I think that is the best protection, both in peace and war, for a virile industry as well as for the economy, not only of our own country but abroad, which I think is very necessary for peace and war conditions.

Mr. SIMPSON. Would you care to state: Do you anticipate big increases in the importation of petroleum in the next several years? Mr. HOLMAN. We do not; no, sir.

Mr. SIMPSON. Do you with respect to crude oil, if that is a different category?

Mr. HOLMAN. It defends, of course, altogether on the finding rate in this country.

Mr. SIMPSON. Do you subscribe to what was suggested some time ago about a division of the growth?

Mr. HOLMAN. A division of the growth?

Mr. SIMPSON. Yes; share the growth.

Mr. HOLMAN. I do not believe I understand that.

Mr. SIMPSON. That was suggested by someone a while ago, and I think they meant as new business becomes available to the petroleum market, it should be divided between the domestic and the foreign produces.

I should have asked the gentleman who suggested it, and I will not push it with you, although I would like to know on what percentage and how they would do that, or whether just freehanded competition would be the answer.

Mr. HOLMAN. The latter would be my idea of the best way to do it. Mr. SIMPSON. Always subject, though, to the importer's discretion as to whether he should not curtail it, for some reason or other, voluntarily?

Mr. HOLMAN. As far as we are concerned, speaking as an importer, Congressman, we would be the last one in the world ever to wreck our own investments here in the United States, for we have, dollarwise, greater investments in the United States than we have abroad. So I think it is in our own interest to protect our domestic industry, to protect the domestic investments.

Mr. SIMPSON. You will not wreck your own business, and you do not wreck your own by shipping in residual oil, because you do not have much of that here.

Mr. HOLMAN. Oh, yes, we do. We produce more residual oil here than we do abroad.

Mr. SIMPSON. Do you not buy it abroad and ship it in, that which you do not make?

Mr. HOLMAN. No. The amount of domestic fuel oil produced domestically by us, I imagine-I haven't checked the figures recently, but I imagine we produce more domestic residual oil in the United States than we do in the Caribbean area. Certainly I think we produce more than we ship in.

(Mr. Holman later submitted the following information :)

Mr. GORDAN GRAND, Jr.,

STANDARD OIL COMPANY OF NEW JERSEY,
New York, N. Y., May 20, 1953.

Clerk, House Ways and Means Committee, New House Office Building,

Washington, D. C.

DEAR MR. GRAND: On Wednesday, May 13, 1953, I testified before the House Ways and Means Committee on H. R. 4294, the Simpson bill, and I refer you to the portion of my testimony appearing in the transcript partly on page 1985

and partly on page 1986. I commented, in connection with the production of heavy fuel oil by the Jersey affiliates that I had not recently checked figures but, since that date, I have checked and would like for the accurate figures to be made a part of the record. They are as follows:

The total production of heavy fuel oil for the year 1952 by Jersey affiliates in the United States amounted to 121,700 barrels daily. Imports by Jersey affiliates in 1952 were 150,000 barrels daily.

Sincerely yours.

EUGENE HOLMAN.

Mr. SIMPSON. Is it true that the oil from abroad-I refer to residual oil-is a waste product if it were not for the market available in the United States?

Mr. HOLMAN. No; no such thing as a waste product.

Mr. SIMPSON. Is it true that the price jumps up and down and is kept just low enough to take the coal market?

Mr. HOLMAN. No, sir. As I cited in my testimony, our residual oil sells in the United States to our customers at precisely the same price that domestic residual oil is sold to our customers.

Mr. SIMPSON. That would be natural.

Mr. HOLMAN. Yes, sir.

Mr. SIMPSON. Otherwise, what would you do with the American residual oil if you took the market value of the imported? You would have to keep the price the same there.

You also have residual oil, that which remains after you make gasoline and other derivatives, do you not?

Mr. HOLMAN. That is right, sir.

Mr. SIMPSON. I have lots to learn about the oil business. Thank you very much.

The CHAIRMAN. Any other questions?

We thank you very much for your contribution.

Mr. HOLMAN. Thank you, sir.

