Chairman DIXON. Yes. But when we begin to hear an accumulation of testimony to the effect that independent refineries are losing money, sales beneath cost, and then I look over at your public statement and find that you are making a pretty good profit after taxes, where are you losing it?

Mr. MOORE. Did you direct that, to me-that we were making money?

Chairman DIXON. Yes. I say where are you losing this money? You are having to engage in sales beneath your own cost, you say, and this is a loss to you.

Mr. MOORE. That's correct.

Chairman DIXON. And yet when you put out your public figures, you make-yours are in here-I have the Colorado Oil & Gas Corp. That includes you in it. Your average between 1951 and 1961 has

been 7.3, and the industry average is 4.7.

Mr. MOORE. 7.3 based on what?

Chairman DIXON. Based upon your annual report.

Mr. MOORE. Do you have the Derby Refining Division separated from that consolidated return?

Chairman DIXON. I will have to go behind that and find it. But that is my citation.

Now, you stated that you got some of your oil from your parent corporation. What percentage?

Mr. MOORE. It is a very minor percent. It would be only about— oh, 2,700 to 3,200 barrels a day in Kansas-our crude oil production— the crude production is located in Wyoming and Nebraska, Kansas, Louisiana, Texas. So obviously you can never run your own crude oil through your own refinery.

Chairman DIXON. Are you free from this incremental barrel practice yourself?

Mr. MOORE. Do we run the incremental barrel? No sir, we do not. As a matter of fact, we have reduced our crude runs about 1,789 barrels a day.

Chairman DIXON. Why would it not be beneficial to you?

Mr. MOORE. Because we do not have a market for the gasoline, unless we want to go out and dump it at a very low price. Chairman DIXON. Could you sell it to independents?

Mr. MOORE. We probably could, if we would try.

Chairman DIXON. We hear about brokers. They are always looking around for somebody that will sell some of this excess, are they

not?

Mr. MOORE. Well, our program in our company is to market our own brand to the fullest extent we possibly can.

Chairman DIXON. I daresay before we get through we will find a major saying that it is his program, too.

Mr. MOORE. Oh, sure.

Chairman DIXON. There are probably majors that do not sell any gasoline to any independents. I have heard of them. I don't know just offhand. But you are saying that is your company policy. You gear your policy to your ability to

Mr. MOORE. It is not an ironclad policy-because we do have about three unbranded accounts that we have been selling for about 20 years. Chairman DIXON. So you have got three that you sellMr. MOORE. Roughly three.

Chairman DIXON. What percentage of your total would this be? Mr. MOORE. Oh, about 8 decimal places out.

Chairman DIXON. How about your retail prices of your gasoline? How do they compare with the major brands generally?

Mr. MOORE. It depends on the time and condition at which you take the readings. Unfortunately, it is like the daily stock market. In Oklahoma City, Tulsa, Wichita, St. Louis-there are times when we are even in Oklahoma City because we do not give trading stamps— the major gives trading stamps, so that makes them sell even with you.

Chairman DIXON. Within 1 cent?

Mr. MOORE. Yes. Then there are other times, in the Wichita market, where we have been within 1 cent, or on several occasions, and there have been other times when we have tried a cent and a half on several occasions, for differential. And I wished I could honestly tell you there has been a definite pattern of 1 cent or 2 cents, but unfortunately that is not the case.

Chairman DIXON. Is your brand a regional brand?

Mr. MOORE. We market in six States.

Chairman DIXON. You cannot say you are national, but you could not say that you are one of these off brands, either.

Mr. MOORE. What was that off brand?

Chairman DIXON. Off brand-whatever the name is for the private brand, whatever you call it.

Mr. MOORE. Let's get the classification in focus. I think it will help both of us.

We refer to the independent brand as independent refineries, like APCO, Derby, Rock Island, Champlin, Kerr-McGee.

Chairman DIXON. Anyone that refines and has his own outlets.

Mr. MOORE. That's correct basically. Then you have the independent brand. You mentioned Hudson this morning.

Chairman DIXON. Just a pure reseller.

Mr. MOORE. Private brand, yes.

Chairman DIXON. Now, can you get more for your gasoline than Hudson can get for it?

