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	REMARKS TO NATIONAL PRESS CLUB WASHINGTON D.C. APRIL 10, 1984

(TIME: 15 MIN.)

I. GOOD AFTERNOON.

A. I’M VERY PLEASED TO BE ABLE TO SPEAK BEFORE THE NATIONAL PRESS CLUB.

B. AS YOU CAN IMAGINE, I’VE HAD AMPLE OPPORTUNITY IN THE LAST SIX MONTHS TO VISIT WITH MANY MEMBERS OF THE PRESS.

C. I FEEL VERY COMFORTABLE WITH THE MEDIA AND I BELIEVE THAT WE’RE REALLY WORKING TOWARD THE SAME END—COMMUNICATING THE FACTS IN A TIMELY MANNER.

D. SINCE WE ARE WORKING ON A FAIRLY TIGHT SCHEDULE TODAY I’LL PROCEED WITH WHAT I HOPE WILL BE A CONCISE BUT COMPREHENSIVE VIEW OF WHY RESTRUCTURING ACTIVITY IN THE PETROLEUM INDUSTRY IS IN THE BEST INTERESTS OF SHAREHOLDERS, CONSUMERS AND THE NATION.

E. CRITICS OF RESTRUCTURING ARE WORRIED ABOUT SEVERAL THINGS. . .

          1. FIRST, WILL IT HARM THE CONSUMER. . .

          2. SECOND, WILL IT HARM THE NATION’S CREDIT MARKETS. . .

          3. AND THIRD, WILL IT HARM THE NATION’S ENERGY SECURITY?

D. I’D LIKE TO ADDRESS ALL THOSE POINTS.

II. WHERE THE CONSUMER IS CONCERNED, THERE IS NO DANGER OF INCREASED GASOLINE PRICES OR DECREASED COMPETITION RESULTING FROM RESTRUCTURING.

A. THE PRICE OF GASOLINE IS DETERMINED BY THE PRICE OF OIL.

B. AND OIL PRICES ARE DETERMINED BY OPEC. . .NOT BY U.S. OIL COMPANIES.

C. THERE’S NO WAY THAT A FEW ACQUISITIONS IN THE DOMESTIC OIL INDUSTRY CAN CHANGE THAT.

D. TOO MUCH CONCENTRATION IN DOWNSTREAM OPERATIONS IS UNLIKELY, ALSO.

E. THE PETROLEUM INDUSTRY IS ONE OF THE MOST FRAGMENTED IN THE UNITED STATES.

F. FOR EXAMPLE, GULF. . .WHICH IS THE NUMBER 5 COMPANY. . .AND SOCAL. . .WHICH IS NUMBER 6. . .WILL HAVE A COMBINED REFINING AND MARKETING OPERATION THAT AMOUNTS TO 10.1% OF THE ENTIRE INDUSTRY.

G. AND THEIR COMBINED DOMESTIC RESERVES WILL AMOUNT TO 5.8% OF THE INDUSTRY TOTAL.

III. IF ANYTHING, THE RESTRUCTURING OF THIS INDUSTRY SHOULD BENEFIT CONSUMERS.

A. AFTER ALL, THIS PROCESS IS OCCURRING BECAUSE THE INDUSTRY NEEDS TO BE MORE EFFICIENT.

B. CONSOLIDATION AND STREAMLINING OF OPERATIONS—ESPECIALLY ON THE DOWNSTREAM SIDE—SHOULD LEAD TO COST-EFFICIENCY.

C. INEFFICIENCIES ARE ALWAYS DIGESTED SOMEWHERE ALONG THE LINE AND ARE ULTIMATELY PAID FOR BY THE CONSUMER.

IV. THE SECOND FEAR MOST OFTEN VOICED ABOUT THE EFFECTS OF RESTRUCTURING IS WHAT IMPACT IT WILL HAVE ON THE NATION’S CREDIT MARKETS. . .AND THAT FEAR, I BELIEVE, IS ALSO UNFOUNDED.

A. IF YOU’VE NOTICED, THE BANKS HAVE BEEN STANDING IN LINE TO LOAN MONEY TO SOCAL, MOBIL AND TEXACO.

B. THERE’S JUST NO SHORTAGE OF CREDIT.

C. THE SECURITIES AND EXCHANGE COMMISSION ADVISORY COMMITTEE ON TENDER OFFERS RECENTLY PUBLISHED A REPORT THAT DISCREDITS THE THEORY THAT MERGERS DRAIN THE NATION’S RESOURCES AND RESULT IN A SHORTAGE OF BANK CREDIT.

