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	REMARKS TO THE INVESTMENT ANALYSTS SOCIETY OF CHICAGO “RESTRUCTURING IN THE OIL INDUSTRY: THE FREE ENTERPRISE SYSTEM AT WORK” CHICAGO [Text stricken: Illinois] MARCH 15, 1984 12:35 P.M.

(TIME: —MIN.)

I. THANK YOU, JOHN [Handwritten addition: John (Richards).]

A. IT’S A PLEASURE TO BE IN CHICAGO TODAY.

B. (PERSONAL COMMENTS, HUMOR.)

II. I WANT TO DISPENSE WITH A LOT OF INTRODUCTORY REMARKS TODAY AND GET RIGHT DOWN TO THE POINT WHICH CONCERNS ME MOST. . .AND WHICH SHOULD CONCERN YOU IF YOU ARE A SHAREHOLDER OR A BELIEVER IN THE FREE ENTERPRISE SYSTEM.

A. WE CURRENTLY HAVE SOME LEGISLATION BEING PROPOSED IN CONGRESS THAT WOULD PLACE A MORATORIUM ON MERGERS IN THE OIL INDUSTRY.

B. IT’S LEGISLATION THAT HAS BEEN RUSHED IN AS A RESPONSE TO SOCAL’S $80-A-SHARE BID FOR GULF.

C. THE ARGUMENT IS THAT MERGERS BETWEEN LARGE OIL COMPANIES WILL HURT THE CONSUMER AND NATIONAL ENERGY SECURITY.

D. I’D LIKE TO ANSWER THOSE CHARGES. . .BECAUSE I DON’T SEE THAT [Text stricken: THERE IS] ANY HARM [Text stricken: TO] [Handwritten addition: will] COME FROM THIS DEAL.

III. LET’S START WITH [Text stricken: HOW IT MIGHT HURT] THE CONSUMER.

A. THE CHARGE IS THAT THIS MERGER WILL DECREASE COMPETITION IN THE INDUSTRY BECAUSE SOCAL AND GULF COMBINED WILL HAVE [Handwritten addition: about 10] PERCENT OF THE [Handwritten addition: retail] GASOLINE MARKETING IN THE UNITED STATES.

B. BUT LET’S THINK ABOUT THAT FOR A MINUTE.

C. THE FEAR IS THAT SUCH A “CORNER” ON THE MARKET—IF YOU CAN CALL [Handwritten addition: 10%] OF THE MARKET A “CORNER”—WILL INCREASE PRICES AT THE GAS PUMP.

D. SOMETIMES, I WONDER WHERE THESE [Handwritten addition: legislators] HAVE BEEN FOR THE LAST 10 YEARS.

E. THE PRICE OF GASOLINE ISN’T ARBITRARILY DETERMINED BY OIL COMPANIES.

F. IT IS DIRECTLY LINKED TO THE PRICE OF OIL.

G. AND THE PRICE OF OIL IS NOT EVEN DETERMINED INSIDE THE UNITED STATES.

H. IT’S DETERMINED BY OPEC. . .AND HAS BEEN SINCE 1973.

I. THERE’S SIMPLY NO WAY THAT THIS MERGER WILL AFFECT THE PRICE OF GASOLINE.

J. I CAN’T SAY THAT THE SOCAL-GULF MERGER WILL DECREASE GASOLINE PRICES, EITHER.

K. BUT ONE THING IS CERTAIN. . .THE COMBINED COMPANIES WILL HAVE FAR MORE REFINING AND MARKETING CAPACITY THAN THEY WILL PROFITABLY BE ABLE TO MAKE USE OF.

L. THIS COUNTRY ALREADY HAS TOO MUCH REFINING CAPACITY.

M. OUR REFINERIES ARE ONLY BEING UTILIZED AT [Handwritten addition: 75%] OF THEIR CAPACITY.

N. SO THE CONSOLIDATION AND STREAMLINING OF THESE TWO COMPANIES’ DOWNSTREAM OPERATIONS WILL NOT HARM THE AMERICAN CONSUMER.

IV. AS FAR AS NATIONAL SECURITY GOES, MERGERS IN THE OIL INDUSTRY WILL NOT JEOPARDIZE OUR ENERGY SUPPLIES.

A. I’VE BEEN HEARING FROM SEVERAL CRITICS THAT THE $13.4 BILLION THAT WILL GO TO GULF STOCKHOLDERS WOULD BE BETTER SPENT IN THE EXPLORATION FOR OIL AND GAS.

B. IF OIL AND GAS COMPANIES WERE TOLD TO TAKE ALL THE MONEY THEY HAD AVAILABLE AND [Text stricken: GO OUT TO] SEARCH FOR ALL THE OIL AND GAS THEY COULD FIND, THE INDUSTRY WOULD BE [Text stricken: BROKEN] [Handwritten addition: financialy ruined] QUICKLY.

