Mr. ROBINEAU. I think this, Mr. Chairman. If a clear-cut rule is made, even though there might be ways to work around it, it puts the burden on that company, the fact of what is its intent. And I think that with such a rule, it would certainly help in the marketplace to pin down the fellow trying to do a predatory thing.

Chairman DIXON. We have had representatives here of the Independent Retail Gasoline Dealers Association. We had individual dealers here. I recall Commissioners asking questions-"Well, don't you want your supplier to help you, come to your aid and assistance in the case of a price war?"

"That is the only way we can stay in business. If he doesn't come and help us, we are dead."

If we made a rule and said that no one could come to the aid and assistance, this could lead to some serious injury to that segment of this industry, could it not?

Mr. ROBINEAU. I don't think so, Mr. Chairman, for this reason: Yes, under the present way, the way the industry is being run, with these prolonged price wars, they have to have this aid. But this is the very thing that also hurts them, because during these price wars there will be a few of them, the ones that have the right kind of storage, and they are a little smarter than the other fellow, who makes a good profit out of it, and he takes advantage of the price wars.

But the great majority of the dealers you are talking about, they eventually go broke, or are seriously injured during these wars.

Now, if we can eliminate the thing that causes the prolonged price wars, he is going to be better off in the long run.

Now, the fellow that is nightriding and taking advantages-nobut he is in a minority.

Chairman DIXON. As a practical matter, do you believe the independent lessee dealer is free and independent?

Mr. ROBINEAU. Well, I would have that depends on who he is, what company it is, or how it is being handled.

I think so far as our company is concerned, they are free, because we don't have any real threat- we don't use any real threat and don't have any real threat to do anything with them.

We don't give the major kind of protection. We don't have something to take away from them.

Chairman DIXON. You are interested in volume, are you not?

Mr. ROBINEAU. Yes, sir. That is why we want to have the differential.

Chairman DIXON. Well, now, if you had a lessee operator, a dealer, and he decided that he would be just as happy pumping less of your gas but charging more for it-what attitude would you take about it? Mr. ROBINEAU. Well, I would say this. We have some do it. Now, if he does it and he doesn't create any big price war, that is his problem. It is coming out of his pocket. If it starts creating a big price war, to where it is beginning to worry us

Chairman DIXON. You telling me you would not worry if your volume went down through a station that you own?

Mr. ROBINEAU. We just don't have the organization-we don't have the large sales organization of the other companies, so we don't-we probably should, but we don't battle each single station. We look at the total.

Chairman DIXON. Do you own the real estate of most of tions?

your sta

Mr. ROBINEAU. The majority of our stations are on sale leaseback arrangements with insurance companies. They actually own them, and we have leased them back. We built them in the first instance, sold them to the insurance companies, and then leased them back, because we don't have the money

Chairman DIXON. You mentioned, I believe, on page 14 of your statement--you have some impressive figures there about the decline in the number of independent refiners.

Could you give us the source, as well as the basic data that supports your statistics?

Mr. ROBINEAU. We will have that furnished to you, sir.

Chairman DIXON. If you do that, we will make it a part of the record.

What role have mergers played in the decline in the number of independent refiners?

Mr. ROBINEAU. It has been a substantial role.

Chairman DIXON. You think this Commission ought to take a stronger position about acquisitions of refineries?

Mr. ROBINEAU. That is a two-edged sword.

Chairman DIXON. I thought it would be.

Mr. ROBINEAU. Because in some ways-now, if you asked me that question a year ago, just as the law of self-survival, I have had to go on the side of, no, give me a chance to sell out if I can. Right now, with a lawsuit I have a chance to live. Commissioner MACINTYRE. You would rather sell out than be run

out?

it.

Mr. ROBINEAU. Yes. But I would like to stay in business. I enjoy

Chairman DIXON. That is where I was coming to, I thought.

We are worried about concentration in the country. We have the responsibility to enforce the antimerger law, along with the Department of Justice. And you are here telling us that the independent refiners are not long for the world.

Mr. ROBINEAU. That is right.

Chairman DIXON. Well, then, if a major oil company were to come up here and say, "I want to buy Frontier," and we were to say "No, that would add to concentration." Then next year you went broke.