Mr. MOORE. Unfortunately, we cannot.

Chairman DIXON. Can you get the same thing for your gasoline as one of the standard chains could get for it, or national chains? Mr. MOORE. You mean to market even with the major?

Chairman DIXON. Yes.

Mr. MOORE. No, we cannot.

Chairman DIXON. Do you advertise?

Mr. MOORE. Oh, yes.

Chairman DIXON. You mentioned a market there on page 10-I jotted it down. You made a remark where that was located.

So low that the guaranteed margins have brought the refiners' price below zero. Mr. MOORE. Yes. That was Pauls Valley, Okla.

Chairman DIXON. What kind of plant have they got in operation. there, that would come down to that?

Mr. MOORE. You say what kind of plant do they have-who are they?

Chairman DIXON. Who do you mean there? Who is the leader there?

Mr. MOORE. Well, I will have to reconstruct my memory. I probably should ask Mr. Rodman about this particular one. I should have been better prepared. I should have anticipated this question. But the price war really extended from Oklahoma City, as I reconstruct it, down to Pauls Valley, which is 60 or 70 miles from Oklahoma City, and who definitely started the price war in Pauls Valley as such who was the guilty party, I don't know. But it ricocheted down. Fortunately, we only have one jobber there.

Chairman DIXON. It is perfectly possible, if your are quoting a tank-wagon price, and protecting by an allowance, that you would have to send back a check to a man. Is this the situation?

Mr. MOORE. Oh, yes.

Chairman DIXON. If you would lower your tank-wagon price, you would not have to send him a check.

Mr. MOORE. Well, that's true. We argue with the accounting department all the time about that.

Chairman DIXON. I thought you were in bad shape. You might still have made a profit on it.

I heard about crosshauling, moonlighting, and all those. Do you think we can do anything about that? How in the world could the Federal Government do anything about moonlighting?

Mr. MOORE. I don't know, Mr. Commissioner. The cure for the disease is not within my province. We are just bringing some of things of what are causing the diseases.

Chairman DIXON. Do you get mad at your dealers when you find them doing that?

Mr. MOORE. Well

Chairman DIXON. What do you do to them when you find one moonlighting and crosshauling? What do you do? Do you give them a lecture, threaten him, jerk his license on him, or what do you do?

Mr. MOORE. That is where the age-old problem of communication comes into communicate with him that that is not exactly right. Chairman DIXON. You just talk to him like a father?

Mr. MOORE. Oh, yes.

Chairman DIXON. There is some difference between talking like a father and talking like a policeman.

Mr. MOORE. Well, the independent always try to assume the role of a paternal grandfather, so to speak, to his customers.

Chairman DIXON. You are really no better off than your dealers anyway. You cannot drink this gasoline. You have to have this strong outlet or else you die.

Mr. MOORE. We have meter readings throughout the entire market territory as a safeguard, and we refer to it loosely as leaving money on the table. That is the best method by which we can police the crosshauling and moonlighting, by a very close check on the amount of gallons they have previously purchased to stock. You see their gallonage jumped up excessively, you know there is something wrong.

Chairman DIXON. Have you ever gone to any of your dealers in one of these price wars and said "Now, customarily we have suggested that you should sell the gasoline at x amount of cents, which would give you a five point cent spread, but because this situation has gotten so bad we are going to have to protect you, but we are going to only

protect you on 2 cents of it and you protect yourself on two"? Has that ever happened to you?

Mr. MOORE. Oh, sure. As a matter of fact, we do not have to tell them. Just as soon as the price war starts, they are in to see our marketing people.

Chairman DIXON. Do you protect him to his 5.7 spread, or do you say "I can only go so far with my protection."

Mr. MOORE. It varies as to the extent of the price decline.

Chairman DIXON. Can't you understand why a guy would go out moonlighting if every time he pumps a gallon of gas he loses a cent himself?

Mr. MOORE. Yes, sir.

Chairman DIXON. In fact, I am surprised he doesn't take the regular hose and put it over there in the premium hose and run it. Mr. MOORE. Unfortunately that does take place.

Chairman DIXON. I've heard about that. I think I bought some of that stuff.

