We Fight for Oil

Ludwell Denny

CHAPTER THIRTEEN
The System Breaks Down in the U.S.A.


AN American oil shortage is near, according to the Coolidge Conservation Board.  What we have left is being wasted by competitive and predatory private industry.  The world fares better.  Abroad are sufficient reserves for many decades.  For half a century the world has come to us.  Soon we shall be dependent in peace and war on foreign resources.

If there is anything more dangerous than speculation in oil stocks, it is speculation in oil statistics.  But there is general expert agreement that foreign deposits are adequate to supply world demand for a long time.  The most widely accepted estimate is still perhaps that of Dr. Eugene Stebinger of the United States Geological Survey, made in 1920 and revised in 1922.237  After warning that all such figures are "highly speculative," he placed the world reserve at about 70,000,000,000 barrels.  At the present rate of consumption that amount would last a century.

To what extent a future high-price element will tend to check the present rapid consumption rate and stimulate development of substitutes can only be guessed.  Improvement in motor construction may compensate through economy of consumption for increased commercial use of oil.  Another factor is the location of much of the world reserve in remote regions, where production and transport cost may raise the sale price to prohibitive heights.  In some foreign fields the cost of drilling one well is $500,000, to which must be added the toll of extensive pipe-lines and long ocean haul.

Dr. Stebinger's estimate of world reserves follows:

This total estimate of 1920 was increased two years later from 43,000,000,000 to 70,000,000,000, and should probably be increased more in 1928 in view of recent discoveries in Russia, Venezuela, Colombia, and elsewhere.

Dr. Stebinger's early estimate gave the United States about one-sixth of the total remaining world reserve.  The inadequacy of this supply is apparent from Department of Commerce figures showing the United States in 1927 produced and consumed about 72 per cent of total world output.  American production has always been disproportionate to world production.  From 1880 to 1890 it was about twothirds of total world production, in the next two decades roughly one-half, and from 1910 to 1920 again about two-thirds.  Up to 1923 this country had produced more than 62 per cent of the world total for the preceding half-century.  While world production approximately doubled every decade during that period, the United States except at short intervals led in actual output and also in relative increase.238

Since Dr. Stebinger estimated the United States reserve at 7,000,000,000 barrels in 1920, discovery of new fields has failed to compensate for increased production.  Geological Survey estimates used by the Coolidge Conservation Board in 1926 placed the amount of reserves in proven sands recoverable by ordinary methods at 4,500,000,000 barrels.  This supply would be exhausted, theoretically, by 1932 at the present rate of consumption.  Hence the alarmist tone of the Board's report.

"There must be natural concern over our future supply of oil because of the manifest dependence of so large a part of our industrial life, national defence, and domestic comfort upon continued adequate supplies," according to the Board.  "The total present reserves in pumping and flowing wells in the proven sands has been estimated at about 4,500,000,000 barrels, which is theoretically but six years' supply, though, of course, it cannot be extracted so quickly.  Another addition to this natural cause of anxiety for future supplies lies in the fact that the maximum rate of production from all fields is in their early days before gas pressures which expel the oil are diminished, and thus of the current production more than one-half is coming from about four per cent of the producing wells—for the most part only a year or so old—and from fields that have been discovered within the past five years.  Therefore future maintenance of even current supplies implies the constant discovery of new fields and the drilling of new wells, and thus the maintenance of this large ratio of flush production.  Hitherto there has been no failure to discover such new fields as required.  However, this dependence upon fortuitous discovery of new fields renders it imperative that every effort shall be made to secure the maximum amount of oil from the known fields and the most beneficial use of the oil that is produced.239

In appointing the Board, President Coolidge on December 19, 1924, had declared:

"I am advised that our current oil supply is kept up only by drilling many thousands of new wells each year and that the failure to bring in producing wells for a two-year period would slow down the wheels of industry and bring serious industrial depression.  The problem of a future shortage in fuel and lubricating oil, not to mention gasoline, must be avoided or our manufacturing productivity will be curtailed to an extent not easily calculated."240