D. THE REPORT, WHICH IS SUPPORTED BY FEDERAL RESERVE BOARD CHAIRMAN PAUL VOLCKER, SAYS THAT MERGERS DO NOT DISTORT THE CREDIT MARKETS. . .DIVERT INVESTMENT. . .OR DEPLETE THE CONSUMER’S ABILITY TO OBTAIN CREDIT.

E. THE COMMITTEE SAID INSTEAD THAT MERGER TRANSACTIONS BASICALLY INVOLVE A TRANSFER OF EXISTING ASSETS.

F. MONEY SIMPLY FLOWS FROM ONE SET OF HANDS INTO ANOTHER.

G. IN RECENT TESTIMONY BEFORE THE SENATE JUDICIARY COMMITTEE, DR. LEIF OLSEN. . .WHO IS CHAIRMAN OF THE ECONOMIC POLICY COMMITTEE AT CITIBANK. . .SAID THAT EVEN THOUGH A TRANSACTION OF SEVERAL BILLION DOLLARS SEEMS ENORMOUS, IT IS ACTUALLY NOT SIGNIFICANT IN COMPARISON TO THE TOTAL FUNDS AVAILABLE IN THE CAPITAL MARKET.

H. DR. OLSEN STATED THAT IN 1983, EQUITY TRANSACTIONS WERE IN EXCESS OF 30 TRILLION GROSS DOLLARS.

I. GROSS BANK LENDING AND INVESTING WAS MORE THAN $4 TRILLION.

J. AND BECAUSE THE TREND TODAY IS TO INVOLVE OVERSEAS CAPITAL SOURCES, THERE IS LITTLE IMPACT ON THE DOMESTIC MONEY SUPPLY.

V. I’VE BEEN AMUSED BY COMMENTS I’VE HEARD RECENTLY, ESPECIALLY THE ONE ABOUT SOCAL’S BID FOR GULF TAKING $13.2 BILLION OUT OF THE CREDIT MARKET.

A. IT’S AS IF PEOPLE THINK THIS MONEY WILL SIMPLY DISAPPEAR.

B. FIRST OF ALL, THE U.S. TREASURY WILL TAKE ABOUT A $2 BILLION BITE IN THE FORM OF TAXES.

C. AND WHAT BETTER WAY TO INCREASE TAX REVENUES.

D. GULF SHAREHOLDERS WILL MAKE MONEY AND THE FEDERAL GOVERNMENT WILL COLLECT TAXES.

E. THAT’S THE WAY THE FREE ENTERPRISE SYSTEM IS SUPPOSED TO WORK.

F. HALF OF THE MONEY IN THE SOCAL-GULF DEAL IS COMING FROM FOREIGN BANKS.

          1. BUT BECAUSE 95% OF GULF’S SHAREHOLDERS ARE IN THE U.S., MOST OF THAT MONEY WILL BE POURED INTO THE U.S. ECONOMY.

G. THERE MAY BE A FEW INDIVIDUALS WHO WILL TAKE THEIR CASH AND STUFF IT IN THEIR MATTRESS.

          1. I KNOW WE WON’T.

H. WE THINK MANY WILL TAKE THAT MONEY AND PLACE IT IN SAVINGS ACCOUNTS.

I. SOME MAY REINVEST IN THE OIL AND GAS INDUSTRY.

J. OTHERS WILL MAKE SOME LONG-AWAITED PURCHASES. . .LIKE A NEW CAR OR BOAT. . .OR MAYBE EVEN A DOWNPAYMENT ON A HOME.

K. THE MONEY FLOWING FROM THE CREDIT MARKET INTO THE HANDS OF PETROLEUM COMPANY STOCKHOLDERS WILL GO DIRECTLY INTO THE ECONOMY.

