Relative to other manufacturing industries, the petroleum industry's structure is much less concentrated. To show this, I am attaching to my statement two tables showing four-firm and eight-firm concentration ratios for various segments of the oil industry and for many other manufacturing industries.1 As shown in these tables, petroleum and natural gas production, refining, and marketing are much less concentrated than are many other industries.

But the material accompanying S. 489 continually sensationalizes on concentration figures of the top 20 companies in the petroleum industry. I should like to repeat-top 20. Many manufacturing industries such as motor vehicles and steel do not even have 20 firms. The low profitability of the petroleum industry over the last decade is the acid test of whether it has earned monopoly profits.

There is nothing in the statement accompanying S. 489 that proves anticompetitive behavior. The test seems to say, "Because the companies in the petroleum industry are big and sometimes conduct certain facets of their operations in joint ventures, they have to be in collusion although it cannot be proven on a case-by-case basis."

This kind of general allegation does not fit well into the philosophies of a legal system which requires proof. In this regard the comments of Dean Eugene Rostow, a noted economic and legal scholar, on S. 1167, by Mr. Hart, are also appropriate to S. 489. And I quote:

We should be clear about the extraordinary scope and thrust of Senate Bill 1167. The Sherman Act makes conduct, not economic structure the focal point of legality.

In my opinion our country, our economy, our workers, our taxpayers, and our consumers, all benefit when any company or individual is permitted and encouraged to enter any facet of the energy business. More importantly, however, it would be suicidal for our Nation to deny to the one group of firms best suited by knowledge, experience, and inclination to the production of energy, the freedom to enter these other energy businesses. The inevitable result of S. 489 would be reduced energy supplies, limited competition, and ultimately a higher cost of energy to consumers.

What characteristics of companies in the petroleum industry make them logical entrants into these other energy fields?

The capital costs required to establish commercial alternate fuel or mining operations are staggering.

Frequently, extremely long leadtimes are necessary. For example, on the average, 9 years are required in the uranium mining business from the inception of exploration in an area until commercial production is established. As a practical matter, only those firms having the financial strength of substantial income from other sources can withstand the burden to become involved in these risky and capital intensive, yet important endeavors. Petroleum firms in an uncontrolled market have this characteristic.

Because of managerial and technical similarities, expansion of petroleum companies into other energy fields is a natural extension of existing knowledge and operations. In my opinion, the companies in the petroleum industry are not interested in the production of alternate fuels because they intend to gain an anticompetitive hold on

1 The tables appear on pp. 21-22.

the production of energy. Rather, they are interested in maximizing the use of their technical and managerial expertise and experience and their financial resources by entering business activities to which they are especially well suited.

It is obvious that coal, geothermal, synthetic natural gas, synthetic crude, and nuclear will be playing more significant roles in the future energy picture of this country.

To deny petroleum companies the freedom and the opportunity to compete in these areas will have several detrimental effects.

It will cause either the flight of capital overseas or investment in the nonenergy industries which are permitted.

It is ironic that at a time when the petroleum industry has been criticized because of insufficient investment of profits in energy-related endeavors and for investment in nonenergy endeavors that a bill is proposed to not only keep them out of alternate fuel operations but also to kick out those companies which have already invested in alternate energy resources.

It is obvious that if the vacuum is filled, it would be filled by companies less knowledgeable and less experienced in energy or by the Federal Government.

Attached to this statement is a table showing the number of patents on the processes of producing synthetic gas and oil from coal which have been awarded to petroleum firms having coal interests and to nonpetroleum firms having coal interests.1 Although not an absolute indicator of technical development, the number of patents is significant. Petroleum firms have received 49 patents compared to 3 for the nonpetroleum firms.

This is not solely a function of relative interest but also reflects the technical and operational competence and experience of the petroleum refining industry and its similarity to synthetic crude and natural gas industry.

The records made by the oil companies which have entered the alternate fuels businesses do not support the contention of anticompetitive behavior. For example, data on the production of coal and uranium indicates the opposite of anticompetitive behavior by the petroleum industry. During the last decade, the production of both coal and uranium by companies in the industry has increased both absolutely and relatively.

This is hardly the withholding of production for the purpose of creating shortages and indicates indefinite aggressiveness by the firms involved. Nevertheless, the industry's share of total production is not large enough to exert any market power-38 percent for uranium and 18 percent for coal. Also, the relative market shares for the other energy activities of petroleum firms are not the same as for their petroleum operations. For example, Continental Oil Co. has 10 percent of U.S. coal production, 3 percent of estimated coal reserves, 2 percent of crude oil production, 2.5 percent of refined petroleum products, 1.4 percent of natural gas sales, and 4.3 percent of uranium production. These facts indicate strong competition rather than a lack thereof. In fact, the involvement of petroleum companies has increased competition, made entry of smaller firms more easy, and contributed significantly to overall supply.