Estimates of the Board and the Geological Survey fixing reserves in proven sands recoverable by ordinary methods at 4,500,000,000 barrels are not seriously contested by independent geologists, though some oil company estimates are higher.  A "Committee of 11" of the American Petroleum Institute, quoted by the Institute's brief of 1926 to the Board, was more optimistic than the Geological Survey regarding the "1,000,000,000-acre reserve," covering lands in which no oil has been discovered yet.  Mr. Henry L. Doherty, leader of the Institute's minority, warned the Board that the "Committee of 11" report, "in view of its gross inaccuracy, is like a poisoned well—exceedingly dangerous."241  The Board decided that predictions that any appreciable amount of oil would be discovered in the "1,000,000,000-acre reserve" were unwarranted.  "Certain parts of the country were known by the geologists to be impossible of appreciable oil production," the Board stated.  "Such positively barren areas are estimated to aggregate 43 per cent of the total area of the United States.  But this does not warrant the assumption that the remaining 1,100,000,000 acres of the country, or any large part of them, will be found oil-bearing.  Considerable portions of this area have already been drilled for oil or water.  It is a certainty that we are learning each year more of the geologic structure at the hands of a large body of public and private geologists, but the percentage of dry holes in new exploitation is increasing."242

The chief dispute regarding the extent of reserves centres rather around estimates of oil remaining in proven sands which is commercially recoverable by other than present exploitation methods.  Estimates regarding this worked-over reserve vary from a ratio of two to eight barrels remaining in the ground for every barrel recovered by present commercial methods.  Geological Survey figures show 9,000,000,000 barrels produced in this country up to 1926.  This, added to the 4,500,000,000 barrels still recoverable by ordinary methods, would total 13,500,000,000 barrels.  Using the minimum estimated ratio of two to one, there would be an additional reserve of 26,000,000,000 barrels remaining in proven sands, which cannot be extracted with profit at present prices and with present methods.  But the majority group of the Institute, in the brief presented to the Board in 1926, was much more optimistic.  Their brief argued that oil remaining in proven sands not recoverable by ordinary methods is much more than 26,000,000,000 barrels, and that reworking of this "lost supply" will be commercially practicable in the future.243

This issue raises related questions of future improvement in exploitation methods, future price increases permitting increased production cost in recovering "lost" reserves, and the larger problem of inefficiency and waste in a competitive industry lacking governmental regulations.  Waste of limited reserves under present exploitation methods was President Coolidge's incentive for naming four members of his Cabinet as a Conservation Board.  In his letter of appointment, December 19, 1924, the President said :  "It is evident that the present method of capturing our oil deposits is wasteful to an alarming degree in that it becomes impossible to conserve oil in the ground under our present leasing and royalty practices if a neighbouring owner or lessee desires to gain possession of his deposits."

The extent of basic inefficiency and waste in the American industry was demonstrated in 1927 when production was increased from 770,000,000 to 905,000,000 barrels.  Despite glutted world markets and general over-production in most of their foreign fields, British and American companies in the United States were increasing output.

The paradox of the American capitalist system deliberately destroying profits is explained partly by Mr. Coolidge's reference to leasing and royalty practices in this country.  In one field many companies, large and small, are operating.  If one producer taps a subsoil pool, his neighbours must drill also before his wells drain the common deposit under the entire field.  In a competitive field one producer cannot restrict production and conserve his supply except by joint agreement with the other producers.  In some cases, as in California and the Oklahoma Seminole field, limited cooperation in restricting production has been achieved among competing producers temporarily, under encouragement by the States.  The Secretary of the Interior in 1928 asked Governors of 20 States to co-operate in obtaining uniform State and Federal conservation legislation.  But the evil system remains.

This competitive system not only prevented American producers from restricting production to meet the glutted world market of 1927, but was directly responsible for the world's over-production.  The situation was costly for the American nation which needs conservation.  It was also costly for the American companies.  With the drop in prices of crude and refined oil, ranging from 10 to 50 per cent, the companies lost profits.  Mr. N.O. Fanning, in a financial study published in a special issue of the Oil and Gas Journal, December 1, 1927, found that:

