NUMBER 13 (See page 1093)
CONTRACT OF MARCH 25, 1872
[From “A History of the Rise and Fall of the South Improvement Company,” pages 27–28.]
I. That all arrangements for the transportation of oil after this date shall be upon a basis of perfect equality to all shippers, producers and refiners, and that no rebates, drawbacks, or other arrangements of any character, shall be made or allowed that will give any party the slightest difference in rates or discrimination of any character whatever.
II. That the present rates from Oil City, Union, Corry, Irvineton, Pittsburg, Cleveland and other competing points, shall be and remain in full force at following rates:
ON REFINED OIL, BENZINE, ETC. Per barrel From Oil City, Union, Corry and Irvineton to Boston $1.65 From Oil City, Union, Corry and Irvineton to New York 1.50 From Oil City, Union, Corry and Irvineton to Philadelphia 1.35 From Oil City, Union, Corry and Irvineton to Baltimore 1.35 From Cleveland to Boston 1.65 From Cleveland to New York 1.50 From Cleveland to Philadelphia 1.35 From Cleveland to Baltimore 1.35 From Pittsburg to New York 1.50 From Pittsburg to Philadelphia 1.35 From Pittsburg to Baltimore 1.35 ON CRUDE OIL From Oil City, Union, Corry and Irvineton to Boston $1.50 From Oil City, Union, Corry and Irvineton to New York 1.35 From Oil City, Union, Corry and Irvineton to Philadelphia 1.20 From Oil City, Union, Corry and Irvineton to Baltimore 1.20 From Oil City, Union, Corry and Irvineton to Cleveland .50 From Oil City, Union, Corry and Irvineton to Pittsburg .50 And said rates shall not be liable to any change either for increase or decrease without first giving to William Hasson, president of the Producers’ Union at Oil City, at least ninety days’ notice in writing of such contemplated change.
III. In the distribution of cars for shipments, it shall be done without discrimination.
IV. On the basis as hereinbefore stated, the parties respectively agree to carry out the arrangements in good faith and work for the mutual interests of each other.
In witness whereof the parties have hereunto affixed their signatures, this twenty-fifth day of March, A.D. 1872:
For the Lake Shore and Michigan Southern Railroad Company: H. F. Clark, President.
For the Erie Railway Company: O. H. P. Archer, Vice-President.
For the New York Central and Hudson River Railroad Company: William H. Vanderbilt, Vice-President.
For the Atlantic and Great Western Railroad Company: George B. McClellan, President.
For the Pennsylvania Railroad Company: Thomas A. Scott, Vice-President.
On behalf of the Producers and Refiners: G. Shamburg, E. G. Patterson, William Hasson, Henry Byrom, William Parker, John J. Fisher, Oil Creek Producers and Refiners.
J. J. Vandergrift, A. P. Bennett, William M. Irish, William T. Scheide, Oil City Producers and Refiners.
Henry H. Rogers, F. C. Fleming, Josiah Lombard, Jr., New York Refiners.
B. Vaughan, Boston Refiners.
NUMBER 14 (See page 1100)
TESTIMONY OF HENRY M. FLAGLER
[Before a committee appointed by the Legislature of Ohio, March, 1879.]
Henry M. Flagler; residence, Cleveland, Ohio; occupation, secretary Standard Oil Company; sworn and examined.
By Mr. Norton.
Q. Mr. Flagler, I suppose you understand that this investigation is brought under what is known as House Resolution Number 162?
A. I understand that it is.
Q. How long have you been secretary of the Standard Oil Company?
A. Since its organisation, some time in January, 1870.
Q. Are the articles manufactured or the oil refined by your company shipped over the line of any railroad in the State of Ohio, and if so, state whether or not any rate of freight is contracted for by you or whether your company pays the freight?
A. To the first question, yes, sir; more or less of the product of our refineries is shipped over the railroads of the state. As a rule all of the freight contracts have been made by me.
Q. Please state as near as you can what proportion of your product is shipped out of the state?
A. Well, I should say from sixty-five to seventy per cent.
Q. Now, has your corporation any contracts, written or verbal, with any of the railroads of the State of Ohio for carrying your freight?
