An attempt is made to justify S. 489 using the concept of collusion by implication; but S. 489 fails to recognize the reasons for oil industry joint ventures and merely concludes they are bad. Historically, joint ventures in oil production were encouraged for conservation purposes by state unitization laws. Joint ventures in pipelines improve efficiency and reduce costs by preventing unnecessary improve efficiency and reduce costs by preventing unnecessary expenditures on duplicate facilities. Imagine how costly and wasteful it would be if the 8 partners in the Alaskan Pipeline had to build 8 pipelines across Alaska. The environmentalists would be busy registering their complaints. Joint ventures in offshore bidding and in production reduce and spread the huge financial exposure of any one firm and facilitate the entry of small firms. Integration results because of the economies of scale, to provide for and insure a smooth flow of products through an integrated company, to reduce large storage costs and to increase a firm's ability to compete. The monoply model justification for S. 489 also uses the worked-over allegation of the withholding of gas in anticipation of higher prices. But this charge has been refuted so many times that it hardly warrants my comment. As Secretary Morton said before the Senate Commerce Committee last December, "The continually recurring claim that the shortage is contrived has been refuted by every knowledgable effort to determine its veracity. This Subcommittee should not accept S. 489's specious approach to such a critically serious matter affecting our country's future as its energy supplies. I have tried to point out here a few of the instances where the arguments supporting S. 489 are sensationalistic, inconsistent, and untrue. The bill also takes an impractical approach to our energy problem. 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, if 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 lead times are necessary. For example, on the average nine year 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 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 non-energy endeavors that a bill is proposed to not only to 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. As opportunities to invest in oil and gas operations wane in the future, this bill will either force the petroleum companies to transfer their investments to non-energy businesses or result in the liquidation of the petroleum industry. The industry will not be permitted to expand into the energy era of the 21st century. This will be a tremendous waste of financial, technical, and human resources. Furthermore, I do not believe the record of the petroleum industry firms engaged in the production of other fuels warrants such discriminatory legislation. 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 non-petroleum firms having coal interests. 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 non-petroleum 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. A similar trend is true in the nuclear fuel industry. Much research in the uranium field has been conducted by Kerr-McGee Corporation, an Oklahoma based firm which has entered into both uranium and coal production. Geothermal steam operations are technically so similar to crude oil operations that expansion into this area of endeavor is natural for an oil company. In order to produce geothermal energy, it is necessary to drill wells into the earth's crust. These wells are drilled similarly to crude oil and natural gas wells; they are completed in manners which are similar to oil wells; the reservoir problems are similar to oil and gas reservoirs; and the fluid handling situations are comparable to those in the oil field. Again, many of the technical breakthroughs in the geothermal field are the result of petroleum industry research, development, and experience. 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 definite aggressiveness by the firms involved. Nevertheless, the industry's share of total production is not large enough to exert any market power-38% for uranium and 18% 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 Company has 10% of U.S. coal production, 3% of estimated coal reserves, 2% of crude oil production, 2.5% of refined petroleum products, 1.4% of natural gas sales, and 4.3% 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. 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. The production of coal from the petroleum industry associated coal firms has doubled over the past ten years. In the case of Consolidation Coal Co., a subsidiary of Continental Oil Co., production of coal increased by nearly 30% since the acquisition. Continental's average capital expenditures on Consolidation activities were over 200% greater than the pre-acquisition level. The technical contributions of the petroleum industry to the development of other energy supplies makes entry by smaller, less financially strong firms easier. Because much of the research and process development work is being done by the petroleum companies small firms will be more readily able to become involved in these fields. Financing can be more easily obtained if a proces is developed. Furthermore, if the petroleum industry cannot participate, many nonpetroleum firms may be denied potential partners. 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 KerrMcGee'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 non-petroleum, 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. I have previously mentioned the turn around in the performance of Consolidation Coal Co. after its purchase by Continental Oil Co. Oklahoma based Cities Services is actively involved in coal gasification and coal liquification 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 Company, 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 liquification. 