"Over-production of crude oil in the United States has cut deeply into the profits of the petroleum industry. ... Lower prices have been offset only partially by increased sales, as shown by financial reports of oil companies for 1927 so far issued.  Three outstanding indications of the unfavourable aspect of the oil business this year from a financial viewpoint are a decrease of $24,480,829, or 35.9 per cent, in net profits of 17 representative companies;  a drop of $591,465,936, or about 24.2 per cent, in the market value of the securities of 20 representative oil companies whose stocks are listed on the New York Stock Exchange, and last, a flood of $360,888,035 new financing accomplished by petroleum companies so far this year." During 1927, 23 of the larger American companies reduced or eliminated regular dividends or extra payments.  Net earnings of 14 representative companies show an average of 5.23 per cent in 1927, 10.59 per cent in 1926.244  Net income of Standard of N.J. fell from $117,600,000 in 1926 to $40,400,000 in 1927;  and Standard of N.Y. dropped 65 per cent to $11,400,000.

Contrasted to the waste of the American system is the British method in their fields, say, of India or the Dutch East Indies or south Persia.  Of course in those fields the absence of chaotic production is due to monopoly control.  Sir John Cadman, who negotiated the San Remo pact to exclude Americans from major fields of eastern Europe and the Near East, emphasizes this contrast.  In his 1927 Anglo-Persian report, he said:

"I would like to point out that, in some respects, the Persian oil industry enjoys a position which the Federal Conservation Board would like to give the American oil industry as a whole.  Our royalty holders speak with one voice.  The interests of those royalty holders are those of the industry itself;  clearly it is in the interest of Persia as it is of this company that production should be steadily controlled—that is to say, steadily regulated in conformity with the world's demands;  that the reserves of oil underground should not be extravagantly and uneconomically forced to the surface, regardless of the world's requirements.  Fortunately we are not compelled to over-produce, which is often the case elsewhere—owing to the feverish rivalry of offsetting competitors. ... Further I might also mention that the improved yields and the economies we are constantly striving to introduce into all phases of our operations represent an important, if only partial, offset against the effect of over-production and uneconomic prices." Sir John also described the difficult problem confronting the United States: "How to conserve that country's oil reserves without stinting the present generation is, perhaps, the greatest and most complicated economic problem the United States authorities have ever been called upon to face."245

The Conservation Board in its 1926 report proposed that the United States Government and private companies solve the American problem as follows:

"The major part of the measures that must be taken to protect our future supplies must rest upon the normal commercial initiative of private enterprise.  The field for governmental action is considerable, but to formulate the broader by-laws of the industry in the sense of conservation and to concentrate thought upon them is the major part of the Board's task in co-operation with the industry.

"The directions in which industry can contribute to assured future supplies are: (1) Continued exploration for extension of known sands and deeper sands in known fields.  (2) Continued exploration for new fields.  (3) Systematic research and experiment upon methods of securing a larger proportion of the oil from the sands.  (4) Systematic research and experiment in new methods and cheapened costs in refining and cracking oils and waste elimination.  (5) Cooperative methods in sane development of new fields to prevent wasteful flush and over-production.  (6) Research and application by engine builders of more economical use of petroleum products.  (7) Expansion of American holdings in foreign oil fields.

"The contributions which the Government can make are considerable: (1) Continued and expanded research by the Geological Survey in geologic studies of the accumulation of oil and structure of oil-bearing areas;  by the Bureau of Mines into methods of producing and refining-including oil shales;  and by the Bureau of Standards into questions of constitution and utilization of oil products.  (2) The more intelligent handling of Government-controlled oil sources on public and Indian lands.

"Of the fundamental conservation measures above mentioned, that of co-operative methods in development of new fields to prevent temporary gluts merits more exhaustive discussion, as it is a promising field for important action by both industry and the Government." vent wasteful flush and over-production.  (6) Research and application by engine builders of more economical use of petroleum products.  (7) Expansion of American holdings in foreign oil fields.246

As the Board indicated, certain measures may be taken by the Government without touching the larger issue of inefficiency and waste under private ownership.  The Government has a direct responsibility regarding public lands, naval reserves, and Indian lands.  "The Government as the largest land-owner is committed to practical conservation of irreplaceable raw materials, by the protection of the public estate and the guidance of its development," according to the Board.  "Especially is such an obligation sacred and inescapable as it concerns the great sources of energy, coal and petroleum deposits in Government ownership."247  Secretary of the Interior Work in opening the Board hearings admitted: "The amount of petroleum now being taken from the public Indian lands represents one-tenth of this country's annual petroleum recapture [which] suggests that the Government itself is no negligible factor in the current production of petroleum." He added there were then outstanding 457 oil leases on Government lands.