A. Yes, sir.
Q. You may state whether these contracts are written or verbal.
A. They are written.
Q. Have you heretofore, prior to this time, any contracts written or verbal?
A. We have.
Q. You may state, Mr. Flagler, whether by virtue of these contracts it has been agreed or allowed by the railroad companies to pay you any drawbacks or rebates on freights.
A. No, sir, it has not.
Q. You may state whether or not you are allowed special rates, or what is known as special privileges.
A. I can’t answer that question from the fact that I do not know what other people get, so I do not know whether they are special rates or general.
Q. I believe, Mr. Flagler, that in your subpœna it was requested of you that if any such contracts were in existence relative to freight matters, you would bring them before the committee. Did you do so?
A. I have never seen the subpœna, so I do not know what the demand was. I have, however, contracts made with our company as far back as the first one ever made.
Q. Can you produce these contracts before this committee?
A. Yes, sir, I can; I am willing to do so, provided they may be used by the committee—if it is proper to ask, to be used in the nature of a confidential communication. None of these contracts provides for any discrimination whatever, but they may contain some business secret of the Standard Oil Company, whose interests I am bound to protect. I do not see how the submission of those contracts as evidence in this case will do other than bear out the statement I have made under oath. I do not see how they will do anything more than sustain the statements I have made. I would be very glad to have our company set right before the public in these matters, but I do not care enough about it, however, to have our business contracts made public. I should be very glad to submit them to you under such circumstances.
Q. Mr. Flagler, do you know anything about the rates of freight from the Southern portions of the state, well, say from Marietta and from Wheeling to the City of Columbus?
A. I do not.
Q. Did you have anything to do, or has the Standard Oil Company anything to do with the making of the rates of freight for the company known as the Camden Consolidated?
A. None whatever.
Q. Have you anything to do with the making of the rate, or the arranging of the freights for the company known as the Marietta Oil Refining Company?
A. None whatever.
Q. Testimony introduced here shows, I think, Mr. Flagler, that about one year ago the rates of freight were raised nearly one-half from the points I have mentioned and from Parkersburg and other places to points in this direction. Had the Standard Oil Company any understanding by and between the railroad companies in regard to this rise in the rates of freight?
A. I should say, to my own knowledge, positively no; I never heard of it before. I do not know what the rates were and I did not know that the raise had been made.
Q. Do you in your capacity, or does the Standard Oil Company through its agents, control the rates of freight or make the rates of any of the oil companies in Cleveland, outside of your own corporation?
A. No, sir.
Q. Mr. Flagler, what is your rate of freight from the seaboard, or to the seaboard from Cleveland?
A. At the present time?
Q. Yes, sir, at the present time.
A. Do you mean per carload or by the barrel?
Q. Well, we’ll put it by the barrel, as there is some testimony before the committee relating to that.
A. I do not know that I could answer the question and I do not know but that I would be betraying the business interests of other people. The custom for several years, in fact, for more than five years, has been that the rates of freight on shipments to the seaboard and export oil have been made by what is called trunk lines, the New York Central, the Erie, now New York, Lake Erie and Western, the Pennsylvania, and Baltimore and Ohio. The general freight agents are the officers who make those rates, and their Western connections share in them. I do not know how the freight which is paid for services rendered is divided between their Western connections, having no means of knowing that at all. We do not make any contracts with the Lake Shore for the rates of freight, and the same is equally true of the Atlantic and Great Western. These are the only two roads we ever ship by—I may be wrong; we ship some by way of Pittsburg, over the Cleveland and Pittsburg or over the Baltimore and Ohio.
Q. Do you know what the open rate, the published rate is to the seaboard by the barrel?
A. To Boston and New York, $1.54½; to Philadelphia and Baltimore, $1.29½.
Q. Now, Mr. Flagler, you have used your pencil to arrive at that conclusion, why was it necessary to figure out that matter if there is a published rate?
