Mr. CURTIS of Nebraska. Would you for the record elaborate on that a little bit? I will tell you what prompts my question. We have had witnesses appear here and say that in commodities where we are dealing with a natural resource that is exhaustible, therefore we should have a policy of heavy imports of that and save our own. I take it you disagree with that. Tell us why.

Mr. LYONS. Well, in the first place, petroleum finding and producing is long range. It takes from 5 to 8 years to find and develop a field. That means if we shut in our present production in attempt to conserve it for future use where we need it, and in lieu of that rely upon imports for our domestic requirements, what would happen would be we could save those reserves, but that is all that we would have. Let me illustrate.

In 1920 we had proved reserves of 7 billion barrels. We could have shut in those 7 billion barrels and they would be available to us today. But our reserves today are 4 times that amount, despite the fact that we have produced and consumed 41 billion barrels since 1920. The result of what you say there would be that we would maintain in a static condition the reserves we have today, but we would not then produce and continue to increase the reserves of that oil needed by our expanding economy and defense programs. It takes the drilling of many, many wells to provide the increasing volume of petroleum which is needed by this Nation.

Last

For instance, in 1949 we drilled something over 26,000 wells. year we drilled 46,000 wells. That is a tremendous increase. That increased number of wells was required because the demands of this Nation increased 3 million barrels per day, about 60 percent, in the 7 years following the last war.

As I say, the producing industry is long range. The industry can only exist and provide the oil needed by this Nation by drilling a continuing and increasing number of wells.

Mr. CURTIS of Nebraska. In other words, an unhealthy economic condition in your domestic oil industry drastically curtails the amount of reserves that you discover and put into productive condition, and it also exhausts known supplies, especially the efficient ones; is that correct?

Mr. LYONS. It reduces domestic availability exactly in the same proportion that imports are excessive.

Mr. CURTIS of Nebraska. On page 6 of your paper where you refer to the program of 55,000 wells, that of course means producing wells? Mr. LYONS. No, that means total number of wells to be drilled, dry holes and producers. Of course you know that 8 out of 9 wildcat wells drilled today are dry holes, and last year out of the 46,000 plus wells drilled, 18,000 of them resulted in total loss; 38 percent.

Mr. CURTIS of Nebraska. That is all, Mr. Chairman.

The CHAIRMAN. Any other questions? I want to thank you for your very fine presentation on this very important subject. You have been very helpful to us. We thank you again.

Mr. LYONS. Thank you.

The CHAIRMAN. We will stand adjourned until 1: 15 this afternoon. (Whereupon, at 12 o'clock noon, the committee was recessed, to reconvene at 1: 15 p. m. the same day.)

AFTER RECESS

The CHAIRMAN. The committee will come to order.

Is Mr. J. P. Coleman in the room, president of the National Stripper Well Association, of Wichita Falls, Tex.?

I am delighted to see you, Mr. Coleman. If you will give your name and address, and the capacity in which you appear, for the record, we will be glad to hear you.

STATEMENT OF J. P. COLEMAN, PRESIDENT OF THE NATIONAL STRIPPER WELL ASSOCIATION, OF WICHITA FALLS, TEX.

Mr. COLEMAN. Thank you, Mr. Chairman.

My name is J. P. Coleman. I am a small crude-oil producer from north Texas. I am president of the National Stripper Well Association, and a former president of the North Texas Oil and Gas Association. During the last war I served on the economics committee of the Petroleum Industry War Council and the Crude Oil Advisory Committee of the Office of Price Administration. More recently I served as chairman of the supply and demand committee of the Western Hemisphere oil-study committee instituted by the Independent Petroleum Association of America. I am also authorized to represent here the Panhandle Producers and Royalty Owners Association and the North Texas Oil and Gas Association.

There are 464,000 oil wells in the United States which produce an average of 13.5 barrels per day each. Three hundred and twenty-one thousand of these, or 70 percent, are classified as stripper wells-that is, wells making less than 10 barrels per day. This 70 percent of the United States wells average 2.9 barrels per day each. Most of these are owned by the thousands of small domestic operators. I might say here, Mr. Chairman, there are over 12,000 of those small producers in the United States.

