb.

Then, along with the Federal Government administration, the Petroleum Administration Board, acting under Secretary Ickes, and our planning and coordination committee, which was the committee cooperating with the Government activities, as we began to get the crude situation under control, it became apparent that there was also going to be a necessity for some curtailment of the refining on some sort of a quota basis that would prevent an excessive amount of refined products going out into the market. The amendment to the code, and, as I recall, section 4 was the refiners' section, provided for, and we put into operation, a system of quotas for the rfiners, dividing the country up into districts and the allocating to the refiners.

Senator CONNALLY. Who did the allocating? Who had the authority for that?

Mr. COLLETT. That was done under a committee formed out of the P. and C. committee, and with the cooperation and approval of the Oil Administrator, Secretary Ickes.

Then a further step was the effort to handle the surplus, or distress gasoline supply of the country, and there were buying pools, pro

grams with reference to purchase of distress gasoline. Those activities were the result of joint action between the P. and C. committee and the oil administrator; we were working together on that.

Those plans and programs were worked out and approved by the administrator. The first of them was not a success, but we went along and subsequently we had a later one organized on a little different basis, and it was operating right up very nearly to the close of the code activities.

The general result of that cooperation between the industry and the Oil Administrator was a very decided improvement, not only in the production, but in the refining, and there was a decided stabilization of the marketing activities throughout the country.

Senator CONNALLY. What period are you speaking of now; was thsi before the enactment of this act, or afterwards?

Mr. COLLETT. I was running from the beginning to down toward the close of the code. At the beginning there was a total demoralization. We had crude prices down in Texas, in my section of the country, down to 25 cents.

You speak of the martial law period. The price of crude in the East Texas field went to 10 cents, and of course that price was reflected all over that entire producing area down there, the whole of the midcontinent.

Senator CONNALLY. What happened when 9-C was declared unconstitutional?

Mr. COLLETT. Then the effort was to secure the enactment of something to take its place.

Senator CONNALLY. I mean what were the conditions after the codes were knocked out; what were the conditions in the industry? Mr. COLLETT. You mean after the code was knocked out? Senator CONNALLY. Yes.

Mr. COLLETT. My own personal view of that was that the industry still received a considerable benefit from the lessons they had learned under the code and from the stabilization that had occurred as a result of the code activities to curtail the production of crude and refining, and also stabilization of the marketing.

Senator CONNALLY. In other words, you had gotten them into the habit of doing these things?

Mr. COLLETT. Yes; when we started in with those code activities, it was a pioneering effort; the industry had never had an opportunity to do those things before. They had never gotten together and agreed upon plans, and so forth, and after having had the opportunity to get together and consult with the Federal administrator, the Petroleum Administration Board, and all of that, they began to see what the actual difficulties had been, and we found we had a way of curing them, and the result was most satisfactory.

Then, following that, the enactment of the Connally law maintained the limited flow of crude to, in a measure, keep it in balance with the market demand for the crude, and, basically, that was the first thing necessary to be done, to stabilize the crude, and then the manufacture of that into refined product, and then the stabilization of the marketing of the product.

Senator CONNALLY. What was the major difficulty originally in the putting into effect of codes; what was the major trouble with the industry you were seeking to correct; was it overproduction?

Mr. COLLETT. Primarily, it was overproduction; bad practices in marketing, bad practices all of the way through the industry, and some unfair competition and wasteful production; that was extensive.

Senator CONNALLY. What have you to say, Mr. Collett, with relation to when the price of crude is 25 cents, or 10 cents, or at a distressingly low price, whether or not the consumer gets a reflection of that in the price of his gasoline?

Mr. COLLETT. Not in proportion to the price of crude, he does not. Senator CONNALLY. Why?

Mr. COLLETT. Because there are certain fixed charges which go into the manufacture that cannot be eliminated. There is not any difference in the cost of refining crude oil when it is up or down, materially.

Senator CONNALLY. How about digging wells and all of this other oil-field expense, the cost of the well, and so forth?

Mr. COLLETT. There is very little difference there. When there is an extreme condition of unemployment, some of your drilling costs may be a little less. That was one of the things the code originally undertook to do, primarily, first to improve working conditions, which meant shorter hours and higher wages, and then put the industry in shape where it could pay the bill. That is one of the things that was done.

Senator CONNALLY. What was the condition with relation to State administration of the act and State enforcement in Texas after the enactment of the so-called Connally Act? Was there any improvement?

Mr. COLLETT. A decided improvement, in this way, Senator. There was more than one factor that had to do with that. Prior to that time there had been a great deal uncertainty as to the constitutionality of some of the State regulatory measures, and some of our conservation laws in the State of Texas, and in the meantime there had been improvement in the conservation laws, that is, there had been enacted better laws and on a sounder basis, and those laws were being upheld by the courts. That enabled the Railroad Commission, which has the authority in administering the oil laws in Texas, to enforce in a much more effective way the laws that had been enacted. We had the improved statutes to start with, and then, better enforcement, and then we had the cooperation of the Federal Government through the Connally Act that finished the job, and since that time we have not had complaint about the conditions in the industry in Texas; they are very vastly improved, very much better.

Senator CONNALLY. Of course, Mr. Collett, we have to bear in mind the interests of the consumer as well as the producer, because there are more of them, and that affects the general welfare; what is your observation over a long period of years as to the benefit resulting to the public by virtue of stabilized production and stabilized supply, with relation to price?