Secretary Fall, Work's predecessor, in March 1922 ruled that Indian lands could not be leased to aliens.  One of Mr. Fall's last official acts was to block an Osage Indian land lease of the Roxana Petroleum Corporation, a Dutch-Shell subsidiary.  This action was in line with popular demands for retaliation against Dutch-Shell in connexion with the exclusion policy of the British and Dutch Governments, especially in the Djambi dispute in which Sir Henri Deterding had obtained a valuable concession at the expense of Standard.

Later the British interests forced a reversal of the Fall decision in the Roxana lease case.  They capitalized Mr. Fall's guilt in the naval oil scandals, compared the alleged fairness of the Djambi lease with the corrupt Teapot Dome lease, charged the State Department with suppressing the Dutch official replies to the Djambi exclusion charges of the Department, and attacked the Federal Trade Commission report on "Foreign Ownership in the Petroleum Industry" for quoting "forged" British Government orders to bolster the contention that the London Government excluded American companies from India.248  Secretary Work in May 1923 granted the Indian lease to Dutch-Shell.

But in his 1927 annual report Dr. Work recommended legislation giving his Department discretion in leasing and developing reserves in the Osage Indian Reservation in Oklahoma.  "The Secretary is now required to offer annually for leasing a large area of undeveloped oil lands, regardless of over-production or other market conditions," he said.  "Such modification of law seems necessary if the Osage tribe is to obtain the greatest ultimate benefit from the oil resources of its reservation, and is also important as a measure of conservation."249

In addition to this Work recommendation regarding Indian lands, the Conservation Board in its second report of January 16, 1928, joined the Naval Oil Reserve Commission in recommending that the President create two reserves of coal, lignite, and shale: "The proposed reserves to be recommended for the executive withdrawal include some 4,000 acres of publicly owned coal deposits in Wyoming and Montana, with an estimated content of 250,000,000 tons of sub-bituminous coal from which 80,000,000 barrels of oil could be produced."

Adequate conservation of public lands, Indian lands, and naval reserves would leave untouched the wasteful depletion of the bulk of American oil supplies by privately owned and operated industry.  Private industry during half a century, and especially during the recent years of over-production, has demonstrated its unwillingness or inability to correct the evil.  Several excuses are given by the private companies.  These range from a denial that oil reserves are being exhausted to charges that the Sherman Anti-Trust Law requires unrestricted competition and waste.

Conservation is a catch word used by politicians "to attract support for their attacks upon all large industrial organizations," the Standard of New Jersey declared in The Lamp, November 1927.  It lamented that "the public has been led to believe, for example, that, if petroleum is not conserved, gasoline will reach a prohibitive price or will be wholly unobtainable. ... There will always be gasoline or at least equivalent motor fuel from shale or coal, of which our resources are relatively unlimited.  If oil is exhausted, the price of this equivalent motor fuel will undoubtedly be higher than the average price which gasoline has carried, but this higher price will not be prohibitive nor in itself so high as to materially affect national prosperity by limiting the use of automobiles."

In reply to public attack on the industry, the companies are making a counter attack on the anti-trust laws.  Typical arguments were published in a special issue of The Oil and Gas Journal, December 1927, and distributed among the press and public officials.  This publication was entitled "The Oil Industry's Answer Today." Dr. L. Vernon Gibbs wrote under the heading "Oil Industry Must Have Moratorium—Relief From Mandate of Sherman Law Compelling Over-Production Needed to Curb Over-Production and Conserve Oil."