The CHAIRMAN. The next witness is Mr. R. G. Follis, chairman of the board of Standard Oil Co. of California.

Mr. Follis, if you will just give your name and the capacity in which you appear for the record, we will be glad to hear you.

STATEMENT OF R. G. FOLLIS, CHAIRMAN OF THE BOARD, STANDARD OIL CO. OF CALIFORNIA, SAN FRANCISCO, CALIF.

Mr. FOLLIS. R. G. Follis, chairman of the board, Standard Oil Co. of California, San Francisco.

I welcome the opportunity to appear before your committee to present the views of Standard Oil Co. of California on the important. subject of petroleum imports into the United States.

Our company is opposed to the adoption of the Simpson bill insofar as it bears on quota limitations that may be imposed on petroleum imports.

Our reasons for taking this position are:

Petroleum is one of the most vital of all commodities, both for the domestic economy and for military use. The United States is consuming its reserves at a much faster rate than other important producing countries. The potential productive land area in the United States is considerably less than in the balance of the world; we have only a fraction of the lands favorable to oil production. Yet, in spite

of years of carrying a large portion of the world's production, we have some 25 percent of remaining discovered reserves, and we currently are producing over half of the world's oil.

Stated in other words, the extreme energy and ingenuity of American industry have already uncovered many times the reserve per square mile of possible territory as compared with the rest of the world. Yet, we are producing our present proved reserves more than five times as fast as the very large reserves of the Middle East.

For example, the Middle East (exclusive of Iran) is currently producing less than 1.5 percent of reserves each year. In comparison, the United States, at 8.1 percent, is drawing heavily upon underground storage. Consequently, we have a relatively low backlog for emergency use in the very areas which are the safest from enemy aggression. California, at 9.4 percent, is producing to full capacity.

These considerations convince us we should husband our irreplaceable reserves of petroleum as much as possible consistent with maintaining a dynamic domestic industry. This latter is necessary in order to assure a vigorous exploration program which would continue to unlock our hidden reserves as those already discovered are exhausted. It is necessary that we have a sound foreign industry that will not only augment our domestic supply as needed, but will supply our allies in the free world with their requirements of this vital commodity. In addition, we require a cushion provided by substantial foreign production to assure the free world's supply of this essential commodity in the event of war.

To have the necessary cushion of productibility readily available in other countries, a reasonably stable economic situation must exist for the development of the oil industries in such countries. This cannot take place if the outlets for their oils are turned on and off as we have a need for such oil in the United States or as the need for supplies subsides, as it does from time to time.

Further, the damage to the economies of the large oil-producing countries of the world, if they cannot dispose of reasonable amounts of oil in the United States, would have serious worldwide repercussions from many angles.

American oil companies have demonstrated an unusual ability with the aid of American know-how to find and develop oil throughout the world. This poses difficult problems.

A foreign venture by Americans involves the investment of vast sums of money before a single barrel of oil can be delivered to the market. It also involves the responsibility of being good citizens in foreign countries. The income accruing in the case of many of these countries from such an operation soon forms the very heart of the economy of that country-standards of living are raised-education is improved their dollar income is used to buy a vast variety of goods and services from the United States and other countries. Having over the years developed this source of supply which has become not only an important part of the economy of the country, but also of immeasurable value to the United States and the free world, we have a far-reaching obligation in that area.

To impose import quotas against the principal products which these friendly nations sell us could only result in tearing down rather than building up their good will toward us. It could well lead to

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creation of artificial barriers against the many American commodities they now purchase.

The American consumers of petroleum products the public, industry, and the military services have the greatest possible stake in this proposed legislation. It is simply not in the interests of these millions of consumers to set up artificial import barriers. The consumer fares best, as to the prices he pays for finished products, when all potential raw material sources can seek a market in all potential consuming areas. If heavy restrictions were placed on imports-be it quotas, higher tariffs or other controls-it should be obvious that artificial forces would be exerted in the direction of higher prices for crude oil and its products beyond those inherent to a free market.