C. WHY?

D. BECAUSE WE CAN’T FIND OIL AND GAS CHEAPLY ENOUGH.

E. THE DAYS OF CHEAP ENERGY ARE OVER.

F. IF THE INDUSTRY IS ASKED TO FIND OIL AND GAS AT ANY COST, THEN THEY WILL HAVE TO FIND IT AT AN UNECONOMICAL PRICE.

G. AND THAT COST WILL BE DIGESTED SOMEWHERE ALONG THE LINE. [Handwritten addition: the consumer.]

H. THERE’S PLENTY OF MONEY IN THE INDUSTRY TO DRILL ALL THE ECONOMICALLY FEASIBLE WELLS THAT EXIST.

I. AND I WANT TO STRESS THE WORD ECONOMIC [Text stricken: ALLY].

V. I KEEP HEARING [Handwritten addition: some] PEOPLE SAY THAT MERGERS IN THE OIL INDUSTRY WON’T FIND ANY MORE OIL FOR THE COUNTRY. THAT OUR RESERVES WILL DECLINE AND THAT OUR DEPENDENCE ON OPEC WILL INCREASE.

A. BUT IF THESE PEOPLE BELIEVE THAT THE PLAN WE’VE BEEN FOLLOWING HAS INCREASED OUR RESERVES AND HELD OPEC AT BAY. . .THEY’RE WRONG.

B. THERE’S NO DOUBT THAT THE U.S. OIL INDUSTRY FOUND A LOT OF OIL AND GAS DURING THE 1970s.

C. BUT WE PRODUCED MORE THAN WE FOUND.

D. RESERVES HAVE BEEN DECLINING IN THIS COUNTRY SINCE 1970.

E. THE RESERVE DEPLETION PROBLEM WAS MASKED, HOWEVER, BY EVER-INCREASING OIL PRICES DURING THE 70S.

F. RISING OIL PRICES ALSO [Text stricken: MASKED] [Handwritten addition: covered up] INCREASED FINDING COSTS.

[Text stricken: G. THE INDUSTRY SIMPLY COULD NOT FIND OIL AND GAS AS CHEAPLY [Handwritten addition: inexpensively] IN THE PAST.]

[Handwritten addition: G.] [Text stricken: H.] BUT AS LONG AS OIL PRICES WERE RISING, THE BALANCE SHEET LOOKED GOOD.

[Handwritten addition: H.] [Text stricken: I.] TODAY, OIL PRICES HAVE STABILIZED AT $29 A BARREL. . .AND REMEMBER, THAT’S A PRICE SET BY OPEC, NOT BY THE MARKET.

[Handwritten addition: I.] [Text stricken: J.] SO THE PROBLEMS THAT HAVE BEEN TROUBLING THE INDUSTRY FOR YEARS ARE COMING TO THE SURFACE.

VI. THAT’S WHY WE’RE SEEING MERGER AND ACQUISITION ACTIVITY IN THE INDUSTRY. . .PLUS THE USE OF SOME OTHER RESTRUCTURING TOOLS LIKE ROYALTY TRUSTS AND LIMITED PARTNERSHIPS.

A. THE INDUSTRY IS TRYING TO SET THINGS STRAIGHT [Handwritten addition: through the free market system.]

B. ALL THESE ACTIVITIES ARE PART OF A SORTING OUT PROCESS. . .A RESTRUCTURING.

C. AND IT’S VERY IMPORTANT THAT [Handwritten addition: this] [Text stricken: RESTRUCTURING] TAKE PLACE.

D. OTHERWISE, OUR INDUSTRY MIGHT CONTINUE ON THE SAME COURSE UNTIL WE REACHED A POINT WHERE WE WOULD NOT HAVE THE ABILITY TO PUT OUR OWN HOUSE IN ORDER.

E. WHAT IS HAPPENING IN THIS INDUSTRY IS NOT GOING TO HARM THE CONSUMER OR THE NATION’S ENERGY SECURITY.

F. IN FACT, IF THE INDUSTRY IS LEFT TO RESTRUCTURE ITSELF, IN THE END IT WILL BENEFIT CONSUMERS AND THE NATION BECAUSE THE INDUSTRY WILL BE MORE EFFICIENT AND VIABLE.

G. IT WILL BE BETTER ABLE TO CARRY OUT ITS DUTY OF FINDING OIL AND GAS IN THE MOST EFFICIENT WAY POSSIBLE.

VII. WHAT CONCERNS ME EVEN MORE ABOUT THE PROPOSED LEGISLATION AGAINST OIL MERGERS IN CONGRESS IS THAT IT IS AIMED DIRECTLY AT A SPECIFIC GROUP OF PEOPLE THAT ARE THE CORNERSTONE OF THE FREE ENTERPRISE SYSTEM.

A. I’M TALKING ABOUT THE STOCKHOLDER[Handwritten addition: s].

B. CONGRESS SEEMS TO BE CONCERNED ABOUT THE $13.4 BILLION GOING TO GULF STOCKHOLDERS IF SOCAL’S $80-A-SHARE BID GOES THROUGH.