A. Simply because I do not keep that thing in my mind and had to call upon my memory for the way the thing is got at. I got at that by deducting what is called the crude rebate. Nobody pays the crude rebate which is 45½ cents. Whether that form is kept up by the railroad companies I do not know, but my impression is it is not.
Q. It is a fact, isn’t it, that you do get a lower rate and pay less freight than the published rate? I believe it is in evidence that the open rate of freight to the seaboard will average about $1.65.
A. I have never seen the freight tariff, if you mean that which is known as the schedule rate published for the public. I have not seen anything of the kind and do not know anything about it.
Q. What inducement does your company offer to the railroads or what propositions are made by the railroads to your company? Now, I refer to the testimony given by Mr. Hills in regard to the carrying of oils, etc., what inducements do the railroad companies give whereby they lower your rate of freight?
A. They do not give us lower rates of freight for any consideration of that kind. They pay us for the use of our property, if we furnish them with terminal facilities, cars in which to haul the goods, they pay us a compensation for the use of the property. Perhaps I can give it so you can understand it; we keep a separate account with each refinery and if we spend $50,000, or $100,000 to create what we term terminal facilities, warehouses, loading places, etc., we make an arrangement whereby they pay us a fair compensation for the property that is created by our money. That consideration is credited to that investment and has nothing whatever to do with the freight. The refinery making the oil is charged with the rate of freight just as anybody else pays, and the compensation for the use of tank cars and terminal facilities at the shipping and receiving ends of the line is given for the use of these ends. I will say that in the contracts we have made, the railroad companies have expressly reserved the right to give to other parties the same privileges if they furnish the same conveniences.
Q. Does the Standard Oil Company own and control the Camden Consolidated Company at Parkersburg?
A. Well, I would like to ask a question in reply, and that is, whether that question and answer comes within the scope of this resolution?
Q. I will give you my reason for asking the question. It has been charged here by witnesses that there is a collusion by and between the railroads in the Southern part of the state and the Camden Consolidated Oil Company or the Standard Oil Company, as they term it, for discriminations in the rates of freight. Now, to find out whether or not there is anything for which to blame the Standard Oil Company, I ask this question.
A. Well, it is a business secret of our company, but considering the circumstance, I will answer the question. The Standard Oil Company doesn’t own or control the Camden Oil Company, and I would say to every man explicitly and fully that the Standard Oil Company doesn’t own a share of stock in the Camden Consolidated Company. I say this so I may be understood and I hope I have done so. I do not own a share in it myself.
Q. Coming back to this question of the contracts, have you any of the written contracts that have been or are now in force, that you can give this committee; contracts between the railroad companies traversing this state and your company?
A. Yes, sir. (Contracts produced.) The price for the shipment of oil per barrel as given in the first contract for the year 1870 was as follows: From the first of February to the first of June, 1870, $1.40; from the first of June to the first of November, 1870, $1.20; this was during the season of navigation. From the first of November until the expiration of the contract, April 1, $1.60.
Q. Is there a line or clause in that contract whereby there is an agreement for rebates or drawbacks?
A. None whatever.
Second contract read: In this contract the rates were as follows: From the first of April until the middle of November, 1872, about seven months, $1.25. For the remainder of November, December, January, February and March of 1873, $1.40. These were rates per barrel.
Q. Were there no rebates, drawbacks, or special privileges given outside of what is written in the contract?
A. None whatever. (Third contract introduced.)
Mr. Flagler: I want to say something of this matter and I want to tell the whole truth. Our business was at the time about 4,000 barrels a day and we had contracted this oil for delivery at once, and we had to pay from $50 to $150 gold per day if we kept it an hour longer than the time specified in the contract, so it was very important for us that the railroads put these on board as rapidly as possible.
Q. Mr. Flagler, from the reading of that contract I see that you might, instead of being benefited, sustain damages by the failure on the part of the railroad company to get your oil in there. Did you ever have to pay any demurrage to them?
