WALLER EXHIBIT NO. 5 FEAR of EXTINCTION! Monopolistic control over oil starts with production. Production of oil is strictly limited through a series of State laws, Integrated Refiner's nominations of the amounts of crude oil they will purchase the month following, U. S. Bureau of Mines estimates of future consumption and assistance from the Interstate Oil Compact all for the purpose of holding up the price and insuring profits. Through control over pipelines and tankers the integrated oil companies not only profit handsomely from transportation profits but thus control the destination of crude oil and refined products. From production the integrated oil companies get a Depletion Subsidy of 27% % - which on $2.90 crude oil means they can pocket about 80 per barrel tax free. In addition, they can write off as expense all drilling and development costs. Integrated oil companies have been the recipients of most rapid write off certificates given in the oil industry. The integrated oil companies pay less taxes on income than any other industry. These profits are the tools being used to embarrass, harass, or eliminate the independent oil men. Little wonder many oil men fear extinction. But before that time arrives, why not join with others in doing something about it before it is too late - JOIN THE NATIONAL OIL MARKETERS ASSOCIATION. MARKETERS National Oil Marketers Association WASHINGTON 4, C. ROBINEAU EXHIBIT No. 1 STATEMENT OF M. H. ROBINEAU, PRESIDENT, INDEPENDENT REFINERS ASSOCIATION OF AMERICA I am M. H. Robineau, president of the Frontier Refining Co., Denver, Colo., and president of the Independent Refiners Association of America. This statement is made on behalf of the Independent Refiners Association of America whose membership consists entirely of independent oil refiners. I should note also that this association includes independent refiners of all types-in all parts of the country and of varying size. We welcome the opportunity to appear at this hearing because the Commission will be groping here with the fundamentals of the industry in which we operate and it will be seeking solutions to problems which threaten especially the survival of independent refiners. We sincerely hope that the hearings will lead to practical and affirmative steps toward solving these problems. Toward this end we not only offer our assistance but we have specific recommendations both as to steps which your Commission can take within the framework of existing law as well as proposed revisions in existing law which will help both the Commission and private litigants in solving these gasoline marketing problems. At the outset it would be well for me to define what an independent refiner is and to describe the status and economic function of the independent refiner in the oil industry. This is desirable so that you may understand the nature of the companies represented by this association. It is also desirable because the independent refiner occupies a key role in maintaining competition throughout the oil industry, and the converse is equally true, that the greatest threats to competition in the oil industry are those brought to bear upon the operations of independent refiners. There is in the petroleum industry a clear-cut and long established difference between two major groups—the large integrated oil companies traditionally referred to as the majors, on the one hand, and the rest of the industry traditionally referred to as independents, on the other hand. The independents appear in all phases of the industry; there are independent producers, independent refiners, and independent marketers. Those companies who are the majors are recognized as such within the industry and the most common and traditional method of identifying the independents is that they are those who are not included among the recognized majors. This traditional industry recognition of the majors, and of others as independents, has in turn been recognized from time to time in the courts. For example, in the 1961 consent judgment dismissing the antitrust case involving the marketing operations of the Standard Oil Co. of Kentucky, the court identified the 21 largest domestic refiners and approved a definition of "independent refiners" as comprising all other refiners. U.S. v. Standard Oil Co. (New Jersey), Humble Oil & Refining Co., and Standard Oil Co. (Kentucky), 1961 Trade Cases 70,037 (W.D. Ky. 1961). The court adopted as the standard for determining the 21 largest domestic refiners the annual report of the U.S. Bureau of Mines. In the most current issue of that report published July 15, 1964, with data as of January 1, 1964, the following are the 21 largest domestic refiners, grouping (as called for in that court decree) all subsidiaries and affiliates with each parent company: Standard Oil Co. (New Jersey). Texaco Inc. Standard Oil Co. of California. Standard Oil Co. (Indiana). Socony Mobil Oil Co. Shell Oil Co.'s. Gulf Oil Corp. Sinclair Oil Corp. Cities Service Petroleum Co. Phillips Petroleum Co. Tidewater Oil Co. Sun Oil Co. Continental Oil Co. The Atlantic Refining Co. Union Oil Co. of California. Sunray DX Oil Co. Ashland Oil & Refining Co. Richfield Oil Corp. The Standard Oil Co. (Ohio). Except for the addition of Ashland Oil & Refining Co., this list includes the same companies recognized