1 Table appears on p. 22.

At least 18 petroleum companies have become involved in uranium exploration, mining, or milling through internal expansion rather than by merger or purchase of an existing operation. Gulf was a new entrant in the nuclear reactor business. A similar trend is true in coal mining; a substantial number of petroleum companies have entered the business through lease acquisition and exploration.

All petroleum companies involved in synthetic natural gas, oil shale, or syncrude projects are new entrants because these are infant industries. New firms in a business enterprise increase competition, not detract from it.

Because the petroleum industry is actively pursuing the research, development, and production of energy from sources other than oil and gas, the economy of the entire country will benefit. To show this, I would like to use as examples the activities of several medium-sized petroleum companies which have substantial operations in Oklahoma. Kerr-McGee has had uranium mining and milling operations for over 20 years. Several uranium processing facilities are also located within the State. The company has contracted to supply coal from company-developed leases and properties to utilities in Texas, Oklahoma, Louisiana, and Arkansas. A pertinent question is what would have happened to the development of uranium mining and processing technology, the economies of the communities in Oklahoma where Kerr-McGee's facilities are located, and to the future coal supply for those utilities, had S. 489 become law years ago? Although it is not possible to say that these resources would not have been developed or that technical progress would not have been made, certainly no other company, either petroleum or nonpetroleum, was willing to venture forth as aggressively as Kerr-McGee.

Kerr-McGee's involvement or that of any other petroleum company has not precluded other nonoil companies from becoming involved if they desired to do so.

Oklahoma-based Cities Service is actively involved in coal gasification and coal liquefaction research and owns an oil shale deposit.

The company has plans for commercial facilities for coal gasification. The company's oil shale leases were obtained through internal expansion and not by acquisition. Cities' operations will contribute in the future to an expanded supply of natural gas and crude oil which might not become available if the company is denied the opportunity to compete in these fields.

Phillips Petroleum Co., another Oklahoma firm, has interests in uranium, coal, oil shale, and geothermal. The company is actively engaged in research activities for oil shale processing, coal gasification, and crude liquefaction. Discoveries have been made and the economics of commercial production are being evaluated for the company's uranium, coal, and geothermal projects. Energy production from these sources could well be deferred or stopped if Phillips is forced to divest itself.

In summary, S. 489 is discriminatory legislation which would create chaos in the U.S. energy sector. It is a thinly disguised effort to transfer the burden of energy production to the Nation's taxpayers. It flies in the face of the Nation's energy objectives.

At a critical time it would severely defer the sensible and economic development of coal, nuclear, geothermal, oil shale, and other sources of energy necessary to supplement domestic oil and gas.

It would cause companies in the petroleum industry to face ultimate liquidation with the concurrent deleterious effect on the economy, the taxpayers, the consumers, and the Nation. It would force the export of capital for investment abroad. It would decrease competition in the energy industry.

This bill, built on a foundation of trumped up arguments, recommends that this Nation should go on a masochistic binge which promises that we will somehow feel better even though we are worse off.

This bill, constructed in counterproductive nonsense, would create a vacuum that could only be filled by our Government, which most likely would deliver energy with the same dispatch and cost that it delivers the mail.

[The prepared statement of Senator Bartlett follows. Colloquy resumes on p. 23.]

PREPARED STATEMENT OF DEWEY F. BARTLETT, A U.S. SENATOR FROM THE STATE OF OKLAHOMA

I appreciate this opportunity to appear with my good colleague before this subcommittee and express my views on S. 489, "The Interfuel Competition Act of 1975." This bill would deny to any company which produces or refines crude oil or natural gas the opportunity to engage in other energy businesses such as oil shale, coal, synthetic natural gas or crude oil, uranium mining or processing, geothermal steam, and solar. This is like preventing a wheat farmer from grazing cattle on his wheat in the winter and saying we're improving competition in cattle production.

The asserted purpose of this legislation is to promote competition in the energy industry and to encourage the development of energy supplies. However, unfortunately this bill would have just the opposite effects. It would reduce competition and available capital and would retard the future development of all energy sources. If this bill is enacted, the public would pay higher prices for energy. There would be less domestic energy available. High cost imports of oil would increase in amount and in price. We would be more dependent upon foreign production and more vulnerable to political blackmail. Our national security would be further threatened. For these reasons, this Subcommittee should reject it.

One of the primary reasons the bill would have effects opposite of those intended is that its basic premise of anticompetitive practices by the oil industry is unsupported and untrue. Regarding the large oil companies, the bill attempts to capitalize on the politically appealing theory that bigness is bad. However, absent adequate data to substantiate this theory, there is no justification for a blanket measure which denies entry of an entire group of companies into potential fields of endeavor. This bill, in itself, is anticompetitive and would by its design curtail entry into various energy businesses. It would tend to create monopolies.

