We, as an industry, are going backward, not forward. We are being required to contribute to a higher economy (rising costs of steel and labor), and to compete with a cheaper product (foreign imports).

Evidence and examples could be cited here at great length to show that foreign crude cannot be relied upon in time of emergency. History has proved this fact better than words could ever prove it. In recent months there has been considerable strife in three areas-the Middle East, Venezuela, and Indonesiathree areas that export crude to the United States. Can we, for a moment, think of depending for our supply of a vital war commodity from areas as politically unstable as these?

In an effort to promote a better understanding of the oil industry, an industry whose statistics are frequently misinterpreted, the attached tables, numbered I, II, III, and IV, showing the economies of exploration and production in Oklahoma and in the United States have been prepared. The figures developed in these tables are all based upon information published by the American Petroleum Institute, the Oil and Gas Journal, or the United States Bureau of Mines. The basis of all of the figures used is documented on each of the tables. Table I sets forth the statistics on oil wells drilled in the United States in 1940, 1950, 1956, and in Oklahoma in 1956, and shows that the average productive well in Oklahoma developed only 46,910 barrels of oil reserves, whereas the average productive well in the United States developed 93,180 barrels. If, however, dry holes are taken into consideration, the productive well developed only 31,780 barrels per "test" in Oklahoma and 58,085 barrels per "test" in the United States.

The cost of developing the reserves indicated above is shown in table II. The average productive Oklahoma well costs $40,500, whereas the average productive well in the United States costs $55,300. After allocating to the productive well its proportionate share of dry holes drilled, the average cost in Oklahoma is $60,000 as compared to $90,000 in the United States.

Table III develops the overall economics of oil exploration and production, based upon the facts developed in tables I and II. This table shows that the total investment required to develop reserves in Oklahoma is $2.01 per barrel, as compared to $1.61 per barrel United States average. Both figures include a leasing and exploration cost, exclusive of dry holes, of 43 cents per barrel, based upon industry experience for 1956. Using as a gross realization, the average 1957 price for crude oil, and using a lifting cost of 50 cents per barrel in Oklahoma and 45 cents per barrel United States average, gives a net realization after operating cost of $2.50 per barrel in Oklahoma and $2.65 per barrel average in the United States. This net realization must cover the investment for finding and developing the profit on this investment and income taxes.

The oil producer in Oklahoma is realizing only 49 cents per barrel return on an investment of $2.01, or a ratio of return to investment of 24 cents per dollar invested or 3.5 percent per year spread over 17 years. For the United States these same figures are $1.04 return on $1.61 invested; or 65 cents per dollar invested or 6 percent per year spread over 25 years. These returns, in addition to being low for a high-risk industry, are spread over long periods of time.

The rate at which money is returned from oil exploration and production has been developed on table IV. Oklahoma is producing its reserves at a rate of 10.74 percent per year. The average United States rate of production is 3.60 percent per year. On this basis, the average new well in Oklahoma produces 13.80 barrels of oil per day gross and in the United States 21.80 barrels per day gross. After royalties and overrides, the average amount of oil received by the

operator for each new well is 11.23 barrels per day in Oklahoma and 17.73 barrels per day in the United States.

Based upon a selling price of $3 per barrel and an operating cost of 40 cents per barrel during the early years of production, the average income, before income taxes, for the average well is $10,750 per year in Oklahoma and $16,750 per year in the United States. The cost of drilling the average productive well including its share of dry holes is again $60,000 for Oklahoma and $90,000 for the United States. However, including the cost of leasing and exploration, these costs per productive well are increased to $76,300 in Oklahoma and $122,700 in the United States. Assuming that there is no decline in the production of new wells during the period, payout requires 7.1 years in Oklahoma and 73 years in the United States. If the normal decline in production is included, payout will extend to 12.0 years in Oklahoma and to 10.5 years in the United States. The average rate of return for a typical oil operator is 3.5 percent per year in Oklahoma and 6.0 percent in the United States, when total expenditures required for drilling and exploration are considered.

Combining the information developed in tables III and IV, the economics of the oil exploration and production business can be summarized as follows: The typical oil operator cannot expect the return of his investment in less than 10 years. After his investment has been returned, he can expect to realize a profit amounting to from 26 to 65 cents for each dollar invested, and this return will be spread over a period of 15 to 25 years from the time his productive well was drilled, making the average rate of return only 3.5 percent to 7 percent per year. All figures are given before income taxes.

The tables also reflect the historical pattern of the oil industry in the United States over a 15-year period. This pattern shows the decreasing amount of oil found per well, the dramatic increase in the cost of drilling these wells, the ever-increasing finding costs, and the increasing cost of lifting. The net effect of all these factors is of course an ever-decreasing economic attractiveness for the oil producer.

Figures for 1957 are not yet available, but preliminary estimates indicate that the economics will look no better and will probably look worse. Since the first of 1958, we have seen a gradual decrease in the price of crude oil overspreading the country through many price adjustments. Since the increase in crude price of February 1957, we have had over 100 price adjustments, almost all in a downward direction, in the United States.

Our industry stands at a vital crossroad, and the figures I have presented to you bear witness to this fact. Our economy has been crippled and our security is being threatened. Never has the economy of our section of the country depended so completely on a single decision at the national level. Our ability to provide the fuel for national defense in the coming years is no longer a foregone conclusion, if the present situation is allowed to continue. We do not ask that all imports be cut off. We ask only that imports be reduced and that we return to the clear intent of Congress when this legislation was renewed 2 years ago, and that these controls be made mandatory.

The United States domestic petroleum industry is being forced to curtail its operations drastically as imports of foreign oil are allowed to flood its market. Once many of its technical personnel are scattered, many of its wells abandoned, much of its gathering and transporting system allowed to fall into disuse, the domestic industry will be unable to regain its position of strength quickly enough to meet the demands of a national emergency. We urge that Congress provide immediate relief by making it mandatory that imports be held to a reasonable percentage of domestic production.

1 Oklahoma 1953 cost per foot increased same proportion as United States increased 1956 versus 1953. TABLE III.-Economic of oil exploration and production

1 Based on Struth's Formula (1956): Exploration costs: United States reserves added equals cents per barrel net reserves.

* 1957 United States price used for 1956 instead of lower 1956 actual. Oklahoma estimated.