as "majors" at the time of the celebrated Madison Oil case of 1940. In the refining segment of the industry, this traditional difference between the majors and the independents has also been represented until recently by a clearcut difference in relative size. Until recently there was always a very large gap between the size of the largest independent refiner and the size of the smallest major oil company. Thus, for example, independent refiners ranged in size, until recently, without any perceptible or clearly defined gaps, from less than 1,000 barrels per day of refining capacity up to approximately 75,000 barrels per day capacity, and then there was a gap of over 50,000 barrels per day in size to the smallest major oil company. This broad gap between the refining capacity of the majors and that of the independent refiners has been narrowed by the recent growth of some of the largest independents. For purposes of the problems discussed in this hearing, however, there is a more basic characteristic of the independent refiner beyond size alone. For purposes of the problems of gasoline marketing, the critically important characteristic of the independent refiner is, as I shall show later in this statement, that the independent refiner does not own or control, to any significant degree, the crude oil production upon which its refining operations depend; nor does the independent refiner have, to any significant degree, other nonrefining profits or resources out of which to subsidize its gasoline sales. While some independent refiners may have some controlled marketing facilities, it is characteristic of all independent refiners that they lack to any significant degree crude oil production or other nonrefining and nonmarketing resources. The major oil companies, on the other hand, characteristically are integrated not only in terms of refining and marketing operations, but most importantly also in terms of their ownership of crude oil production-much of it acquired at low cost. And recently a new type of refiner has come into being which, for purposes of the problems of gasoline marketing, should clearly be classified with the majors. I refer to companies whose refining operations are small but who are engaged also in other large and profitable activities so that, just like the major oil companies, they can bring to bear competitively in the marketing of gasoline their vast nonrefining resources. Thus, the refining capacity of Tennessee Gas Transmission Co. is modest by oil industry standards, 62,000 barrels per day, but it is a billion dollar corporation. In this difference between the majors (including, as that term is used throughout this statement, the new breed of big business diversification refiner) and the independents lies the root of our most pressing gasoline marketing problems and the key to any solution thereto. To fully understand this key element, it is well to review briefly the structure of oil marketing and to define some of the principal terms, functions, and practices involved. TERMINOLOGY 1. "Dealer."-A dealer is normally an independent businessman who operates a retail gasoline station. He may own his station or he may lease it from the supplier or from a third party. He purchases the gasoline which he sells either from an independent refiner, a major oil company, or an independent wholesale jobber. He may sell under a major oil company brand, an independent refiner's brand, or his own brand. 2. "Jobber."-The term "jobber" is commonly used to define a businessman who purchases gasoline from a refiner and sells the gasoline at wholesale to dealers who resell the gasoline at retail. The term "jobber" is also sometimes used to describe a person who owns a chain of service stations and who purchases all of the gasoline for such stations from either a major oil company or an independent refiner. 3. "Commission agent.”—Gasoline is stored in bulk plants at locations near the retail market. Some bulk plants are owned and operated by jobbers. In other cases, the refining company may own the bulk plants and may own the gasoline stored therein and the bulk plant may be operated by refining company employees. However, the bulk plants owned by a refining company are sometimes operated by an independent businessman who sells the refiner's gasoline from the refiner's bulk plant on a commission basis. He is a "commission agent." 4. “Branded stations."-A branded station is a gasoline station which sells gasoline under the brand of the refining company which supplies it. 5. "Rebranded" or "unbranded" stations.-Gasoline stations which sell under an independent brand different from that of the refining company which supplies it are generally referred to as rebranded or unbranded stations. 1 We are aware that efforts are made from time to time to classify still other refiners of medium size with the major oil companies, usually on the ground that they enjoy high market acceptance in their local areas. Even if they enjoy such high market acceptanceeven if, for example, they can market gasoline at less than the normal differential (or even no differential) between major and independent brands-nevertheless in the absence of substantial crude oil production or other resources they are as vulnerable as other independent refiners to predatory pricing practices. |