All that is proven by a statement like "The top 5 oil companies are among the Nation's 10 largest industrial firms" is that the business of supplying energy to this Nation is a big business requiring significant financial capabilities on the part of many of the firms primarily involved. Unfortunately, because of our domestic energy shortage, the total domestic energy industry is alarmingly too small.

As an example of the kind of "biased" and "inconsistent" data used to justify S. 489, I have attached to my statement two letters to Dr. H. Guyford SteverDirector of the National Science Foundation. One letter is from the distinguished Senator from New York, Mr. Buckley, and me; the other, from the distinguished Senator from Colorado, Mr. Haskell. The letters concern a study on the structure of the petroleum industry funded by the National Science Foundation which used data solicited from the oil companies by the Special Subcommittee on Integrated Oil Operations of the Interior Committee. Some of the text and many of the tables accompanying and supporting S. 489 were developed because of this National Science Foundation study.

I now quote from Senator Haskell's letter: "Due to *** delays by the companies in responding, the original dealine for the final report was extended and

at my request the Cornell Study Group proposed a draft interim report. This interim report was finally delivered to my office after considerable delay late in November.

"The interim report was referred by my office to the staff of the Senate Interior Committee for review and comment. It was found to contain internal inconsistencies and the introductory text showed obvious bias. I asked the Interior Committee staff to work with the Study Group to put the interim report in final form.

"In the Congressional Record of January 29, 1975, there appeared many of the charts proposed as part of the draft interim report. Some of these charts contained the previously mentioned 'internal inconsistencies.' Also, a part of the biased narrative was reproduced."

Mr. Chairman, it is significant that much of the data utilized as the rationale for S. 489 was characterized by one of my colleagues as being "internally inconsistent" and "biased." This Subcommittee should thoroughly evaluate the quality of the evidence before it recommends such discriminatory legislation as S. 489. If the petroleum industry is non-competitive, it is reasonable to assume that monoply profits have been earned in the past because this is the objective of any monoply. In this regard, however, I quote from testimony by Professor Edward Erickson of North Carolina State University before the Special Subcommittee on Integrated Oil Operations:

"Profitability is an important indicator of the existence and exercise of monoply power. The record of long-run profitability in the petroleum industry indicates that the firms in this industry do not enjoy substantial, systematic market power. This index of effective competition yields positive results whether the comparison is to all U.S. manufacturing, Moody's 125 industrials, Moody's 24 public utilities, or a group of industrial firms known to possess market power." Indeed, if the petroleum industry has colluded to reduce supplies and raise prices, it has been very ineffective at it. Dramatic evidence of what results from actual collusion is provided by the OPEC cartel-it really practices collusion. I ask you to compare the remarkable record made by the American companies in providing petroleum supplies at reasonable prices with the recent record of the OPEC cartel.

Because over the long run the profitability of the petroleum industry has been only mediocre, insufficient capital has been invested in energy development. As an example, in 1955 when our consumption of oil was 8.9 million barrels a day, 2,700 rigs were actively drilling in this country. Now, when consumption is about 17 million barrels a day there is sufficient capital available to support only 1,600 active rigs. This country has been living on the oil and gas discoveries of the 1950's for nearly 20 years. Our surplus productive capacity has dwindled to a sizable deficit. To duplicate proportionately the exploratory/development effort of 1955 so that domestic consumption would be balanced by domestic production, over 5,100 rigs should now be actively drilling.

Relative to other manufacturing industries, the petroleum industry's structure is much less concentrated. To show this, I am attaching to my statement two tables showing 4 firm and 8 firm concentration ratios for various segments of the oil industry and for many other manufacturing industries. As shown in these tables, petroleum and natural gas production, refining, and marketing are much less concentrated than are many industries.

But the material accompanying S. 489 continually sensationalizes on concentration figures of the top 20 companies in the petroleum industry. I should like to repeat-top 20 companies. Many manufacturing industries such as motor vehicles and steel do not even have 20 firms. The low profitability of the petroleum industry over the last decade is the acid test of whether it has earned monopoly profits.

There is nothing in the statement accompanying S. 489 that proves anticompetitive behavior. The text seems to say, "Because the companies in the petroleum industry are big and sometimes conduct certain facets of their operations in joint ventures, they have to be in collusion although it cannot be proven on a case-by-case basis." This kind of general allegation does not fit well into the philosophies of a legal system which requires proof. In this regard the comments of Dean Eugene V. Rostow, a noted economic and legal scholar, on bill S. 1167 (Hart) are also appropriate to S. 489: "We should be clear about the extraordinary scope and thrust of S. 1167. The Sherman Act makes conduct, not economic structure the focal point of legality."