Oil Embargo? Merger?

Last week was actually an unusually bad week for the troubled oil industry. The new pool in eastern Texas (TIME, Feb. 2) gushed greater, became a major threat to prices. The Federal Trade Commission demanded a revision of 18 of the 21 rules of ethics adopted by the industry in July 1929. Earnings statements were bad. Dividend reductions included Standard Oils of Indiana, Kansas, Nebraska. In Oklahoma, Potential Production rattled the lid of Proration, never securely clamped down.

Yet all these gloomy items of the week faded for a moment before two other important developments: Independent producers were cheered by the prospect of a Federal embargo on petroleum imports to the U. S. Corporate producers were cheered by a court decision in favor of the much-discussed merger plan of Standard Oil Company of New York and Vacuum Oil.

Embargo, When Oil was not placed in the new Tariff Act last Spring, observers said that independent oilmen had shot their bolt. But the independents were not defeated so easily. Every time they have gathered, their cry of "Stop those imports!" has been more and more determined.

A political champion for the independents has been Senator Arthur Capper in whose State of Kansas owners of thousands of small old wells have lost their market as the result of Prairie Oil & Gas Co.'s recent decision to stop buying oil from small old wells. In his fight for the cause of oil, Senator Capper is heartily backed by Governor Harry Woodring of Kansas. Last week Governor Woodring sent a telegram of many hundred words to President Hoover, saying he was "astonished and appalled" that no plan for savin? Kansas independents had been devised.

Last week the independents cheered when the Senate Commerce Committee voted (9-to-6) in favor of the Capper Bill which provides for a reduction in crude imports to 16,000,000 bbl. per year for the next three years, and a total embargo on gasoline during this time.

Wilbur's Switch-- To reach its decision, the Senators took much testimony. Robert Giffen Stewart, president of Standard Oil of Indiana's big subsidiary, Pan American Petroleum & Transport Co. was dead against any tariff, as well he might be since his company is one of the biggest importers of gasoline. Senator Tydings of Maryland was also opposed. He said a tariff would cost the U. S. people "at least $980,000,000 a year." Senator Tydings probably also had in mind the fact that when an experimental shipment of Soviet oil was lately made to the U. S. it arrived in Maryland's Baltimore, that Baltimore may hope to become a big oil port.

Favoring an oil tariff was Labor. Edward F. McGrady of the A. F. of L. lamented: "The condition of the oil-well workers is deplorable."

Ralph Arnold, Los Angeles oil engineer, said a protective wall is essential, that the U. S. has enough oil to meet current demands for 500 years.

Weightier than any other testimony was a letter from Secretary of the Interior Wilbur. In it he reversed his attitude that the oil industry must help itself. Independents jumped for joy when they heard that he had said: "If proration is the logical method of control of supply, it would seem to be logical to apply it to imports."

Independent operators, their incomes stunted or killed by proration in the U. S.. are sorely vexed at the big companies which can afford to cut down their U. S. production while letting their wells in foreign countries flow freely, shipping that oil into the U. S. Especially irate, especially loud in calling for a stopper on incoming foreign oil has been energetic Wirt Franklin of Tulsa. Also Roland Smith and Lloyd Hilton Smith, president and vice president of Tulsa's Oklahoma Co. Also Malcom Crim on whose land the new Texas pool was found. Also Harry Ford Sinclair. The Senators' decision for a partial embargo was in the nature of a compromise between the Tariff plan and the free-market pleas of the big companies.

The big importing companies are the Shell group, Gulf Oil, Standard of Indi ana with its many subsidiaries, Standard of New Jersey. Against these the independents marshal the following U. S. oil figures:

1930 1929 (000's omitted)

Domestic demand 922,000 940,000

Imports, gasoline 16,927 8,834

Imports, crude 62,129 78,933

U. S. Production, crude 896,265 1,007,323

Exports, crude 23,706 26,411

Exports, gasoline 64,978 62,059

While imports of crude are relatively small, they can mean the margin of the independent producers' profits. And gasoline imports have increased at an alarming rate. Likewise, if imports of refined products are translated back to crude oil, imports last year of all oils came to 116,652,000 bbl. against 115,200,000 in 1929 and 90,625,000 in 1928.

Countries. Independents liked the Capper Bill because it laid down a schedule by which imports will not merely be limited, but by which the imports from each country will be prorated on their 1928 exports to the U. S. The result would be:

1928 1931-33 (proposed) (000's omitted)

Mexico 17,584 3,507

Venezuela 21,981 4,410

Dutch West Indies 24,989 5,012

Colombia 11,838 2,374

Peru 1,224 245

Ecuador 765 153

Trinidad & Tobago 496 99

Little & Big Rights. Although there are many angles to the U. S. oil picture, the chief problem is to determine what the future is worth in the terms of the present, and how much of the future's present value should be paid by oil-land owners, a very small minority of the people. Owners of wells which would ordinarily pour dollars into their pockets protest that they have a right to the income from those wells, that if unleashing of production now means lower prices, that is their business. They also say that if imports are checked U. S. production will rise enough to bring profits to independents, also enough to protect the U. S. motorist from any great upping of the cost of motoring.

Big companies, on the other hand, maintain that first of all it is their economic right to buy oil wherever it is cheapest, sell it wherever the most profit is obtainable. Second, they maintain that U. S. oil, a valuable national resource, should not be used when oil can be brought from other nations. So long as imported oil is cheap, let it stay cheap, say they, and let U. S. oil remain underground where it cannot deteriorate, where it is worth more than it would be if dumped on the open market.

Merger. The Socony-Vacuum merger was proposed last February on the logic that a great producing company like Vacuum is the natural and necessary complement of a great distributor like the New York company. Other big producers and distributors read with interest and pleasure last week's verdict by three judges of the Federal Circuit Court of Appeals in St. Louis that: "There is, and could be, no contention here that the present contemplated merger is a continuance ... of the conspiracy and monopoly found to exist in the main suit [which dissolved old Standard Oil]. The contention is, and must be, that it is an entirely new undertaking. . . . The intent and purpose of the merger is solely to meet the normal and natural business necessities of the two companies."

Should the deal be approved by the U. S. Supreme Court, oilmen forecast that other units of the old Standard Oil "Trust" will seek to merge, that herein may lie a partial cure to the industry's ailments.

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