These stripper wells account for nearly a million barrels of daily production out of a total daily production of about 6 million barrels. It is obvious that this is high-cost production. In many cases it costs about as much to lift this oil as it brings when sold. If these wells can be kept in production long enough, they perhaps may be incorporated in secondary recovery projects and a great deal of extra oil produced. This operation, of which waterflooding is the most successful, also costs money and will be undertaken only when crude prices are stabilized at reasonable levels. This type of operation is carried on extensively in Pennsylvania where crude prices are reasonable. These practices are spreading to the Southwest and many waterfloods are in production in Oklahoma and Texas. The Interstate Oil Compact Commission estimates that we have in the United States over 3 billion barrels of oil that is recoverable from present stripper wells by secondary recovery methods. This oil will not be recovered at all unless the crude prices justify it.

If secondary recovery methods are used on the present stripper wells, then we should double the recoverable oil from these wells. This means that by primary methods the stripper wells will ultimately produce about 3,700 million barrels, and by both secondary and primary methods some 6,800 million barrels will be recovered. Only by maintaining a healthy market will this oil be produced.

Every successful well creates productive capacity and an ultimate reserve. Most wells produce over many years and the ultimate total production is the reserve added. The productive capacity is the daily oil available from that well. We have a reserve in the United States of about 33 billion barrels including natural gas liquids. Our productive capacity is about 8 million barrels per day, under rates that are for the most part the maximum efficient rates. We are producing now at the rate of about 7 million barrels per day. This means we have a shut-in capacity, not being used in today, of about 1 million barrels per day. Our total demand in the United States is about 8 million barrels per day. The imports amount to about 1,100,000 barrels per day, which causes some oil to go to aboveground storage. If our imports were cut off entirely, we would have very little excess producing capacity over our present needs. All of this adds up to the conclusion that we do not now have enough wells in this country and we are not now drilling at a rate sufficient to create the necessary reserve producing capacity. Experience has shown that if we increase our oil sales and receive a reasonable price for the oil, the necessary wells will be drilled.

The small producers have for many years drilled most of the wells. in the United States. Last year the 22 largest companies drilled 22.6 percent of all wells drilled while the thousands of sinall operators drilled 77.4 percent of the wells. This reationship has existed for many years. In other words, these small domestic producers are the backbone of America's strength.

These small producers are greatly alarmed at the tremendous and consistent rise in imports into this country that has occurred since the war. Before and during the war, the United States was traditionally an exporter of oil. Due to large discoveries in the Middle East and South America, we have gradually lost our foreign markets and the domestic producers are steadily losing the domestic market. Today about 15 percent of our domestic market has been taken by these imports.

In my native State of Texas in the last 5 months we have had to cut back Texas production over 350,000 barrels per day and shut in our wells in order to make way for this flood of foreign oil. Over 260 drilling rigs are shut down which were running a year ago.

The State of Texas collected $158 million from oil and gas producers in 1952. This does not include motor fuel taxes. The oil industry in Texas in 1952 paid 68 percent of all business and property taxes. This is also 36 percent of all taxes collected by the State government. These direct taxes do not include gasoline taxes. This direct tax pays 46.5 percent of all free public school costs.

This is not all. The local districts of Texas depend heavily on the oil industry. In a recent survey of 326 school districts, there were 139 in which oil and gas property taxes paid more than 50 percent of locally raised revenues. In 74 of these districts the percentage was over 80 percent. Officials of the State have recently estimated that the State will lose about $20 million per year in revenues due to recent allowable cuts alone. This imported oil pays no part of these taxes at any time, but in addition to making no contribution it actually causes Texas to loss $20 million per year in taxes due to the recent increases in imports. If we were allowed to produce all the oil now being imported, then some $60 million more would go to the Texas

taxing authorities. All this is having a depressing effect on our economy and is causing a crisis in our State finances.