Granting that the anti-trust laws raise barriers to close co-operation of individual companies, it should be pointed out that four corporations including Standard handle more than 80 per cent of the crude and refined exports of this country.  Despite the law Standard has continued the dominant factor in the industry.  The Federal Trade Commission has found that the Standard group controls 58.9 per cent of the country's proven oil lands, having 79.4 per cent of the total oil investments, and receiving 74.9 per cent of the total earnings.  Production of Standard companies accounts for 29.3 per cent of the crude output, 51.5 per cent of the gasoline, 61 per cent of kerosene, 50.7 per cent of the fuel oil, and 62.2 per cent of the lubricating oi1.250

The Senate Committee on Manufactures in its report in 1923 on "High Cost of Gasoline and other Petroleum Products" stated: "Through the Standard control of the pipelines connecting the producing centres of the west with the consuming centres of the east and middle west not only is the price fixed according to the will of the Standard group which any other interest must pay for the transportation of petroleum, but members of the group really determine whether any concern outside their group shall have petroleum transported at any price.  The methods by which the Standard companies control the oil industry today are more subtle than those by which the Standard Oil Company of New Jersey, through its subsidiaries, controlled it prior to the dissolution decree in 1911.  But the results are the same." The Federal Trade Commission in its report of December 12, 1927, stated it found no recent evidence among large companies of agreements to fix prices.  The report also denied common control of Standard companies.

If profits are a test, the "dissolution" of Standard under the Sherman Law of 1911 has been most advantageous to the trust.  Annual cash dividends of the 23 Standard companies increased from $51,686,634 in 1912 to $213,760,695 in 1927, according to a Dow, Jones and Company compilation.251  In that 16-year period since the law was enacted the 23 recognized Standard units, exclusive of other subsidiaries and holding companies, paid cash dividends amounting to $1,909,061,462.  In addition they paid in that period $1,388,079,245 in stock dividends.

Perhaps the most significant contemporary development of the American oil industry in this period of over-production and disastrous losses for small operators is the process of consolidation by which Standard, Gulf, Texas, and Dutch-Shell extend their dominance over the country.  With the anti-trust laws still on the statute books, the trade term used to describe this monopoly trend is "integration of properties."

The rapidity of this development, which is little realized by the public, is indicated by a Wall Street Journal survey from which the following excerpts are taken:

"Many interested in oil securities will remember 1927 as a year when profits were sharply reduced or eliminated;  when dividends were reduced or passed, and the industry sold $440,000,000 new securities.  To others, efforts toward conservation of petroleum resources in the United States may appeal as the outstanding development of 1927, Students of oil and executives alert to trade developments will give these events their measure of import.  But more than likely they will go beyond these phases and record 1927 as the year big oil companies got much bigger. ... It is the further integration of these companies in all departments of oil to get as nearly as possible complete independence of others in the matter of source of supply of crude oil.  The impelling motive behind these moves is that these companies have the bulk of their huge investments in refining and marketing facilities.  It is to bulwark these with the largest and cheapest cost supply of raw material that this group in 1927 has acted to strengthen their crude supply.

"In these steps some eight big oil units, four of them of the old Standard Oil group, have been outstanding in successfully centreing 1927 activities on building up their already large oil reserves and supplying transportation thereto.  The following may be set down as those oil companies which went far in 1927 toward augmenting and rounding out the complete cycle in oil: Standard Oil of New Jersey, Royal Dutch-Shell, Gulf Oil, Standard Oil of Indiana, Standard Oil of California, Texas Company, Sinclair Consolidated, and Standard Oil of New York.  In this process, integration has been carried to an unusual degree of completeness.  Never since the days prior to dissolution of old Standard Oil of New Jersey has there been such concentration of effort by a relatively few oil companies, each separately owned and independently managed to get complete integration.  And probably never has greater success accrued from such efforts."252

In addition to the open "integration," there is Standard's "buying for control" stock market operations by which it is acquiring the nominally "Independent" Sinclair companies.  This has been going on for some time, but no outsider knows how complete Standard's control of Sinclair has become.  The New York Times recently carried this story: "Wall Street heard yesterday that arrangements virtually had been completed for the transfer of the control of the Sinclair Consolidated Oil Corporation from Harry F. Sinclair and associates to other oil interests.  The report was accompanied by a sharp advance in the Sinclair stock on the New York Stock Exchange.  Closing at 283/8 the stock showed a net gain of 2¾ points.  More than 300,000 shares changed hands. ... Yesterday it was said in well-informed circles that, as a result of the heavy accumulation of stock in the open market by other interests, Mr. Sinclair had been eliminated as the dominant factor in the company. ... The best information seems to be, however, that the Prairie Oil and Gas Company, a member of the old Standard Oil group, is to take over Sinclair, possibly with the idea of effecting a merger, and that the Standard of Indiana is to acquire the 50 per cent stock interest which the Sinclair company holds in the Sinclair Crude Oil Purchasing Company.  The Standard of Indiana already has the remaining 50 per cent interest in that company."253