A. Yes, sir, we had to pay some years as high as $30,000.
Q. Have you ever received any benefits by reason of these contracts that any other shipper might not have received?
A. No, sir. Not in the slightest. All the way through these contracts you will observe that we have undertaken those risks which the law imposes on the common carrier and which no railroad can divest itself of except by written agreement. The handling of these quantities of oil was a very serious matter; there was a constant tendency on the part of the railroad companies to put cars used in this trade to some other purpose, whenever it would pay them better. They used a rack car, such as they could carry cattle in and we have had a great deal of trouble with these roads in the use of those cars, because if they could get cattle to haul from Chicago to St. Louis for something more than they were getting from us they would do it. I want to say what the facts are under the contract just read. You will remember that during seven months of the year we were to give them 4,000 barrels of oil per day or 100,000 barrels a month, and the smallest of the shipments in those months was 108,000. We gave them during the rest of the time more oil and paid them the contract on it when we could have shipped by canal for forty cents less. On the first day of December, a competing line of railway lowered the rate to $1.05 per barrel. I went to Mr. Vanderbilt and told him that the rate should be maintained at the agreed price or else we would not have made the contract with him. I said to Mr. Vanderbilt that if he insisted in the fulfillment of the contract basis and exacted the payment of the contract price, it would result in our being compelled to close our refineries, for we could not afford to pay $1.25, when other people were only paying $1.05. I called his attention to the fact that during the season of canal navigation we had given the maximum shipments of oil, 180,000 barrels a month, and some in excess of it, and paid $1.25. I said, if you will reduce these rates to the rate made by the Pennsylvania Company, in my judgment thirty days will not elapse before they will be willing to restore their rates, and all we ask is to be put on a parity with other shippers. After a moment’s hesitation he asked if I thought he ought to stand all of this twenty cents. I told him if he should stand any part of it he should stand it all. I said, it is a transportation fight and not a fight of the manufacturers. When it comes to competition of the manufacturers we would take care of ourselves. I said that we would not have made this contract except on their assurance that the contract price of $1.25 was to be maintained. He said: “I will make your rate $1.05,” and this was after we had done more than we had agreed to do under the contract. The next day we sold between 50,000 and 60,000 on the basis of $1.05 per barrel. Mr. Vanderbilt allowed that rate of payment for one month and then said he would exact the contract price, $1.25. I said all right, and we shall ship just the amount of oil we are compelled to ship to fulfill our contract and then we shall stop. We paid him $1.25 for all over the month and then we did not run a barrel of oil from the City of Cleveland more than that until the expiration of this contract for three months. That is the good that the contract worked on us. You might consider it a baby act to plead the equities of the case, but we could not place our oil on the market and compete with other refineries.
(Fourth contract introduced.)
Q. This is the only contract you have now in existence whereby you carry your freight?
A. Yes, sir.
Q. Do you know anything of the suits brought by Teagle and Company against the Lake Shore road for discriminations in freight?
A. Nothing whatever.
Q. Have you had since the organisation of your company any understanding outside of these contracts whereby discriminations are made in favour of your company as against any of the smaller refineries of the state?
A. No, sir.
Q. Has your company or corporation in conjunction with the railroads ever operated so to “squeeze out” as they term it, or injure any other refining company of the state, outside of the Standard Oil Company?
A. No, sir, never. I would like to enlarge upon that question. I suppose it would be fair to the mind of every member of this committee present. A very large business with other mechanical contrivances and an experience which grows up with and comes along with business and always doing a very large business, in the nature and order of things should make its presence felt by the parties doing a comparatively small business. In 1873 and 1874, when we stipulated for those 4,000 per day, if anybody has followed the progress of the Standard Oil Company they would know and I feel justified in saying that we have done a very large business, and aimed to do it with economy and give the purchaser the very best oil manufactured, consistent with a good and safe kind of oil—to manufacture at one point under the eye of one man. With an aggregation of capital and a business experience, and hold upon the channels of trade such as we have, it is idle to say that the small manufacturer can compete with us, and, although it is an offensive term, “squeezing out,” yet it has never been done by the conjunction of any railroads with us or by the carrying out of freights.