In this country we have found that we can get more oil out of wells if we produce them at a low rate and conserve the reservoir energy or gas in order to increase the ultimate recovery. The regulatory bodies of many States set the maximum efficient rate for all oil wells in order to prevent waste. This has the added advantage that the oil is produced at a more orderly rate and has insured us stable supplies. Before conservation principles were applied our oil economy was one of feast and famine. The accident of discovery led to excessive production at times followed by shortages at other times. By practicing conservation and by not bringing above ground any more oil than was needed, we went into World War II with a reserve production capacity of over a million barrels a day. This reserve enabled us to win the last war. Whereas then we had a reserve of 30 percent of our daily needs, we have now little, if any. We urgently need to build up that reserve and nothing should be done. to prevent it. As it is, many drilling crews are out of work. Our discovery rate in 1952 was the lowest in many years. We will drill no more wells in 1953 than 1952. In an expanding economy with expanding demand, this is a step backward. The goal of PAD in 1953 was 55,000 wells. We will not drill over 46,000 wells this year. The reserves found in this country are in direct proportion to the amount of drilling. Over the years we have found 25 barrels of oil for every foot of hole drilled. This figure has held true for many years. We have only to drill the wells in this country to find the oil. When well drilling is retarded, oil discovery is retarded. We have also found that the drilling rate is directly in proportion to the income generated by the sale of the crude oil. In other words, the number of barrels of oil found in the United States is directly proportionate to the product of the volume of oil sold times the price received. Traditionally, 60 percent of the income from domestic oil sales has been drilled back into the ground to find new oil to replace that which has been used. Recent studies indicate beyond doubt that we can find within the borders of the United States all the oil we will need in the foreseeable future, both for war and for peace. To do this we must have the market and the price; and these both are now seriously threatened.

These things contain the seeds of a depression. If our prices are cut the downward cycle will begin: less drilling, more men out of work, followed by less income and further drilling cuts, until we will really be dependent on foreign oil. It would take us many years to recover from this.

The importers may have commitments to foreign governments that prevent their reducing imports. We are only asking that they reduce imports to the 1949-50 level. Surely they were able to satisfy their foreign governments then. No importer would be conscious of the 10 percent restriction until 280 million barrels, nearly 12 billion gallons, had been brought in. That is, in any one 12-months' period."

Oil imports are not like imports as we normally conceive them. We ordinarily think of foreign trade as being the exchange of the products of many people of one country for the products of the many people of another country. But in the case of oil we have American

companies using American money, taking American drillers and American machinery and equipment in American ships to foreign forests and deserts. There they drill for and produce oil and bring it back to America in American ships. There is no exchange at all. It is true the American companies pay United States dollars to the foreign governments for the privilege of drilling for oil and pay a few native laborers, but this is not normal foreign trade and don't let anyone mislead you about this.

In 1946, the 5 largest oil companies, which are also the 5 largest importers of foreign oil, produced 57 percent of their oil in the United States and 43 percent in foreign countries. Since that time they have gradually increased their foreign production until in 1952 they produced 63 percent of their oil in foreign countries and only 37 percent in the United States. In 1946, we took heart because we felt, that is, the independent producers felt that the predominant interest of the largest importers was still their United States production. Now we see that their principal interest is in foreign lands. In fact, in 1952, the Standard Oil Co. of New Jersey, the largest oil company in the world and the largest importer, produced 74 percent of their oil in foreign lands, and 66 percent of the company's net income was earned through foreign operations.

Now the profit motive is good and free competitive enterprise has made this country great, but in our present complicated modern society we need some umpires occasionally to see that the big do not destroy the small and that the national interest is served. In their headlong pursuit of profits, the management of these importing companies must exercise some restraint where our national security is involved. It is too well remembered that during the last war we couldn't even bring oil from South America because of the sinkings of oil tankers. We must build up our domestic reserves for our national security and protection against such a situation.

We do not advocate excluding imports, but certainly if we give up our foreign markets and 10 percent of our domestic market we have been reasonable. To give up more will not only do great harm to the domestic producers, but more important it will do great harm to this nation.

I have here a news item that the Government of Iran is offering to sell its oil by the cargo at half-price; this means about 85 cents per barrel. This is the government, you know, that recently confiscated the oil holdings over which we have had many news items. The courts of Italy have ruled that Iran can sell its oil to Italian subjects and the World Court has refrained from ruling in the matter. This means that this oil-over a half a million barrels per day-will be dumped on the world market and mostly in the United States at any price in order to give dollars to Iran. This oil has cost Iran nothinghence, they can sell it at any price. Under some circumstances it might be considered that this is a good thing for United States buyers. However, where we are trying to build up reserves in this country, this could be disastrous. Whereas agricultural cycles are 1 year, we work in 5-year cycles. It usually takes 5 years to bring oil into production after discovery. What we do now will be reflected in our production figures 5 years hence.