STATEMENT OF HENRY BROWN, OPERATORS OIL & REFINING CO., LONG BEACH, CALIF.

Mr. BROWN. Mr. Chairman and gentlemen of the committee, my name is Henry Brown. I am the owner and operator of the Operators Oil & Refining Co., an independent crude-oil refinery located at North Long Beach, Calif., and with your permission I will read the statement which I have prepared here.

I am opposed to this bill, which seeks to divorce the marketing end of the petroleum business from the production, refining, and transportation of crude oil and will endeavor, after a statement as to my operations as a small independent refiner, to state specifically why I object to the bill and to any legislation of like character.

I am the owner of the Operators Oil & Refining Co. mentioned above, which is an independent refinery, refining crude oil which we haul to the refinery in our own trucks from the surrounding oil fields located in the Los Angeles Basin, immediately adjacent to the cities of Long Beach and Los Angeles in southern California. I personally built this refinery several years ago from the grass roots, so to speak, as there was a piece of low marshy ground with nothing on it where my refinery is now situated. My testimony will be only as to my personal experiences in the refining of crude oil, and therefore Ì believe it should prove of interest to this committee to state, in a general way, how small independent refineries such as mine are operated in the State of California. In that connection I wish to state as a matter of general information that the State of California produces, refines, and distributes approximately 25 percent of the crude oil produced in the entire United States. Our present production, under voluntary curtailment by the producers themselves, is approximately 620,000 barrels of crude petroleum per day. The fields from which I obtain the oil which we refine are beter known as Signal Hill, Santa Fe Springs, Dominguez, Wilmington, Montebello, El Segundo, and Huntington Beach.

A population of some 2,500,000 reside within 25 or 50 miles of the oil fields and the refineries. Thirty independent refineries and seven major oil company refineries are in the area. The independents above referred to refine and market approximately one-third of the crude produced there at this time. This presents a representative situation in the industry from the standpoint of production, transportation, refining, and distribution. I have carefully considered the Harrington bill and particularly with reference to my own business, and I am definitely and unalterably opposed to it and all similar legislation for reasons which will appear more in detail while I elaborate on my personal business experience in refining crude petroleum.

We refine from 2,500 to 3,000 barrels of crude oil per day. I operate what is called a topping plant-that is, a plant which takes off what are known as four cuts from a barrel of crude oil, namely, naphtha; kerosene distillate; gas oil, sometimes used as Diesel oil; and the residuum, commonly referred to as fuel oil. Casinghead, or natural gasoline, which is a product derived by extracting the gasoline from the natural gas as it comes out of the ground, is blended with the naphtha to produce the finished gasoline sold to the trade

and which the public uses principally for the operation of motor vehicles.

I might state that I have invested in my refinery between $75,000 and $100,000; that I have contracts with various independent producers in the various fields hereinabove referred to, and that I move the crude oil from the wells owned by these independent producers to my refinery and there refine it. I move it in tank trucks and trailers which I own. Our refining is a very delicate and unusual business. It must operate continuously day and night. We have a certain limited amount of storage. If we do not move the product. out we must shut down. The independent producers from whom I buy petroleum in the main also have limited storage at their wells. These wells produce from 60 to 300 barrels of crude oil per day. The tanks which they have for storing the oil hold from only 500 to, in some instances, 1,000 barrels. Therefore it is obvious that we must take the oil out almost continuously from the wells to the refinery and refine it, and then move out the finished products continuously, or the chain is broken. We must then shut down; not take the oil from wells, which immediately causes bitter complaint on the part of the producers, and which, if kept up for more than a day or two, will immediately cause the contract for the oil to be lost, usually to a major company or else to some other independent refiner. It is obvious, therefore, and I wish to emphasize this point particularly, that we must keep on operating, moving the crude oil in and moving the finished products out.

I might point out, for the information of you gentlemen, about the difference in the quality of gasoline. There is a distinct difference in the quality of gasoline, and I have a chemist in my laboratory-I only have one-who analyzes the various crude oils and who analyzes the gasoline and who analyzes the gas oil and crude oil. It has to be of a certainty gravity and has to have a certain octane rating and an initial boiling point, and that means higher gasoline quality and in your engine more power that you get out of it. If you have 400 N., that is pretty good gasoline. It might be 390 N. That is the kind of gasoline the Government buys.