NUMBER 15 (See page 1106)
THE PITTSBURG PLAN
[From the Oil City Derrick, May 17, 1872.]
1. Refiners to lease to the company for five years their superstructure with sufficient real estate to carry on the business of the works.
2. That the rental be eight per cent. per annum on the appraised value of the superstructure, and the company to assume all risks and pay all ordinary taxes.
3. Lessors to pay into the treasury of the company for a working capital one-half of the appraised value of the superstructure in cash or the equivalent in refiner’s stock.
4. Said lessors to receive for money paid in as above the bonds of the company, in amount equal to cash paid in, and stocks of the company for an equal amount; said bonds payable in five years or at the option of the company after one year, said bonds to be denominational coupon bonds to bear interest at the rate of eight per cent. per annum, payable semi-annually.
5. The company shall not pay annually more than ten per cent. on the stock as dividends until the said bonds are redeemed.
6. After the bonds are paid, then the company shall have the right and shall be obliged to purchase all said superstructure at the full appraised value first made, and shall give in exchange for the same stock of the company for the full amount.
7. Each district shall appoint a local committee of three persons to make appraisals, and when any appraisements are being made, the chairman of each local committee shall be required to be present to take part in the appraisement.
There shall be a board of appeal which shall be composed of the chairman of each local committee. All presidents of the company shall be presidents ex officio of the board.
The committee shall place a cash valuation on the superstructure and shall be instructed as to the manner in which the valuation shall be obtained.
NUMBER 16 (See page 1117)
“THE AGENCY”
[From the Oil City Derrick.]
I. There shall be established, under the auspices of the Council of the Petroleum Producers’ Association of Pennsylvania, an organisation under sanction of the laws of Pennsylvania, which shall be known as “THE PETROLEUM PRODUCERS’ AGENCY.”
II. The capital stock shall be not less than one million dollars, and shall be divided into shares of one hundred dollars each, which shall be subscribed only by members of the Petroleum Producers’ Association, or by such other persons as may be approved by the Council.
III. No transfers of the shares of the capital stock shall be made on the books of the Agency, except upon such conditions as the directors may prescribe, subject to the approval of the Council.
IV. The business of the Agency shall be managed by a board of thirteen directors, who shall be elected annually by the stockholders.
V. There shall be an advisory board to consist of one member elected by each local association and approved by the Council. The members of the advisory board shall be admitted to the meetings of the board of directors and shall be entitled to all the privileges of directors, except that of voting. Any member of the advisory board may be removed for any abuse of his trust, or for official misconduct, by a vote of three-fourths of the Council at a regular meeting.
VI. The local associations may appoint committees to solicit and receive subscriptions to the capital stock; they may also appoint responsible trustees to receive payments on account of such subscriptions, to whom the subscribers shall pay at least ten per cent. upon their subscriptions at the time of subscribing. The committees of the local associations shall advise the president of the Council, from day to day, of the amount of subscriptions received by them, and whenever the sum of at least one million dollars shall have been subscribed in good faith, and approved by the Council, and the organisation of the Agency legally completed, subscribers shall be notified to hold an election of directors. The directors shall, as soon as practicable after their election, proceed to elect a president, secretary and treasurer. The trustees, appointed by the local associations to receive subscriptions, shall thereupon be required to pay over to the Agency the amounts received by them on account of subscriptions to the capital stock. The Agency shall not be responsible for any subscriptions paid to the trustees appointed by the local associations until the same shall have been paid over to the Agency or its authorised representatives.
Subscriptions to the capital stock may be received, payable in oil at five dollars per barrel, delivered on the cars or in the tanks of the Agency at any sub-agency on the line of the railways; provided, however, that no certificate of stock shall be issued in any case in which payment is made in pipe-line receipts until the oil shall have actually been received upon the order by the Agency or its agents. But a special guaranty of the order shall be required from the subscriber with an agreement that the stock shall be retained as security for the delivery of the oil on demand, and the demand shall be made within thirty days after the order for the oil is received by the Agency.