Mr. ROBINEAU. Before I went broke, I would make a deal. I have never had a major oil company actually offer me a price. I have had major oil companies say they would like to buy me, would I sell, and I told them it was a question

Chairman DIXON. It is possible.

Mr. ROBINEAU. Possible, right.

Commisioner MACINTYRE. It would be cheaper for them and a lot of others to let you wither on the vine.

Mr. ROBINEAU. I think they know we are a large enough factor under the present antitrust laws that they cannot buy us. I think that is the only reason we haven't had an offer.

Chairman DIXON. If you will refer to page 5 of your statement, you will find this statement: "It is characteristic of all independent refiners that they lack to any significant degree crude oil production."

I believe when the Standard Oil of Indiana statement was made, that they presented some data which contradicts your statement. Can you present us any data supporting your statement?

Mr. ROBINEAU. Yes; I believe we can.

Chairman DIXON. If you will, we will make that a part of the record.

Mr. ROBINEAU. With my own company, we are considered one of the larger of the independents still alive. We-while we process a total of 28,000 or 29,000 barrels in our three plants a day, we have maybe 1,300 or 1,400 barrels a day of crude of our own. That is not a significant part. And it is not a particularly profitable crude with us, because it came at high cost to us to discover it.

Chairman DIXON. Can you give us a list of the members of your Independent Refiners Association of America?

Mr. ROBINEAU. Yes, we would like to give that in confidenece for you records, because some of our members are afraid to be put out in front of their major competition that they are a member.

Chairman DIXON. They don't even want it known they are a member?

Mr. ROBINEAU. Some of them don't, no.

Chairman DIXON. If you know of such members, when you send this to us, will you say that certain ones do not wish to be made a part of the public record?

Mr. ROBINEAU. Yes, sir.

Chairman DIXON. Now, we would also like to have any information which the association has on its members operation, including now your refinery throughout, your refinery capacity, the crude self-sufficiency, their sales, their assets, their profits-we would like to know all about them.

Mr. ROBINEAU. Fine. We shall get that.

Chairman DIXON. I would like to ask you another thing.

In your opinion, what rank must an independent refiner have in a given market before he can price within 1 cent of the majors? What rank?

Mr. ROBINEAU. I have never looked at it from the standpoint of rank. I think the criterion from our company-when we find that we can hold our relative position at a 1-cent differential instead of a 2cent differential, it would be just to our money advantage, our business advantage to go to the 1-cent differential. When we find-and we constantly try here and there-the minute we go to 1-cent differential, we lose our relative position, then we feel we have to have the 2-cent differential. And that position is different in different areas, because we have different acceptance. In a small town you may have a different acceptance than you have in a big town.

Chairman DIXON. I think that answers it.

Thank you very much, sir.

Mr. ROBINEAU. Thank you.

Chairman DIXON. The next appearance should have been the Shell Oil Co. representative, but we have been told that the witness could not be here, but they will file a statement. That statement will be made a part of the record.

The next representative represents the Champlin Petroleum Co. Mr. Burdette?

TESTIMONY OF CARTER BURDETTE, CHAMPLIN PETROLEUM CO. Mr. BURDETTE. My name is Carter Burdette. I am an attorney from Fort Worth, Tex. Mr. Earl Baldridge, who is the chairman of the board of Champlin Petroleum Co., was scheduled to appear today, and regrettably he has a conflict in his schedule, and will not be able to appear, and he has asked me to read this letter, which is addressed to the Chairman of the Commission.

DEAR MR. CHAIRMAN: Upon receipt of your advice of May 5, 1965, that my appearance before the Commission in the above proceeding had been rescheduled for May 20, I made tentative plans to be in Washington on that date. Unfortunately, scheduling conflicts have now developed which make it absolutely impossible for me to be in attendance. Under these circumstances, I would appreciate your having my original filed statement copied in the transcript followed by the enclosed supplementary remarks which I had planned to make orally. That portion of the record can then stand as a representation of our views in lieu of any personal appearance by me.

I regret my inability to be at the hearing in person, but trust you will understand the situation.

