price control, what about price control on natural gas, where we are forcing, by a law and by regulations, the use and the sale of gas within the States who produce it and deny it to other States, and the crunch is here, Mr. Chairman. We had, in Sandusky, Ohio, businessmen who got so excited about it last week that they took out a full-page ad, saying, "Write your Congressman. Low natural gas prices, to be sure, but no natural gas." In Ohio, a great industrial State, industry is gradually coming to a halt, a grinding halt, and that is a common situation. Yet, notwithstanding that, we are going to have another experimentation in a new alignment of new Government interference and new Government regulation if this bill becomes a law. The same thing is true in the case of low prices of old oil. There seems to be a revulsion on the part of many legislators and others to allowing a higher price for petroleum products and the production thereof within this country, thereby stultifying and, in the main, halting, virtually, the discovery of new oil. There seems to be a revulsion of giving a higher price to domestic producers who form payrolls, who give employment, who pay income tax, and their employees pay income tax, and they get fringe benefits, and we have considerations of national security. There is a revulsion against it on the part of too many people. Yet, the policy followed along that line means that instead of 38 percent of our consumption here in this country being from imports, there will be a greater amount, relatively as well as absolutely, of imported oil where we are paying $13 and $14 a barrel, and we are promised, through the kind intervention of some of the OPEC countries, that in September, we are going to have a $2 to $4 increase in the price of these imports. In the meantime, Congress does nothing in this country to give. the incentive to the independents, and to the majors, and to the industry generally, to increase the production in this country. That seems to be the policy, and I greatly deprecate that type of policy. So, Mr. Chairman, we are replowing a field which has been thoroughly plowed many times, and is being plowed here much too much. According to the Federal Energy Administration, representatives of that agency have been asked to apear before several dozen different committees or subcommittees of the House since January; 76 times they have appeared. That was the figure in the latter part of June. Today's hearing will add to that number. We are really doing a job on it. Mr. Zarb-the Czar Zarb, they call him-has appeared before the Congress 28 times. I doubt very much that any expert in any field can testify 28 times, subject to the searching questions of congressional committees and subcommittees without necessarily, and of necessity, duplicating, repeating, and replaying the same record over and over again. He should be back in his shop most of the time, running his office, and instead of that, he is up here, satisfying the dictates and the demands placed upon him by these committees and their staffs. The Energy Research and Development Administration reported to Senator Scott of Pennsylvania that the witnesses from that Administration have testified before 6 full committees and 27 subcommittees of 13 different committees, this year alone; and now we are adding to it. Not only that, Mr. President-Mr. Chairman. This is not something that affects us directly Senator ABOUREZK. Excuse me, Senator Hruska. I am one of the few Senators not running for President; there are very few. Senator HRUSKA. I didn't say that; you did. Here we have by law, commencing on Friday, August 1, a recess until September 3, and this Senator has received a notice that there will be some more hearings on this very same subject during the first week in August, and I hope it doesn't eventuate for I have registered a protest. For years, this Congress and the members of this committee, not including myself, I might say, have campaigned that we should have a month. during the year that we can go home and spend part of the time with our families, part of the time with our constituents, and so on. It was only after a long battle that by law, that was established. So what do we have? We have pending and I hope, again, it doesn't materialize a request that there be hearings-we have many weeks of hearings, but let us get more of them started during August recess. It is true that news sources are rather scarce and sparse during August. Any committee sitting at that time gets a lot of attention, and a lot of press notice, and so on, but here we have a law that says we have a recess and we are entitled to a recess. Not only that, but many of us have made heavy commitments, formal and official in nature, for that month, within our States and without our States. Now we are confronted with this interference for the purpose of having hearings which are not emergencies. I submit that with all the plowing of these fields and replowing and harrowing, no seeds have sprouted. I don't think any seeds have been planted-too busy plowing all the time. Now, if it were something that were urgent, and if it was to the