L. FROM THE GULF-SOCAL DEAL, ALONE. . .THAT WILL BE $13.2 BILLION.

M. THEN YOU HAVE MOBIL-SUPERIOR. . .AT $5.7 BILLION.

N. AND EARLIER, WE HAD TEXACO-GETTY. . .WHICH AMOUNTED TO $10 BILLION.

O. WHEN SENATORS ASKED ME HOW I WOULD JUSTIFY VOTING AGAINST THE RECENT LEGISLATION THAT PROPOSED A MORATORIUM ON MERGERS IN THE OIL INDUSTRY, I ANSWERED THEM IN THIS WAY.

          1. THE GULF-SOCAL DEAL WILL POUR $13 BILLION INTO THE ECONOMY.

          2. $6.5 BILLION IS PROFIT TO SHAREHOLDERS.

          3. AND $2 BILLION WILL GO TO THE GOVERNMENT IN TAXES.

          4. LEAVE THE ANTI-TRUST ISSUE TO THE FTC BECAUSE THERE ARE PLENTY OF LAWS ON THE BOOKS TO HANDLE ANY ANTI-TRUST PROBLEMS.

VI. PERHAPS THE MOST MISUNDERSTOOD ASPECT OF THE RECENT MERGER ACTIVITY IN THE INDUSTRY IS THE PREMISE THAT THESE LARGE ACQUISITIONS WILL HURT THE NATION’S ENERGY FUTURE BY DIVERTING CAPITAL FROM EXPLORATION.

A. I DON’T KNOW HOW MANY TIMES I’VE HEARD PEOPLE SAY THAT MERGERS AND ACQUISITIONS WILL DRY UP FUNDS THAT COULD BE USED FOR EXPLORATION.

B. THAT SIMPLY IS NOT THE CASE.

C. BUT TO UNDERSTAND WHY, IT’S IMPORTANT TO LOOK AT THE WHOLE PICTURE. . .AT WHY RESTRUCTURING IS HAPPENING IN THE FIRST PLACE.

D. AND UNFORTUNATELY, MOST PEOPLE— INCLUDING MANY OF OUR CONGRESSIONAL LEADERS—DON’T REALLY UNDERSTAND THE INDUSTRY’S PROBLEMS.

VII. THE PETROLEUM INDUSTRY FACES A UNIQUE SITUATION.

A. PETROLEUM COMPANIES MANAGE DEPLETABLE ASSETS—THEIR RESERVES OF OIL AND GAS.

B. IF THEY DON’T REPLACE THE RESERVES THAT ARE BEING PRODUCED, THEN THE SHAREHOLDERS’ ASSETS ARE BEING DEPLETED.

C. FOR YEARS NOW, THE INDUSTRY AS A WHOLE HAS NOT BEEN DOING A GOOD JOB OF REPLACING RESERVES.

D. SINCE 1970, U.S. OIL AND NATURAL GAS RESERVES ON AN INDUSTRY-WIDE BASIS HAVE BEEN STEADILY DECLINING.

E. THE MAJORS HAVE HAD A MUCH MORE DIFFICULT TIME WITH REPLACEMENT THAN THE INDEPENDENTS.

F. IN FACT, THE INDUSTRY’S DOMESTIC RESERVE LIFE INDEX IS NOW LESS THAN 10 YEARS.

G. THE DECLINING RESERVE PROBLEM, OBVIOUSLY, IS A LONG-STANDING ONE.

H. BUT DURING THE 1970s, WHEN OIL PRICES WERE STEADILY RISING, THE RESERVE DEPLETION PROBLEM WASN’T AS APPARENT BECAUSE THE FOCUS WAS ON THE INCOME STATEMENT—HIGHER CRUDE PRICES MADE EVERYTHING SEEM OKAY.

I. NOW THAT OIL PRICES HAVE STABILIZED AT $29 A BARREL, RESERVE DEPLETION IS QUICKLY COMING INTO FOCUS.

VIII. WHAT MANY PEOPLE FAIL TO SEE IS THAT THE REASON OUR RESERVES ARE DEPLETING IS NOT BECAUSE THERE ISN’T OIL TO BE FOUND.

A. THERE’S STILL OIL YET TO BE DISCOVERED IN THE U.S. AND EVEN MORE GAS — BUT IT WILL BE EXPENSIVE.

B. TODAY, THE INDUSTRY IS HAVING TROUBLE FINDING OIL AND GAS AT A PRICE THAT MAKES IT ECONOMICAL TO BUDGET LARGE CAPITAL EXPENDITURES FOR EXPLORATION.