VII. Members of the Petroleum Producers’ Association shall sell their oil only to the Agency. The Agency shall purchase all the oil offered by members of the Association and shall pay therefor at least five dollars per barrel for oil of standard grade, and for the heavy oil of the fifth district. Payment for oil purchased shall be made as follows: If the market will take the entire supply as fast as offered, the full market price shall be paid in cash on delivery; but if the board of directors, or the Council, shall determine that the oil daily offered to the Agency is in excess of the demand, the Agency shall pay three dollars in cash and give the seller a certificate entitling him to the net proceeds of the oil when sold, less the amount advanced thereon.
VIII. The Agency shall sell no oil for a less price than five dollars in cash, on delivery per barrel without the consent of the Council of the Petroleum Producers’ Association.
IX. To the redemption of the certificates, on and after the tenth of the month succeeding that in which they were issued, shall be applied the proceeds of all the oil sold and delivered during that month, less the amount advanced and the amount required to tank the surplus oil. For the unpaid balance of the certificate the holder shall, upon the surrender of the same, be entitled to a tank receipt representing his interest in the amount of surplus oil in store and tankage.
X. The Agency shall be entitled to receive for buying and selling the oil such commissions per barrel as the Council may allow, applicable first to the payment of expenses, second to the payment of dividends on the capital stock, which shall be six per cent. semi-annually, free of taxes.
XI. All the net proceeds of surplus oil sold shall be applied specifically to the redemption of the tank receipts at their value, the surrender of which shall be at the option of the holder.
XII. The Agency shall establish sub-agencies at such points within the oil-producing district for the receipt, storage, and shipment of oil as may be necessary to facilitate the convenient and economical transaction of the business of the region, subject to the approval of the Council.
XIII. The Agency shall provide all storage necessary to hold the oil on sale and the surplus oil in store.
XIV. The price on the cars of oil of the standard grade shall be uniform at all the sub-agencies on the line of the railways within the oil-producing district, provided it be practicable to so arrange with the railroads.
XV. A barrel shall be uniformly forty-two gallons.
XVI. Whenever the production of petroleum shall be permanently in excess of the demand the Council of the Petroleum Producers’ Association shall determine at what time the production shall be restrained and shall take such measures as may be practicable, necessary, and lawful to prevent the drilling of oil wells, but it shall confine its orders, so far as practicable to preventing the starting of new wells, allowing those already in process of drilling to be completed.
XVII. Whenever in the opinion of the board of directors it may be advisable they may, subject to the approval of the Council, provide such refining capacity as may be required to maintain the highest price for crude petroleum consistent with the consumptive demand.
XVIII. The Agency shall not at any time sell to, or contract with, or make any arrangement whatever, with any individual, organisation, combination, or association, by which they may have a monopoly, inside rate, advantage or preference over, or to the prejudice of, any present or future competitor for the purchase of the crude oil coming into, or passing through its hands; provided, that nothing in this section shall be so construed as to prevent the Agency, with the sanction of the Council, from making such temporary discrimination as may be necessary for the purpose of protecting or promoting the interests of producers by securing higher prices for crude oil, increased consumption of refined oil, or decreased margins between the price of crude and refined oil.
XIX. The Agency, with the approval of the Council, may take such measures as may be expedient to increase the consumption of petroleum by securing its application to new uses.
XX. The Agency shall publish daily a correct statement showing the amount of oil purchased, the oil sold, and oil placed in store during the day; also showing the points at which the same was done and the amounts at the time in store at the various sub-agencies; also the destination of the oil sold.
XXI. The Agency shall publish tri-monthly, full and complete reports of all its transactions and showing its condition at the date of the report; the correctness of the report shall be verified in such manner as may be prescribed by the Council.
XXII. A committee may be appointed by the board of directors, or by the Council of the Petroleum Producers’ Association, at any meeting, for the purpose of investigating the condition and management of the affairs of the Agency; and it shall be the right and duty of such committee, duly appointed, to thoroughly investigate everything affecting the interest of the Agency, to examine its books, accounts and vouchers; its safes, vaults and tanks; and to make a true and faithful report of the condition and management of the affairs of the Agency as they may be found, which report shall be published at the expense of the organisation which appointed the committee. It shall be the duty of the Council to see that such committee is appointed and such examination and report made and published at least once in every year.