There are many kinds of gasoline. There is ethyl, which is a product you gentlemen may know, which is made from tetraethyl lead and produces the red color in the gasoline, which is blended in, and which gives a motor more power.

There are several other grades of gasoline. Starting at the bottom. half, there is the third structure, and there is casinghead gasoline, and the various ethyl gasolines made by blending in the ethyl. There is also what is called cracked gasoline. Now, cracked gasoline is gasoline which is made from fuel-oil residuum that I make, and I resell it, or it may be gas oil; or sometimes they take kerosenedistillate and they, in turn, put it through their cracking plants, which is simply, you might say, a high-temperature burner, and get much more gasoline out of it again.

And coming to the point here, gentlemen, because I feel you gentlemen are interested in these questions that you asked, the reason that gasoline has gone down in price over a period of years is because there have been constant technical improvements in the oil industry, because millions and millions of dollars have been poured

back into the industry, in order to constantly improve it, and not because there are certain jobbers connected with it. That statement, on the face of it, is very illogical. There is almost twice as much gasoline taken out of a barrel of oil as there used to be, because of the cracking and various other technical improvements that have been made in the oil industry, and as small as we are, we are always trying to figure some way for our own benefit. Also, we are not interested in putting the price of gasoline up, so people cannot use it. That is ridiculous. We are anxious to maintain it down and make a very small profit, because of a large volume; and the smaller the profit, it is elementary, the larger volume you will have, and more people can use gasoline.

There are 28,000,000 automobiles in use now. I have passed the half century mark and I can remember when there were probably only a few thousand, and I presume you gentlemen can also remember that, and gasoline used to be very high. It has constantly kept going down, with certain interruptions over a period of years, and I notice the price of gasoline right here in Washington is very reasonable. There are high taxes on oil, as any other industry. I am not criticizing that situation, because, after all, we know there are lots of people the Government is aiding, and I am not against that, myself. However, when you figure that there is about 25 percent, in some States, to as high as 50 percent of the price taken out in the form of tax, gasoline is still being sold cheaply; and I will endeavor to show you why I feel that the bill, itself, would be a deterrent to the great consuming public, and to the individuals and people who are trying to benefit the public in connection with this legislation at this time.

It costs from $40,000 to $100,000 to drill the average well. A recent well, known as the De Soto well, on Signal Hill, which was drilled to 10,480 feet, cost $192,000 to complete. I have a contract for the oil from this well. They have only two 1,500-barrel tanks, their capacity is larger than the average, but it can be seen that this oil must be moved every 3 or 4 days, the well doing approximately 250 to 300 barrels per day.

I sell my gas oil direct to the trade wherever possible. I sell my kerosene-distillate direct to the trade in most instances. I have sold considerable quantities of fuel oil direct to the trade and at other times by contract, it being moved out by pipe line. At this time I sell my gasoline through the association known as the Independent Refiners Association, of which Mr. William Scully is the manager; Mr. Scully being a witness here also today.

I will now state specifically why I am against the bill in connection with my operations and what my personal experience has been with brokers, jobbers, and other middlemen. I have purchased a piece of property upon which I intend to build a large service station for the distribution of products from my refinery. Shortly thereafter the first Gillette bill was proposed and the marketing end of the industry has been in such a chaotic state since then that all independent refiners are at a loss to know what to do. For if the Harrington bill should pass in the House and the Gillette bill pass in the Senate, all production, refining, and transportation owned by the independent refiners and the refining of said production of crude oil would have to be separated from the marketing end of it and as

we would be unable to know over a given period in the future how much gasoline, kerosene-distillate, gas oil, or fuel oil could be sold, we would find it very difficult to operate.

In other words, I could not sell the gasoline that I make in my refinery through the service stations.

For, if we rely on these jobbers, it is a very uncertain proposition. They shop around from one plant to another. They have a limited amount of storage. I am only testifying from my own experience. In the Los Angeles area we have a certain number of so-called jobbers who have tanks holding from 10,000 to 20,000 gallons. They fill up these tanks, and when they have sold a good deal of gasoline out of a tank they sometimes offer it at 1 or 2 cents less than they paid for it. Immediately you see the signs all around offering to sell gasoline for 12.9 cents, when our price is 13.9 cents, including 4 cents tax. That includes sales, transportation, and tax. Then the refinery has to cut its price to dispose of its product. Another refinery hears about it, and they cut the price again, and pretty soon the price war is on.