C. THERE’S PLENTY OF CASH FLOW IN THE INDUSTRY TO DRILL ALL THE ECONOMICALLY FEASIBLE PROSPECTS THAT EXIST.

D. AND IF OUR CONGRESSMEN ARE WORRIED ABOUT THE MAJORS BORROWING TOO HEAVILY AND DECREASING THEIR EXPLORATION EFFORTS LET ME REMIND THEM THAT THE INDEPENDENTS ARE READY TO JUMP IN AND FILL THE VACUUM.

          1. WE INDEPENDENTS DRILL 80% OF THE WELLS ANYWAY.

          2. AND WE DO A MUCH BETTER JOB OF FINDING OIL THAN THE MAJORS.

E. BUT IT DOESN’T MAKE SENSE TO DRILL WITHOUT REGARD TO THE FINDING COST.

F. THE INDUSTRY CAN’T AFFORD TO PUT MORE MONEY INTO DRILLING AT THIS POINT BECAUSE IT ISN’T ECONOMICALLY FEASIBLE TO DO SO.

G. THE DOCUMENTATION FOR THAT IS IN THE NUMBER OF RIGS IN OPERATION TODAY.

H. THERE ARE LESS THAN HALF AS MANY RIGS DRILLING CURRENTLY (2,074) AS THERE WERE IN LATE 1981 (4,531).

X. BENNETT JOHNSTON, THE DISTINGUISHED SENATOR FROM LOUISIANA, APPEARED WITH ME SEVERAL WEEKS AGO ON DAVID BRINKLEY’S SUNDAY NEWS PROGRAM.

A. IN FACT, SENATOR JOHNSTON AND I HAVE APPEARED SEVERAL PLACES TOGETHER RECENTLY.

B. THE SENATOR STATED THAT THE $29 BILLION INVOLVED IN THE LATEST OIL COMPANY MERGERS WOULD ONLY. . .QUOTE. . .“MAKE OIL COMPANIES BIGGER. . .INSTEAD OF FINDING MORE OIL.”

C. HE SEEMS TO BELIEVE THAT SOCAL, TEXACO AND MOBIL SHOULD TAKE THE MONEY THEY ARE USING TO ACQUIRE RESERVES AND, INSTEAD, USE IT FOR EXPLORATION.

D. GEORGE KELLER. . .CHAIRMAN OF SOCAL. . .RESPONDED TO THAT IDEA WTIH THIS STATEMENT.

          1. HE SAID. . .QUOTE. . .“YOU CAN’T BORROW THAT KIND OF MONEY FOR THAT KIND OF CRAPSHOOT.”

(ISN’T THAT JUST LIKE AN ENGINEER TALKING ABOUT EXPLORATION.)

E. SENATOR JOHNSTON’S SUGGESTION WOULD SIMPLY NOT BE FINANCIALLY FEASIBLE BECAUSE IT WOULD NOT FIND OIL ECONOMICALLY.

F. THAT KIND OF THINKING IS ONE MORE EXAMPLE OF THAT AGE-OLD CONGRESSIONAL MENTALITY: LET’S THROW MONEY AT A PROBLEM AND HOPE IT WORKS.

G. BY THE WAY. . .3 WEEKS AGO BEFORE THE SENATE JUDICIARY COMMITTEE, GEORGE KELLER SAID THAT THE COMBINED EXPLORATION BUDGETS FOR SOCAL-GULF WOULD NOT BE REDUCED.

XII. CURRENT MERGER ACTIVITY IN THE INDUSTRY WILL NOT REDUCE EXPLORATION.

A. ECONOMICS IS WHAT HAS BROUGHT DRILLING ACTIVITY DOWN.

B. RESTRUCTURING IS SIMPLY THE FREE ENTERPRISE SYSTEM AT WORK.

C. THE INDUSTRY IS TRYING TO GET BACK ON ITS FEET.

D. AND IF CONGRESS WILL JUST LEAVE US ALONE, WE WILL MAKE IT.

E. MARKETS AND FINDING COSTS FOR OIL AND GAS HAVE CHANGED SIGNIFICANTLY FROM WHAT THEY WERE 10 YEARS AGO.

F. AND THIS INDUSTRY IS STRUGGLING TO MAKE ADJUSTMENTS SO THAT IT CAN OPERATE PROFITABLY IN THIS NEW ENVIRONMENT.

G. THE DECISIONS ON THE ACQUISITIONS SHOULD BE LEFT TO THE PEOPLE WHO OWN COMPANIES—THE SHAREHOLDERS.

H. THE SHAREHOLDERS ARE THE ONES WHO HAVE TAKEN THE RISK BY PUTTING UP THEIR MONEY, AND UNDER THE FREE ENTERPRISE SYSTEM, THEY EXPECT TO MAKE A PROFIT.