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 country'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'll 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. U.S. SENATE, COMMITTEE ON INTERIOR AND INSULAR AFFAIRS. Dr. H. GUYFORD STEVER, We understand that the National Science Foundation has made a grant to Cornell University for the purpose of assisting our subcommittee in the evaluation and analysis of the responses of this questionnaire. We are deeply concerned over public statements by some members of the study group and the NSF Advisory Committee which indicate an apparent anti-industry bias and feel strongly that the objectivity so essential to a meaningful scientific report has been irreparably compromised. Dr. Duane Chapman, Professor of Agricultural Economics at Cornell University has ben designated as the principal investigator, but Dr. John Wilson, has been acting as director of the project with Mr. Sheldon Bierman, Mr. George Donkin and Dr. Timothy Mount engaged under his supervision. Their National Science Foundation Advisory Committee is composed of the following members: Professor Alfred Kahn of Cornell University, Professor Harry Trebing of Michigan State University, Mr. James Halverson of the Federal Trade Commission, Mr. John Gibbons of the FEA, Mr. Haskell Wald of the Federal Power Commission staff, and Mr. Larry Moss of the Sierra Club. On June 26, 1973, Dr. Wilson, appearing before the Senate Judiciary Subcommittee on Antitrust and Monoply, commenced his testimony by stating: "The fundamental conclusion that seems inescapable is that the petroleum industry is not in any sense of the word either adequately or workably competitive." On that occasion George Donkin accompanied and assisted Dr. Wilson in the presentation of his testimony and supported Wilson's views. Professor Alfred Kahn is a well-known adversary of the industry who has testified before our subcommittee and published a book condemning the vertical integration of the oil companies as being per se anticompetitive. James Halverson was one of the motivating factors behind the case now pending before the FTC alleging that eight of the oil companies are engaged in "unfair" anticompetitive conduct. We have been advised that he has also traveled extensively encouraging the attorneys general of many of the states to institute antitrust proceedings against the petroleum companies. The vigorous and open opposition toward the industry of Mr. Haskell Wald and Mr. Larry Moss has frequently been expressed. While we recognize and appreciate their right to hold and express whatever beliefs they might have, we feel strongly that it is unwise to engage persons with such strong preconceived ideas in a supposedly objective study. It represents a disservice to the purposes of our committee and the principles of scientific investigation. Dr. Eggers and Dr. Smith of your staff have maintained that if bias exists in the investigative team, it can be corrected by the appointment of one or more additional members to the Advisory Committee. Because of the renitence of Dr. Eggers and Dr. Smith to any other approach, we have suggested the names of several additional members for the Advisory Committee. We feel, however, that this is totally inadequate for the following reasons: Adding to the Advisory Committee cannot change the basic philosophies of those doing the analysis and therefore cannot prevent their bias from entering that analysis. The Advisory Committee can react only after much of the analysis has been completed and a report submitted. Many of those on the Advisory Committee have publicly made statements indicating preconceived ideas about the industry, and the addition of one or two members to the Advisory Committee will probably not have substantial effect. Advisory Committee members, because of time and financial restrictions, will probably not be able to become well enough acquainted with the basic data to present other possible interpretations. A study of this type is not merely a scientific investigation. It is an extremely important social issue. The results of this study can potentially influence legislation which will have far reaching impact on this nation. We are therefore convinced that the only adequate way to insure that this issue is analyzed properly is that the National Science Foundation make an additional grant to another group capable of objective and balanced analysis and whose interpretations would probably be different. Having differing interpretations of given information is a normal part of the American debate which strives to find the truth or, at least, the best path to follow. Stimulating debate is most important today in finding solutions to our energy problems. No doubt there are a number of persons who are qualified to perform such a function. If you desire some suggestions, we shall be happy to be of assistance. Your attention to this matier and prompt response will be most appreciated. Sincerely, JAMES L. BUCKLEY, United States Senate. DEWEY F. BARTLETT, United States Senate. U.S. SENATE, Washington, D.C., January 31, 1975. Re The National Science Foundation RANN Program Grant GI 41470. Dr. H. GUYFORD STEVER, DEAR DR. STEVER: Your grant was given to an organization known as The Cornell University Energy Industry Study. This study group obtained information as a result of Dr. John Wilson, a member of the study group, having been retained as a consultant by the Senate Committee on Interior and Insular Affairs in connection with the Special Subcommittee on Integrated Oil Operations (now the ad hoc Subcommittee on Integrated Oil Operations) and from a questionnaire, later referred to, which was sent out under the auspices of the Subcommittee. Approximately ten days of hearings were held by the Subcommittee and staffed by Dr. Wilson in an effort to elicit as much information and comment as possible from a broad cross-section of interested persons on the petroleum industry generally. The purpose of the Subcommittee was basically a factfinding one to elicit information on the status of competition and market performance in the industry. Subsequent to the hearings the Senate Interior Committee entered into a contract with the Cornell study group which provided, among other things, that the study group "will release no information obtained in carrying out the provisions of the contract without prior consent of the contracting Committee." A copy of that contract is enclosed for your information. Dr. Wilson, and presumably others of his group, prepared a draft of an extensive questionnaire to be sent to selected companies (originally 50 and ultimately 88, per the request of Senator Bartlett, a member of the Special Subcommittee). This questionnaire was reviewed by members of the Senate Interior Committee staff, by members of my staff and by myself, and was substantially revised prior to being sent out by the Subcommittee in May 1974. Due to, in part understandable, delays by the companies in responding, the original deadline for the final report was extended and at my request the Cornell Study Group prepared 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 prepared 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. The entire draft of the interim report had been given by Dr. Wilson to Senator Abourezk's staff without any indication that it had been prepared at the direc |