Data on ownership in the Federal Trade Commission report of December 1927 reveal the extent to which Standard and the three other large companies within two years and a half acquired oil land reserves of the country:254

Unity of certain nominally separate companies though sufficient for profits and control of pipe-line and tanker transportation, is not sufficient—according to the companies—to permit the system of general co-operative production required for conservation.  The American Petroleum Institute at its 1927 annual convention could make no contribution to the conservation program of the Federal Board, except a resolution favouring "the enactment of laws to prevent the waste of such gas by the various oil-producing States in which natural gas is being unnecessarily wasted." Institute directors were unable to agree on the report of their Conservation Committee recommending to the companies themselves that "oil should be produced in such a way as to retain in the sand the maximum percentage of the original gas energy."255

Failure of private industry to meet conservation requirements has stimulated popular agitation for Federal Government intervention through regulation or, if necessary, control of the industry.  The companies are spending much effort and money to block this movement.  The argument against Government interference is stated by Dr. Gibbs in the article referred to above, as follows:

"There are men in high position who declare that Federal control or operation is the only road to conservation;  but Government control or operation under any bureaucratic system will not save depletion of the Nation's oil reserves or effect conservation-on the contrary, it would result in industrial stagnation, and exhaustion, without getting ready for the transition to the refining of oil from soft coals and oil shales.  The only attempt of Congress to aid in perfecting a process for refining oil from shale is now rusting away in idleness on the western Colorado plateau owing to the failure of Congressional appropriation.  It is more important for the industry to meet exhaustion of crude oil from wells with crude oil from shale and soft coal than it is important to save the loss of a few barrels of crude oil.  The present over-supply is the result of adverse conditions converging at this time and forcing the industry into over-competition and over-production, but the resultant physical waste of oil has been exaggerated until the rabid discussion amounts to mild hysteria. ...

"It is the consensus of belief that Congress, by giving any board or bureau control over private property, would be committing our Government to an imperialistic design beyond the intent of the framers of the Constitution, and beyond the power granted Congress under the Constitution. ... It matters not what term is used to designate interference with private property by Government.  It may be called regulation, control, supervision, or ownership—to go beyond the rights granted by the Constitution to the State in interfering with property rights is despotism.  The road from mild despotism to Bolshevism runs in a straight line."256

In the same publication, The Oil Industry's Answer Today, Mr. J.E. Eaton, in an article entitled "Reserves of Nation Ample for Future," warned that "the oil industry is at present confronted with the question of Government control."

Opposition of the American Petroleum Institute to any form of governmental interference in the industry was expressed by its president, Mr. E.W. Clark, in reply to an invitation by Secretary of the Interior Work for the Institute to name three members of a "Committee of Nine" to consider possible conservation legislation.  In naming three representatives Mr. Clark stated that the Institute did not wish such participation in the work of the Committee to be construed as a commitment to any legislation.  Mr. Clark added that he could "not undertake to pass upon, still less accede to any suggestion that the Federal Government may directly regulate the production of crude oil in the several States, or that it should attempt to do so."257

The report of this "Committee of Nine," composed of three representatives each of the Institute, the Government, and the American Bar Association, was made public on February 5, 1928, by the Conservation Board which is considering its recommendations.  Opposition to any change in the present law governing oil production was expressed by the Committee.  But it urged that the anti-trust laws be amended in line with the demands of the companies.