Mr. MOORE. There are a lot of other practices

Chairman DIXON. That are perhaps being forced on the dealer? Mr. MOORE. There are a lot of practices that are cancerous that are not good for the industry and we do not think are good for the dealer. Most of the dealers are honest, legitimate, hard working people. Once in a while you get a guy who wants to run his hose in the storage tank and turn the meter on and let it run, to run up his meter readings.

Chairman DIXON. Do you think that all would be peaceful in this industry if no major integrated companies sold gasoline to private brand resellers?

Mr. MOORE. I would not answer that, because I honestly don't know.

Chairman DIXON. Well, you perhaps might sell to them if they didn't, wouldn't you?

Mr. MOORE. If we had the gasoline, we probably would.

Chairman DIXON. Couldn't you get it? All you have to do is order up that gatherer, that man with the tank, and just say "deliver to me" and he could get it to you.

Mr. MOORE. Well, it is not quite that easy and simple.

Chairman DIXON. I understand that. You might not have the capacity to refine it.

Mr. MOORE. That's right.

Chairman DIXON. But if you did, and there was a market, under our system of incentive you probably could try to do something about that, wouldn't you? Now, if you did something about that, and that share of the total market began to go more and more in that direction, what would you expect the integrated major to do?

Mr. MOORE. Well, if I were in a major company's shoes, and that trend was going in that direction, I would just build more brandnew service stations and junk the obsolete ones, which is the program for some of the companies.

Chairman DIXON. Build more service stations and junk the other ones?

Mr. MOORE. Yes.

Chairman DIXON. In other words, advertise more, sell more gasoline of the brand?

Mr. MOORE. Well, you may have the same number of outlets, but you would have a higher volume through the better outlets. You get these obsolete stations-you are foolish to keep an obsolete station in business.

Chairman DIXON. I have no further questions. Thank you, sir. Mr. MOORE. Mr. Chairman, I would like now to introduce Mr. Thomas B. Murphy, who is president of the Mid-Continent Independent Refiners Association.

TESTIMONY OF THOMAS B. MURPHY, PRESIDENT OF THE MIDCONTINENT INDEPENDENT REFINERS ASSOCIATION

Mr. MURPHY. Mr. Chairman, members of the Commission, my name is Thomas B. Murphy. I am president of Mid-Continent Independent Refiners Association. I have been associated with the refining and marketing phases of the petroleum industry for 45 years. From 1952 to 1961 I was vice president of sales of an independent marketing company in Minneapolis. From 1961 until 1963 I was president of International Refineries and Western Oil & Fuel Co. I became president of Mira in 1963.

Price wars have been particularly severe in the general geographic area historically supplied by member companies of Mira. Refining companies in the Mid-Continent area have suffered a substantial decline in their average realization on gasoline in the last several years, although the demand for gasoline has increased substantially in this period. In his presentation, Mr. Rodman submitted an exhibit showing the extreme fluctuations in the retail price of gasoline in Oklahoma City for the period beginning August 1, 1961. From an examination of this exhibit, it is apparent that frequently during that period gasoline was sold below its cost to the manufacturerindeed, well below the cost of crude oil at the prevailing wellhead price. The Oklahoma City situation is not unique among metropolitan areas in the midcontinent area. In many markets and on many occasions, members of Mira have realized only a small fraction of the base crude oil price for their refined product. The Oklahoma City tabulation merely illustrates the prevailing competitive environment. The hallmark of competition in gasoline marketing is subsidized pricing, the impact of which falls upon refiners. The impact is particularly heavy on the independent refiner. The price supports offered by the major refiners are subsidized by the profits from producing, from marketing in "normal" areas and from other activities. The future of the independent refiner is threatened because he is without this deep pocket with which to subsidize marketing operations. The extent to which the major companies are using profits in production to subsidize the activities of their refining and marketing departments is difficult to determine exactly, inasmuch as profits are reported not by divisions but rather on a consolidated basis. However, from published comments of individual officers and companies, it is clear that the basic pattern is one of profit in the production division, with the divisions responsible for refining and marketing conventional refined products-that is, products other than petrochemicalsoperating at little or no profit. These divisions are operating without the profit discipline that is in the nonintegrated refining and marketing company. The major companies are apparently operating their