Texas Turnabout

To swell the flow of oil to Europe, the Texas Railroad Commission last week finally ordered a big boost in allowable production. The decision added 210,901 bbl. to Texas daily output to a record 3,773,054 bbl. Behind the expected move (TIME, Feb. 18) was Ernest O. Thompson, senior member of the state's three-man commission, who insisted ever since the Suez Canal was closed that three small raises totaling 210,000 bbl. were the best contribution Texas could make.

General Thompson's turnabout, which raised total U.S. production to a record 7,515,400 bbl. a day, did not mean that the oil shortage had worsened. Only a fortnight ago Thompson himself appeared before a House committee in Washington to argue with an expert's persuasiveness that reports of a serious shortfall in the European oil lift were only a myth. Bearing out his analysis, Britain has since eased oil rationing.

Cutback. What Thompson's move 'did mean was that he had finally been able to win what Texas independents want--promise of a cut in crude imports (now some 820,000 bbl. daily), giving Texas a bigger share of the domestic market. That ambition had been implicit in Thompson's Washington testimony. The way to supply Europe was not to increase production, he said, but to make major refiners cut back imports of Venezuelan crude, ship it direct to Europe.

To carry out this mission, Thompson lunched with Presidential Assistant Sherman Adams and Defense Mobilizer Arthur Flemming, picked up Administration support for diverting Venezuelan crude. He also urged new pipeline capacity "in the interests of national security" from Texas to the East Coast, possibly Philadelphia, where natural gas now arrives from Texas in the war-built Little Inch pipeline. An application to convert Little Inch from gas to petroleum products is already before the Federal Power Commission from Houston Contractors George and Herman Brown, and is sure to get quick attention.

Tie-In. Though Texas had to be paid off before it moved, the resulting production boost will solve some problems for oil lifters. Jersey Standard Oil President M. J. Rathbone told a House committee that in order to get 1,365,000 bbl. of fuel oil for Europe, his buyers had to accept a tie-in deal from three refiners for 302,000 bbl. of "unwanted" gasoline. Yet so far, testified Rathbone, Jersey Standard has tailored its lift to Europe's needs, shipped 20 million bbl. of crude, only 431,000 bbl. of gasoline. Asked the probers: Was the recent boost in crude prices made to protect the industry against a falling profit margin? Yes, said Rathbone. noting that Jersey Standard's profit percentage of net worth is slipping, dropped from 19.1% in 1951 to 15.8% in 1955. Though Jersey Standard's profits will rise $100 million in 1957 to $900 million, it must also keep pace with rising world demand. Expansion will take $3 for every $2 of 1956 earnings. "Our profits are big," said Rathbone, "but we also do a big job."

Then why did oilmen wait for the Suez crisis to boost prices? Maine's Senator Margaret Chase Smith guessed it was for the same reason that Texas held down allowables. Appearing in behalf of her consumer constituents before the Senate's O'Mahoney subcommittee, she testified: "It is entirely possible that prices were not raised by domestic producers prior to the Suez crisis for the very obvious factor of competition from foreign imports. Perhaps domestic producers didn't dare increase prices for fear they would lose such markets as New England. Obviously these attempts of the domestic-oil producers have been to eliminate the competition of foreign oil."

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