We are also opposed to legislation of the type in the proposed bill, because it destroys the flexibility so necessary in an industry such as petroleum in meeting rapidly changing conditions in the markets, many of which are entirely unpredictable. I shall discuss this further in a few moments.

In short, it is the belief of our company that the interests of all of the people in the country and all of our industries are served best by the natural and free actions of economics, restricted only by that gov ernmental regulation which serves the broad public interest. We believe that the secret of America's continued success lies in this concept.

We therefore believe it is in the national interest to import all pe troleum that can be brought in without damaging the domestic industry.

We feel this very strongly despite the fact that Standard Oil Co. of California's prime interests are within the borders of the United States.

We are one of the largest crude oil producing companies in this country. This year, we expect to produce from domestic sources a total of about 300,000 barrels daily.

We have confidence in the economic climate for the United States producer to the extent that we plan to spend $114 million on domestic exploration and development this year, about the same as 1952 and 60 percent higher than in 1950.

Our company's financial position is concentrated in the United States. By far the greater part of our assets is in the United States. Our company's success, its growth, and its stability are all dependent on the future health of the oil industry in this country and the continuance of growing markets at a fair price for the crude oil and petroleum products which emanate from American oilfields.

So I reiterate that in spite of our position in this country, we believe that adoption of this bill would be a grave mistake, and that oil imports should be allowed to come in freely to the extent possible without injuring the exploration and development efforts of the domestic industry.

In view of the preceding reasons for our opposition, we have considered the necessity for legislation of the type of the Simpson bill in the light of the present condition of the industry in the areas in which our company operates. We have attempted to determine if there have been indications that imports at the present and projected levels are seriously retarding the normal vitality and activity of our

industry-in other words, if a situation exists which might warrant extreme measures such as are now proposed.

East coast: Although our principal area of domestic operation is the west coast and it is in that area that our company is most vitally interested in imports at the present time, we do operate on the east coast and midcontinent areas. We have plans to import about 51,000 barrels per day of light gravity crude oils in 1953 for use in our refinery at Perth Amboy, N. J. Most of this crude oil will be produced by Arabian American Oil Co. in which we have a stock interest. We are also importing in 1953 an estimated 16,000 barrels daily of a viscous heavy crude oil which we produce in Venezuela. This is a special crude ideally suited to the production of asphalt for paving highways and other uses. This raw material is typical of crudes that are completely different from the general utility oils used in refining, but which are nevertheless essential to the national interest.

Whereas I am sure we could get refinable crude equivalent to present imports for our use in the United States at the present moment, the importation of our foreign crude involves long-term commitments which must be given serious consideration. We have not only longterm investments such as ships, refining facilities and terminals specially built for this service, but also obligations that carry back to the producing countries themselves, and we do not feel they should be deprived of this market which was developed in good faith without most serious justification. We believe it is clear that no such justification exists. The condition of our own producing subsidiaries east of the Rocky Mountain area does not indicate it, nor do general industry yardsticks usually sensitive to the economic climate of our industry.

For example, figures published by the Interstate Oil Compact Commisison show that the number of geophysical crews operating in the United States in January and February this year averaged 713, compared with 627 in the first 2 months of 1952 and 485 a year prior to that. The United States Bureau of Mines reports that the total number of well completions in the United States in the first 2 months of 1953 was only slightly lower than a year earlier.

Another indication of actual exploratory activity is the continuing shortage of geologists and geophysicists, which shows no indication that the oil industry is curtailing these activities in any substantial scale.

As a matter of fact, all these activities continue at exceptionally high levels related to our past history. We contend that fluctuations in such activities are caused, not by imports of the size presently existent, but rather by basic economic conditions within the oil industry, by such conditions as steel shortages which still continue in some degree, and on occasions by fluctuations in the general business

situation.

Development drilling, which is often confused with exploratory drilling, is also subject to fluctuations independent of imports and often related only to the irregular sequence with which discoveries come in. A bunching of large discoveries at any time will result in a major burst of drilling, and vice versa, without regard to other factors.

The recent reductions in allowables and production in Texas are no new phenomena. Such declines have been characteristic for a