point, and if it was addressed to the proposition of increasing consumption in this country and really trying to reduce the dependence upon imports, I would go along with it. There is no such demonstration; there is no such need. So I deliver myself of these remarks, because I think they are serious, and the country is in serious shape, and here we are. Here we are, engaging in another exercise at the expense of staff and Senatorial person power, which is not going to be productive. In fact, it is going to be counterproductive, because it will add to the confusion, and the chaos, and the uncertainty, and the delay in getting at the real issues which the Congress should be willing, one of these times, to buckle down to and start trying to solve. I thank you for your patience, Mr. Chairman. Mr. Hardesty, I would like to welcome you to the committee. Sorry for the cancellation of the hearings last time when you were earlier scheduled to testify, but as you know, the Republicans are filibustering on the New Hampshire issue. They have been objecting to hearings after 10 o'clock almost every day. At that time, when they first began objecting, we did not want to take any chances and invite out-of-town witnesses in and then have to 57 587--76-13 send them back. I think we are fairly safe today. I have one question I would like to ask you before you testify: Why is it that I cannot get the Conoco calender. I have written three times and have been unable to get it; the one with the Arabic caligraphy on each month. Mr. HARDESTY. You shall have it, Senator. [Laughter.] I think we should start off on that note. Senator ABOUREZK. You can proceed with your testimony. STATEMENT OF C. HOWARD HARDESTY, PRESIDENT, EASTERN HEMISPHERE PETROLEUM DIVISION, CONTINENTAL OIL CO. Mr. HARDESTY. Thank you very much. Good morning, Senator Hruska, Mr. Chairman. My name is Howard Hardesty, and I am president of the Eastern Hemisphere Petroleum Division of Continental Oil Co., a member of its board of directors and a member of its management committee. Prior to my transfer to Continental Oil in 1968, I was the executive vice-president of Consolidation Coal Co., a company which I originally joined in 1963, as its general counsel. I welcome this opportunity to express my views on the proposed Interfuel Competition Act of 1975. At the outset, permit me to make my position clear. The passage of this act would be a disaster. Its enactment would, (1) reduce competition; (2) seriously deter development of critically needed domestic supplies, and thus, strengthen the OPEC cartel; (3) prevent important energy research and development; and (4) burden consumers with increased costs. You have received a position paper that deals, in detail, with various aspects of competition in energy activities. My oral testimony, because of time limitations, will concentrate on two areas. First, I would like to clear up several misconceptions often heard in discussions of energy matters. Some of these misconceptions which underlie the proposal under consideration, were developed in the comments of the chairman and his staff which accompanied introduction of the legislation on interfuel competition. I think it is obvious to all of us that Congress, and certainly our industry, needs accurate information in order to make correct decisions. Second in my oral testimony here today, I will respond to this committee's particular interest as outlined in Senator Hart's letter to me, dated June 5, 1975. In doing this, I will discuss the energy concept, capital availability, and technological considerations. Looking first at misconceptions regarding energy matters, I will focus on three of the more important charges, namely, that increases in petroleum prices are due to actions of major oil companies; that petroleum markets are monopolized by a few large companies; and that oil companies are withholding supplies of other fuels. Obviously, Mr. Chairman, I would be distressed by such allegations under any circumstances, but in view of the Nation's present energy problems and the great future effort needed to correct them, these erroneous charges are dangerously misleading. Let's try, if I may, please, to set the record straight. With reference to price increases, the erroneous reasoning that these price increases are due to actions of major oil companies goes something like this: (1) current inflation is caused by administered prices in concentrated industries; (2) the petroleum industry is concentrated, therefore, it follows that petroleum prices are administered. Thus, willy-nilly, concentration in the petroleum industry is responsible for higher prices. Senator ABOUREZK. May I interrupt, Mr. Hardesty? Mr. HARDESTY. Yes, sir. Senator ABOUREZK. Is the price of domestic petroleum based on the cost of its production, plus an adequate profit? Mr. HARDESTY. It is awfully hard to determine today, as you interpret FEA regulations, what is the basis for pricing either crude oil, and/or, the products. The relationship to cost is a very obvious one and it is so related. Mr. HARDESTY. Cost of production of crude oil-cost of refining and marketing it as petroleum