"In our judgment, the only practical law governing the right to recover oil is that which now exists and which has been developed to meet the necessities of the case," the report stated:

"To sum up, the recommendations are these—(1) Federal legislation which shall (a) unequivocally declare that agreements for the co-operative development and operation of single pools are not in violation of the Federal anti-trust laws, and (b) permit, under suitable safeguards, the making in times of over-production of agreements between oil producers for the curtailment of production. ... (2) Similar legislation by the various oil-producing States.  (3) Immediate further study into the matter of the waste of natural gas, in order that legislation may be formulated which will forbid such waste as fully as may be done without working injustice and unreasonable hardship.  (4) Legislation by Congress granting the Secretary of the Interior authority to join and to permit lessees from the Government to join in agreements for the co-operative development and operation of single pools.  (5) The passage by Congress of the legislation heretofore recommended to it by the Secretary of the Interior, removing the existing mandate upon him to offer for lease annually, regardless of conditions, 100,000 acres of Osage Indian lands."258

All debate regarding oil conservation comes soon or late to the question of Government regulation.  Has the Government any such power ?

"The power of the Federal Government to regulate oil production is doubtless limited to its own lands, unless the national defence is imperilled by waste or exhaustion of the oil supply," according to the 1926 report of the Conservation Board.259

Former Secretary of State Hughes, acting as counsel for the American Petroleum Institute at the Board hearings May 27, 1926, argued that the Federal Government lacked authority to control oil production within the States, even under Article I of the Constitution, empowering Congress to provide for the common defence and general welfare.  Mr. Hughes, a former president of the American Bar Association and former justice of the United States Supreme Court, quoted constitutional authorities and Supreme Court decisions to prove his contention that: "The Government of the United States is one of enumerated powers and is not at liberty to control the internal affairs of the States respectively, such as production within the States, through assertion by Congress of a desire to provide for a common defence or to promote the general welfare.  This is too elementary to require discussion and it is impossible to believe that the legal advisers of the Board will suggest that it proceed on any different view."260

As an alternative to alleged unconstitutional governmental control, Mr. Hughes suggested that the Government achieve conservation by placing restrictions on public lands and, if necessary, by purchasing private oil lands.  He too repeated the favourite plea of the private companies that the Government "lessen restrictions upon combinations in the conducting of interstate commerce," that is, modify the antitrust laws.

From the Hughes brief it appears that Congress has power without a popular referendum to conscript lives for war, but has no authority to conserve oil resources to prevent war or to provide the conscripts with an essential defence weapon.  In advising the Government as a conservation measure to buy oil lands, Mr. Hughes overlooked the fact that most of the petroleum reserves are already exhausted and failed to explain whether the private companies would be willing to accept a fair price for remaining reserves which the Government may some day be forced to acquire.

Opposition of majority groups within the Republican and Democratic Parties to governmental control would seem to be sufficient guarantee to the oil companies that Washington Administrations, within the next decade at least, will not be responsible for any major interference with the industry.  Unless there is war.



 

237. Annals of the American Academy of Political Science, May 1920, p. 123.

238. See Appendix A.

239. Federal Oil Conservation Board, Report, Part I, September 1926, pp. 5-6.

240. Ibid., p. 1.

241. Federal Oil Conservation Board, Public Hearing, May 27, 1926, p. 43.

242. Federal Oil Conservation Board, Report, Part I, September 1926, p. 9.

243. Federal Oil Conservation Board, Public Hearing, May 27, 1926, pp. 2-7.

244. New York Wall Street Journal, April 10, 1928.

245. Tulsa Oil and Gas Journal, Supplement Dec. 1, 1927, The Oil Industry's Answer Today, p. 33.

246. Federal Oil Commission Board, Report, Past I, September 1926, p. 13.

247. Ibid., p. 24.

248. 68th Congress, 1st Session, Senate Document No. 97, pp. 3-46.

249. New York Times, Dec. 5, 1927.

250. Federal Trade Commission, Prices, Profits and Competition in the Petroleum Industry, Dec. 12, 1927, p. 77.

251. New York Times, Dec. 18, 1927.

252. New York Wall Street Journal, Jan. 5, 1928.

253. New York Times, March 28, 1928.

254. Federal Trade Commission, Prices, Profits and Competition, supra, p. 23.

255. New York Times, Dec. 9, 1927.

256. Tulsa Oil and Gas Journal, Supplement Dec. 1, 1927.

257. New York Wall Street Journal, Nov. 18, 1927.

258. Washington United States Daily, Feb. 6, 1928.

259. Federal Oil Conservation Board, Report, Part I, September 1926, p. 15.

260. Federal Oil Conservation Board, Public Hearing, May 27, 1926, p. 18.