Mr. COLLETT. You mean as against

Senator CONNALLY. As against the wild, unrestrained production in flush periods, and with production tightened up in other periods. Mr. COLLETT. The consumer, the industry, and the public are all better off on a stabilized basis than they are with the floods and famines. They do not get the benefit of floods of production. All

of those floods of production result in loss and waste, and the public does not itself get the benefit and it is simply reducing their future supply; it is just a wasteful situation. And then there is another phase of it, and pardon me for referring to it, but particularly in our State, Senator, the State of Texas is very greatly interested in oil so far as the university fund and the public-school fund is concerned, and with your prices of that product down to a low figure, the matter of taxation and revenue to the State is very materially reduced; that is a big item in our State. The university has now accumulated something better than $26,000,000 from its land, with every field being opened up, and you know the status of the publicschool fund.

Senator CONNALLY. Is there not a crude production price based on the selling price of oil?

Mr. COLLETT. Yes; the recommendation pending at the present time looks as if this is prophesying-but the tendency of the Legislature of Texas now is not to put the price on a tax per barrel, but a percent of the value of the oil per barrel, and that, of course, means a very great difference in the revenue.

Senator CONNALLY. Some testimony here yesterday was to the effect that proration and conservation laws had operated to make the amount of possible recovery in the East Texas field probably double what was originally estimated; have you any information along those lines, or do you know about that from your observation or experience?

Mr. COLLETT. From my experience in producing there and in other fields, it is unquestionably true that under proper conservation laws and regulation and the limiting of the production from any given field to a basis upon which it could be done without waste, will increase the ultimate recovery of the pool, and I would say that the figure of doubling the recovery in the east Texas pool under proration and conservation as against unrestrained production, that that would easily be doubled, the ultimate recovery of that pool.

Senator CONNALLY. What do you say with regard to the ratio between the price of wholesale gasoline at the refinery and the price of crude oil per barrel; there was some testimony the other day that on the basis of a dollar or a dollar and a quarter, a fair ratio was 182; I do not suppose those figures are fixed.

Mr. COLLETT. No: that would not be a fixed figure because it would vary some with the price of your crude product; if it got inordinately low, that ratio would not apply; but that figure was arrived at during the code days when there was a discussion of not only controlling production but fixing the price, and the 18.5 ratio, if I remember the way that was arrived at, was taking the long-range average price of crude and the long-range average price of gasoline; but that would vary some, that 18.5; it would vary some with the increase or decrease in price of crude, particularly if there was a material increase or decrease.

Senator CONNALLY. As to this particular figure, these figures of a dollar or a dollar and a quarter for crude, in that bracket, would that be a fairly accurate ratio?

Mr. COLLETT. Yes; around that figure it would be a fairly accurate ratio, I would say.

Senator CONNALLY. At this price, is the consumer getting a fair economic deal if he gets his gasoline for one-eighteenth of what a barrel of crude oil sells for, on a 1.10 or 1.15 basis?

Mr. COLLETT. Yes, sir. I think that insofar as the refined products are concerned, if we take gasoline, which is the main product the public is interested in, I think the public has been getting quite the best of it all of the way along, on an average; in other words, the point I am making, Senator, is that gasoline is today, I believe, the cheapest commodity that the public uses, generally.

Senator CONNALLY. You are speaking as a buyer of gasoline or as a producer of oil?

Mr. COLLETT. I am speaking as a consumer of gasoline in my car. If you take your commodity indexes and move them up and down for 15 years, you will find gasoline is down below the average.

Senator CONNALLY. It probably ought to be, because there is more oil produced now, relatively, and therefore a larger supply.

Mr. COLLETT. But there has also been a very greatly increased demand. Your number of cars, trucks, and transportation by bus is greater.

Senator CONNALLY. Have you anything further you want to add, Mr. Collett?

Mr. COLLETT. Nothing further, particularly, Senator.

Senator CONNALLY. If I may ask you, your final conclusion is this act ought to be made permanent law?

Mr. COLLETT. Decidedly.

Senator CONNALLY. Is there any amendment or change you might suggest?

Mr. COLLETT. No, sir; it has been upheld in the courts and has been effectively operated as it reads, so I do not see any reason why it should be changed in any way; all we need to do is eliminate the date and let her go; that is my idea.

Senator CONNALLY. Thank you, Mr. Collett.

We have some telegrams from various sources, and the first is from the Western Petroleum Refiners' Association, Mr. A. V. Bourque, secretary-treasurer, indicating his approval of the act. (The telegram referred to is as follows:)

FAYETTE B. Dow,

Washington, D. C.:

TULSA OKLA., February 12, 1937.

This association, representing large number independent refineries in the midcontinent area, strongly urges reenactment Connally hot oil bill. Our members feel marked progress has been made under the present act and failure to reenact the bill would be a decidedly backward step. We request you do everything possible in behalf of the bill and request Senator Connally place this telegram in record of official hearings.

WESTERN PETROLEUM REFINERS' ASSOCIATION,
A. V. BOURQUE, Secretary-Treasurer.

Senator CONNALLY. We also have one from the Pennsylvania Grade Crude Oil Association, a similar wire.

(The telegram referred to is as follows:)

FAYETTE B. Dow,

.

OIL CITY, PA., February 13, 1937.

Washington, D. C.:

Vice President, Pennsylvania Grade Crude Oil Association,

Our board of directors has instructed me to request that you place in the record of the Senate the strongest possible endorsement of the pending bill,