XXIII. The Agency shall establish a bureau of statistics and information, which shall carefully collect and publish facts, relating to the business of producing, refining, marketing and the consumption of oil. The rooms of the bureau shall at all times be open to the members of the Petroleum Producers’ Association, and the Agency shall hold itself open for daily communications by telegraph with local associations.
NUMBER 17 (See page 1123)
CONTRACT BETWEEN PETROLEUM PRODUCERS’ ASSOCIATION AND PETROLEUM REFINERS’ ASSOCIATION
[From the Oil City Derrick.]
The contract between the producers and refiners read as follows:
Whereas, The necessities of trade call for co-operation between the producers and refiners of oil, for purposes of mutual protection:
Therefore, We, the undersigned, representing the Petroleum Producers’ Association and the Petroleum Refiners’ Association, hereby enter into the following articles of agreement, which stipulate as follows:
First.—Each of the two associations hereby agrees to appoint a representative committee, which committee shall meet together weekly, or as often as may be necessary, and at such places as they may determine.
It shall be the duty of these committees (so far as in their power lies) to see that the provisions of this agreement are executed in good faith, and to discharge such duties as are devolved upon them by this agreement, and in general (within the limitation of their authority) to act for the mutual advantage of the trade, whose interests it is the purpose of this agreement to secure.
Second.—The Producers’ Association shall appoint a comptroller, who shall have the right to examine the books of the Refiners’ Association, and its daily reports so far as they relate to the purchase, sale, and shipments of crude and refined oil, and who, together with the auditor of the Refiners’ Association, shall make joint reports daily to both associations.
The Refiners’ Association shall appoint a comptroller, who shall have the right to examine the books of the Producers’ Association and its agencies, and their daily reports, so far as they relate to the purchase, sale, and shipments of crude and refined oil, and who, together with the secretary of the Producers’ Association, shall make joint reports daily to both associations of all sales and shipments.
Third.—Each association agrees that it will keep accurate books of account, which shall show all purchases, sales, and shipments of crude and refined oil, which shall also be open at all reasonable hours to the inspection and examination of the authorised agents of each association, as hereinbefore provided.
Fourth.—The Refiners’ Association agrees to admit all existing refiners to membership, and to a participation in the future benefits of the association on equal terms with present members, and the Producers’ Association agrees to allow all producers to join its association on the same terms with the present members.
Fifth.—The Producers’ Association agrees to sell (through its regular appointed agencies) crude oil exclusively to the Refiners’ Association and its members, and the Refiners’ Association and its members agree to purchase crude oil exclusively of the Producers’ Association or its appointed agents.
Sixth.—The Producers’ Association agrees that all producers enjoying the benefits of this contract shall be required to bind themselves to sell their oil exclusively through the Producers’ Association.
Seventh.—The Refiners’ Association and its members agree that they will not until after sixty (60) days from the date of this contract sell any portion of the crude or refined oil now held by them, except so far as they shall have previously purchased the equivalent of crude oil to take the place of the oil so sold.
They further agree to buy from the Producers’ Association daily such quantities of crude oil as the markets of the world may take of them, the same to be determined from time to time by the representative committees herein provided for.
Eighth.—The price of crude oil so purchased and sold to be conditionally five dollars per barrel of forty-two gallons each, at “common points,” payment to be made as follows:
When refined oil is sold in New York at twenty-six cents per gallon, no additional amount is to be paid; but for every one cent per gallon of advance in the average price of sales of refined oil in New York, twenty-five cents per barrel shall be added to the price of so much crude oil as shall be the equivalent of refined oil sold at such advance until the price reaches five dollars per barrel. A proportionate addition to the average price of crude oil shall be paid for each fraction of one cent per gallon increase in the average price of sales of refined oil at New York, by members of the Refiners’ Association.
The price of refined oil in New York and of crude oil at common points to be adjusted by the representative committee herein provided to be appointed.