Yours very truly,

EARL BALDRIDGE.

Chairman DIXON. It is a very short statement. We will accommodate him. We will have the remarks copied in full, together with the supplementary remarks.

Mr. BURDETTE. Thank you very much.

(The document referred to was marked "Champlin Exhibits Nos. 1 and 1A" for identification, and appears in the appendix, at p. 1017.) Chairman DIXON. That completes our morning session. We will stand in recess until 2 p.m.

(Whereupon, at 12 noon, the Commission recessed, to reconvene at 2 p.m., the same day.)

AFTERNOON SESSION

Chairman DIXON. We will hear from Mr. Stanley Learned, president of Phillips Petroleum Co.

Mr. Learned, nice to have you here. Glad you could come.

TESTIMONY OF STANLEY LEARNED, PRESIDENT AND CHIEF

EXECUTIVE OFFICER, PHILLIPS PETROLEUM CO.

Mr. LEARNED. Mr. Chairman, my name is Stanley Learned. I am president and chief executive officer of Phillips Petroleum Co., Bartlesville, Okla. I have been employed by Phillips since 1924. For 14 years I was the executive to whom Phillips Sales Department reported. I have thus been deeply interested in developments and probÎems of petroleum marketing.

While Phillips Petroleum Co. is regarded as one of the so-called majors in the petroleum industry, our assets are spread among many operations, such as exploration, raw materials production, pipelines, petrochemicals, and marketing, not only in the United States, but in many countries abroad.

In many presentations made during these hearings a wide range of problems has been discussed. Without trying to reexamine all of these problems in any depth, I do want to briefly comment on a few of them.

First, what about the influence of crude oil upon gasoline marketing? It has been indicated that the major companies control a large amount of domestic crude production and use it to precipitate price wars. Quite the contrary, the bulk of major companies have a crude deficit in this country, with their refineries processing more crude than the companies produce domestically. Phillips for example produces 120,000 barrels of crude oil a day in the United States, which is only 1.5 percent of total U.S. crude production, but refines 243,000 barrels per day domestically, representing only 2.7 percent of the Nation's crude runs to refineries. Much like the nonintegrated refiner, with no crude production, most of the major companies must obtain part of their feedstock for their refineries from outside sources.

Second, what about the influence of refinery runs upon gasoline marketing? Excessive refinery throughput is a contributing factor to price disturbances. A supply in excess of demand encourages conditions which set off price wars. If refiners would base their runs on projected sales for their companies, conditions would undoubtedly improve. In our company, we set our refinery runs and product yields each month on a projection of sales forecasts prepared by the sales department for our products for each month of the next 12-month cycle. These schedules are reviewed monthly and runs changed to adjust for changes in projected demand.

Third, what about the influence of a company's size and diversification on gasoline marketing? Companies like ours cannot readjust their financial investments from many fronts, involving many people and commitments, to unduly support the marketing segment of the business. As I have pointed out, Phillips is widely diversified and fully integrated in many phases of the petroleum and petrochemical fields at home and abroad. I assure you it is our aim that each phase produce the maximum profit, consistent with good product quality, service to customers, and responsibility to the public. Since we are in business to produce optimum return on stockholder's investment, and since price wars defeat this purpose, the notion that diversification and integration contribute to gasoline price wars is false to the point of being ridiculous.

There are many matters which may have a bearing on the petroleum marketing situation, but I want to be direct and specific. The focal point where all of these problems converge is the service station pump. In my presentation today, I wish to achieve two objectives. First, to present our views on the destructive, unrealistic, unjustified differentials in pump prices of gasoline which are main cause of the chaotic conditions in the gasoline marketing segment of the petroleum industry. And, second, to propose an approach to help relieve these

conditions.

In recent years communities in every section of the Nation have experienced destructive gasoline price wars. Many of these price wars have been prolonged and severe. In some markets depressed prices have existed almost continuously for many months. The price wars have often resulted in the refiner actually selling product below the cost of feedstocks to make it.

With some products in our economy, lower prices might be offset by increases in volume and the ultimate financial loss wholly or partially recouped. The gasoline market, however, is an inelastic one,