I. UNFORTUNATELY, I BELIEVE THAT TOO MANY PEOPLE—INCLUDING MANY PROFESSIONAL MANAGERS AND SOME CONGRESSIONAL LEADERS—DON’T CONSIDER SHAREHOLDERS THE OWNERS OF THE COMPANY.

J. INSTEAD, THEY SEEM TO THINK THAT A HANDFUL OF MANAGERS ARE THE OWNERS.

K. THAT IS A FUNDAMENTAL MISCONCEPTION ABOUT THE WAY PUBLICLY-OWNED BUSINESSES OPERATE.

SHAREHOLDERS—THE OWNERS—ARE ORDINARY PEOPLE FROM ALL WALKS OF LIFE.

          1. THEY’RE CLERICAL EMPLOYEES, TEACHERS, REFINERY WORKERS, PROFESSIONAL PEOPLE. . .OR THEIR SHARES MAY BE HELD IN PENSION FUNDS AND RETIREMENT PLANS.

XI. WHAT IS EVEN MORE FRIGHTENING ABOUT THE RECENTLY DEFEATED LEGISLATION IS THAT IT COULD BE PROPOSED AGAINST OTHER INDUSTRIES AND OTHER SHAREHOLDERS.

A. AND THE IMPACT OF THAT WOULD BE DEVASTATING.

B. THERE ARE 42 MILLION STOCKHOLDERS IN THE UNITED STATES, ACCORDING TO A 1983 NEW YORK STOCK EXCHANGE SURVEY.

C. THAT’S ONE OUT OF EVERY SIX AMERICANS.

D. AND IF WE ASSUME THAT MOST OF THOSE SHAREHOLDERS HAVE A SPOUSE YOU’RE TALKING ABOUT 80 MILLION PEOPLE WHO ARE DIRECTLY IMPACTED BY LEGISLATION AIMED AT STOCKHOLDERS.

E. IF OUR NATIONAL LEADERS ARE GOING TO CONSIDER LEGISLATION AGAINST STOCKHOLDERS THEN WE MAY AS WELL BEGIN PUTTING A WARNING SIGN ON STOCK CERTIFICATES.

F. IT WOULD BE SOMETHING LIKE THE CAUTION LABEL ON A CIGARETTE PACKAGE.

G. WARNING: IF YOU BUY THIS STOCK, BEWARE THAT IT MAY BE HAZARDOUS TO YOUR FINANCIAL HEALTH BECAUSE IF YOU STAND TO MAKE MONEY ON IT, THE GOVERNMENT MAY SAY THAT YOU CAN’T— YOU MAY BE KILLED FINANCIALLY.

H. IF WE ARE GOING TO HAVE LEGISLATION THEN WHY NOT PROPOSE SOMETHING THAT WOULD PROTECT STOCKHOLDERS FROM MANAGEMENT?

RESTRUCTURING IN THIS INDUSTRY IS ABSOLUTELY NECESSARY AND VERY URGENT.

A. AND CURRENT ACTIVITY—WHETHER IT BE MERGERS, ACQUISITIONS OR THE FORMATION OF ROYALTY TRUSTS—IS SIMPLY THE FREE ENTERPRISE SYSTEM WORKING TO IMPROVE EFFICIENCY IN THE INDUSTRY AND PROVIDE SHAREHOLDERS A BETTER RETURN ON THEIR INVESTMENT.

B. THE FREE ENTERPRISE SYSTEM IS WHAT MAKES AMERICA GREAT, AND IF WE ALLOW RESTRUCTURING TO TAKE PLACE UNDER THE SYSTEM—AS IT SHOULD—WE’LL SEE THAT EVERYONE WILL BENEFIT. . .SHAREHOLDERS, CONSUMERS, GOVERNMENT AND THE NATION.

C. THANK YOU.