We, as independent refiners, could not compete obviously with the unlimited capital of the larger companies if our sole source of distribution was the jobber, brokers, and distributor, over whom we could exercise no control of any kind whatsoever. It must be realized that a refinery, in order to operate on a profitable basis and at the maximum efficiency, must operate practically continuously. The refinery which I operate has not shut down in 3 years either day or night. We own our own trucks and do business in adjoining States. We are continuously contracting for crude oil and have a considerable amount under contract. That means we have got to take the crude, and that is all there is to it.

Many of my brother refiners own a great amount of their own crude production and are doing business in other States and throughout the United States generally. It is the consensus among us from our own intimate knowledge of our own problems that, unless our production flows out in a continuous, uninterrupted, and smooth manner, we could not operate at all. I might observe that the Hancock Oil Co., one of the independents in our group, was instrumental in bringing in the Wilmington oil field. If you cut down the refineries' source of distribution, you will stop them from helping produce the crude oil. They will not want to have a lot of contracts they can't handle.

We speak from experience over a period of years with brokers, jobbers, and other middlemen, and we have always endeavored to avoid dealing through them if possible. Without wishing to be critical or offensive, but speaking strictly in a business manner, so far as we are concerned distribution of our products through such agencies has been sporadic, unreliable, costly, uneconomic from the consumers' standpoint, and impossible over any extended period of time. It has resulted in price wars, refinery shut-downs, crude-oil price wars, and general disorganizations. From the nature of a jobber, brokers, or any other middleman's business it is necessary for him to buy whatever product he resells at the lowest possible price and sell it at the highest possible price. In many instances our experience has shown that our products go through three or four brokers' hands before they reach the public. These intermediaries must of necessity operate at a profit and the public usually carries the load. When it

is realized that there is only a fraction of a cent profit in the production of the crude oil, the refining, and the ultimate sale of a gallon of gasoline to a consumer, it can readily be deducted that any absorption of a portion of that profit in the distribution end will either increase the price to the consumer or else reduce the refiners' profit, usually to a point where he will be unable to operate.

As a matter of fact, all the oil companies distribute approximately 150,000,000 gallons of gasoline a month in California and over a period of years their profit was between one-fourth and one-half cent a gallon on the gasoline. Signal Hill crude runs 11 gallons to the barrel, El Segundo runs 12 gallons, and Wilmington crude is only 3 gallons. We make a very small amount per gallon. When we shut down we have an expense of $250 a day. Our operating expense is $7,500 a month. If we are forced to shut down, you see how that could pile up. The independent refiner, if he has not his own production, must of necessity pay bonuses above the ordinary market price paid for crude, which is purchased in strenuous competition with the larger companies. Under the Harrington bill-presuming it was in effect-the larger units would naturally benefit by the fact that their refining facilities are more extensive. In other words, they have refining plants, including crackers-together with larger amounts of capital, frequently dominating whole oil fields-thus furnishing very serious competition at all times. The ambition and hope of every small refiner, therefore, is to secure his own production, and control his own refining and distribution, which the bill prohibits, as hereabove stated, presenting a serious handicap to the independent at the beginning of his refining operations.

I might state that our operation is a normal operation. We are in competition with the large companies with additional facilities. I only state that because I thought it necessary to give you a picture of the oil industry as it exists. There is a certain amount of fuel oil that comes from a barrel of crude. That fuel oil, with a certain amount of gas oil, is taken by the large company to a cracking plant and heated at a very high temperature. I will speak more of this later.

Concerning the distribution problem, the public, rather than preventing a monopoly, would, by the enforcement of such a bill as the Harrington bill, have one foisted upon them. Thousands of additional jobbers and brokers--we have, as a matter of fact, more than we need even now-would take the field. Thousands of different brands of gasoline would appear on the market. Hundreds of thousands of men now employed in the trucking, refining, and marketing divisions of the petroleum business would be thrown out of their present positions and would be displaced by inexperienced, profitseeking middlemen. Many of our employees have been working for us for years. Some of these companies have a pension list. We don't have a pension list, but we carry insurance on our men and take care of them when they are sick until they can return to work. Thousands of small distributing depots would necessarily replace the pipe lines, trucking, and other facilities now being used. Economic chaos in the oil industry would result. The smaller refiner would be ruined, and the larger refiners' business would be carried on at a tremendous disadvantage-and as usual, the consumer would pay the bill.

A great many of my brother refiners of Southern California have service stations through which they distribute approximately