C. THE GENERAL IDEA IS THAT IF SOMEONE IS MAKING MONEY, THAT HAS TO BE BAD.

D. BUT WHAT THEY DON’T SEE IS THAT THE MONEY GOING TO GULF STOCKHOLDERS WON’T JUST DISAPPEAR.

E. I DOUBT THAT TOO MANY PEOPLE WILL SIMPLY STICK THAT CASH UNDER THE MATTRESS.

F. INSTEAD, IT WILL BE REINVESTED, [Handwritten addition: in the oil and gas industry] PLACED IN SAVINGS ACCOUNTS, USED TO PURCHASE A NEW CAR OR TO MAKE A DOWNPAYMENT ON A HOUSE.

G. THAT MONEY WILL BE PUT RIGHT BACK INTO THE ECONOMY.

I. OBVIOUSLY, THE GOVERNMENT WILL TAKE A SUBSTANTIAL PORTION OF IT AS TAX REVENUES.

J. AND CONGRESS SHOULDN’T COMPLAIN TOO MUCH ABOUT THAT.

VIII. WHAT SOME [Text stricken: OF THESE] CONGRESSMEN ARE SAYING, [Handwritten addition: in essence] [Text stricken: HOWEVER,] IS THAT THESE SHAREHOLDERS AREN’T ENTITLED TO MAKE MONEY ON THEIR INVESTMENTS.

A. TO ILLUSTRATE THAT, LET ME PUT THE SITUATION IN A LITTLE DIFFERENT PERSPECTIVE.

B. LET’S SAY THAT YOU PURCHASE A HOUSE AT $45,000.

C. WHEN YOU HAVE IT APPRAISED, YOU’RE TOLD THAT IT’S WORTH $114,000.

D. SOMEONE COMES ALONG AND OFFERS TO BUY THE HOUSE FOR $80,000.

E. BUT THE GOVERNMENT COMES IN AND SAYS THAT YOU CAN’T TAKE THAT OFFER.

F. IS THAT AN OVERSIMPLIFICATION?

G. I DON’T THINK SO.

H. WHEN THOSE STOCKHOLDERS PURCHASED GULF SHARES, THEY EXPECTED TO BE ABLE TO MAKE MONEY ON THEIR INVESTMENT.

I. THAT’S THE WAY THE FREE ENTERPRISE SYSTEM WORKS.

J. BUT NOW THEY’RE TOLD THAT THEY MIGHT NOT BE ABLE TO EXERCISE THEIR RIGHT TO GET THE MAXIMUM VALUE FOR THEIR INVESTMENT [Text stricken: UNDER THE FREE ENTERPRISE SYSTEM.]

K. AND IT DOESN’T MAKE MUCH SENSE TO THEM.

IX. WHAT’S EVEN MORE FRIGHTENING IS THAT THIS KIND OF LEGISLATIVE THINKING COULD SPILL OVER AND BE PASSED AGAINST OTHER INDUSTRIES.

A. WHY SHOULD IT STOP WITH THE OIL INDUSTRY?

B. IF THIS LEGISLATION IS AIMED ONLY AT GULF STOCKHOLDERS, WE’RE TALKING ABOUT 270,000 PEOPLE.

C. THAT’S A LOT OF [Handwritten addition: voters and taxpayers] [Text stricken: FOLKS.]

D. BUT IF THIS KIND OF THINKING SHOULD SPREAD IT HAS UNBELIEVABLE IMPLICATIONS.

E. ONE OUT OF EVERY SIX AMERICANS IS A STOCKHOLDER, ACCORDING TO A NEW YORK STOCK EXCHANGE SURVEY CONDUCTED IN MID-1983.

F. THAT’S 42 MILLION PEOPLE [Text stricken: [Handwritten addition: plus their families.]]

G. AND WHO ARE THOSE PEOPLE?

H. THEY’RE JUST LIKE YOU AND ME.

I. AND IT’S OBVIOUS THAT [Handwritten addition: some members of] [Text stricken: NO ONE IN] CONGRESS [Handwritten addition: care little] [Text stricken: IS CONCERNED] ABOUT THEIR INTERESTS.

J. I HAVE JUST ONE THING TO ADD TO THAT THOUGHT: THOSE 42 MILLION AMERICANS PROBABLY HAVE A SPOUSE AT HOME, TOO.

K. THAT BRINGS THE NUMBER UP TO 84 MILLION AMERICANS.

L. AND WHEN LEGISLATION STARTS AFFECTING THEIR POCKETBOOKS, YOU CAN BET THEY’LL GET SERIOUS QUICK.

X. IN CLOSING I’D LIKE TO LEAVE YOU WITH ONE THOUGHT.

A. AND THAT IS. . .THAT WHAT WE’RE SEEING IN THE OIL INDUSTRY IN THE WAY OF MERGERS [Handwritten addition: and] ACQUISITIONS [Text stricken: AND SUCH] IS SIMPLY THE FREE ENTERPRISE SYSTEM WORKING.

B. THIS IS THE BEST ECONOMIC SYSTEM IN THE WORLD.

C. AND IF [Handwritten addition: it is allowed to work,] [Text stricken: WE’LL LEAVE IT ALONE,] WE’LL SEE [Text stricken: THAT IT WILL WORK TO] EVERYONE [Handwritten addition: will] BENEFIT—SHAREHOLDERS CONSUMERS AND THE GOVERNMENT.