products, are certainly major factors which go into the pricing of the product. Senator ABOUREZK. All right. Now, the second part of that question is, with regard to old oil that is now controlled at $5.25 a barrel— it went up from $3.62 a barrel in December of 1973 to $4.75-or rather, it went up from $3.62 a barrel in May of 1973, to $4.25 a barrel. Then in December of 1973, it went up to $5.25 a barrel. That is old oil, the costs were already in place, the pumps were already in place. There were, in fact, no additional costs to be drained out of those old oil wells, and yet, the price went up to the maximum allowed, at $5.25 a barrel. Is that based on cost of production? Mr. HARDESTY. In many instances, Senator, production which we have will exceed that cost. I am sure there is production which we have which is less than that cost. But the true test-now, I have not even gotten into my statement yet, and I am certainly delighted, as I ge through this, to deal with any issues that come up. I think the true test as to what is the cost of crude oil that goes into refined products is the composite cost, and the composite cost is certainly in excess of $5.25. Your old oil is but a small part, a smaller part, of the total crude oil going into the picture. Senator ABOUREZK. How much of importance is it? Mr. HARDESTY. The important figure, of course, is what is the composite cost, this is very important to us. Certainly, if a company is sitting on $116 million in banked costs, which are costs which we have incurred and we have not been able to pass through to the market, the true cost to us is a composite cost which is the mixture of the old, the new, the released, and the import. Those are the factors which determine the economics of the refining situation; and, Senator, we are still losing money in that game. Senator ABOUREZK. If I might just back you up a minute, Mr. Hardesty. Mr. HARDESTY. All right. Senator ABOUREZK. Let us get back to the separation made between old and new and released oil, by the Federal Energy Administration, by the Congress, if you will. The cost of old oil that had already been in place, are you telling me that that oil exceeded, as an average composite cost for old oil, that average cost exceeded $5.25 a barrel? Mr. HARDESTY. I did not say that. I said we will have old oil, the cost of which will exceed $5.25. We will have old oil that cost of producing does not equal $5.25 Senator ABOUREZK. Let us use your figure Mr. HARDESTY. There is going to be a great mixture because there are areas, Senator, where we are engaged in secondary recovery and we cannot do it at $5.25. This is important to the Nation, it is important that we get a secondary recovery. Because we were engaged early in that practice, the cost of old oil does exceed $5.25. I would be just as quick to say to you there are areas where we are producing that I am sure the cost is less than $5.25. I think the important test is what can we do with the $5.25, to go out and replace that barrel, so as to bring more production into the consumers of this country today. Senator ABOUREZK. All right. If I can get back to it now. Senator ABOUREZK. Let us use your term, "composite" of old oil. Senator ABOUREZK. Is that composite cost of producing old oil, does it exceed $5.25 a barrel? Mr. HARDESTY. I am sure for some producers it does. I cannot answer generally for the industry because I am not privy to that information. Senator ABOUREZK. How about for Continental Oil? Mr. HARDESTY. I would have to get a precise number on that. I do not know that you can get precise, but I would have to get that figure for you, Senator. Senator ABOUREZK. You mean that an oil company producing in America and it has been for a long time, does not know the cost of producing oil? Mr. HARDESTY. Why, of course, we know the cost of producing oil— Senator ABOUREZK. All right. Then, can you get the figures? Mr. HARDESTY. I have given you our composite costs. I have been able Senator ABOUREZK. Can you get the figures? Mr. HARDESTY. Senator, I would be glad to cover questions relating to costs to the extent that we can break them out and get them to you, I would be happy to do that. Senator ABOUREZK. All right. Do you think that you cannot get them to me? Mr. HARDESTY. I do not know, but I would like to go to the hundreds of people we have working at this present time, certainly, on these matters for the FEA, and see what material I can get to you. And to the extent that I can, I will give them to you. Senator ABOUREZA. Then will you also give me the underlying data upon which you base those costs? Mr. HARDESTY. No; we have attorneys keep this information- Mr. HARDESTY. 37,000-some documents, Senator, have been furnished to the Federal Trade Commission and to various committees, certainly, to get into this to the extent that I can get you information, Senator, I want to do it. Senator ABOUREZK. Yes. You can answer that one "yes" or "no". Will you furnish the underlying data, yes or no? Mr. HARDESTY. I will give you such data as will assist in determining costs, as we have available for you. Senator ABOUREZK. And what do you not have available for me? |