Ninth.—The representative committees may at any time, when it may be necessary to do so, reduce the prices of crude and refined oils below the minimum or advance them above the maximum prices above named, the increase and reduction in price and the cash payments on crude oil to be determined by said committees.
Tenth.—Settlements to be made to the end of each calendar month and balances to be paid not later than the fifth of the succeeding month.
Eleventh.—The profits on all crude oil sold for export by members of the Refiners’ Association shall be credited to the Producers’ Association in the next succeeding regular monthly settlement after delivery of said oil.
Twelfth.—Either association may discontinue this agreement at any time by giving to the president of the other association ten (10) days’ notice in writing of its purpose to do so.
Thirteenth.—This agreement to remain in full force and effect for and during the term of five years from this date, unless sooner terminated in the manner provided in section twelve (12) of this agreement.
Fourteenth.—Amendments and alterations may be made at any time by the representative committees, subject to the approval of the respective associations.
In testimony whereof, the Petroleum Producers’ Association, by its executive committee, and the Petroleum Refiners’ Association, by its president and secretary, have hereunto set their hands this nineteenth day of December, A.D. 1872, in the City of New York.
Petroleum Producers’ Association, by C. V. Culver, A. H. Bronson, Samuel Q. Brown, William Parker, B. B. Campbell, Executive Committee.
Petroleum Refiners’ Association, by John D. Rockefeller, President.
NUMBER 18 (See page 1132)
TESTIMONY OF GEORGE R. BLANCHARD ON REBATES GRANTED BY THE ERIE RAILROAD
[Report of the Special Committee on Railroads, New York Assembly, 1879. Volume III, pages 3393–3395.]
October 1, 1872, when I first became general freight agent of the Erie Railroad, no oil was produced in the Bradford District, and all petroleum then transported by the Erie Railway eastward came from the Atlantic and Great Western Railroad. At that time, Adnah Neyhart, of Tidioute, Pennsylvania, represented by W. T. Scheide, afterwards by H. C. Ohlen at New York, shipped small quantities of refined oil, for which he received a rebate of over $7,000 on his shipments for the prior month, to wit, September, 1872.... I looked for the reasons, and found the agreement next prior to that time as to shipments and rates was the one already in evidence between producers, shippers, refiners and railroad companies, dated March 25, 1872; I asked why that contract was not observed, and was then convinced in reply that the agreement of March 25 lasted less than two weeks, and that at that early date the Empire Line was receiving a large drawback or commission from the Pennsylvania Railroad, which was either being shared with its shippers or an additional amount was being allowed to them, besides that which the Empire Line itself received from the Pennsylvania system; and as the Empire Line also owned the Union Pipe Line, its shippers had advantages which our company and its shippers did not even jointly possess. At the close of that calendar year (1872), the entire petroleum traffic for the five months of the administration of President Watson, the former president of the South Improvement Company, to January 1, 1873, was but 265,853 barrels, or but about 53,000 barrels per month; while the Pennsylvania Railroad was carrying about six times as much, or 300,000 barrels per month, and the New York Central was carrying the entire refined oil sent from Cleveland to New York. The representations then made to me also convinced the Atlantic and Great Western Company as to what our rivals were doing, and that railway company and our own decided to continue to pay the twenty-four cents per barrel drawback then being paid on the rate of $1.35 provided by this producers’ agreement of March 25, 1872.
It is therefore clear that one of the largest of the shippers, who signed that March agreement, did not feel that it bound him to pay the rates he had agreed to pay, and he gave convincing reasons to believe that others, signers and parties to that agreement, did not pay them, and possessed equal or greater advantages by way of rival routes. Early in 1873 Mr. Scheide came to our line with Mr. Neyhart’s crude business, under the circumstances Mr. Scheide has stated, but being yet without any shippers of refined oil, and believing that the Empire Line would pay a rebate on refined, as I now know from Mr. Scheide’s testimony, they had paid Mr. Scheide on crude, I opened negotiations to increase our traffic, which resulted in an agreement, with the concurrence of the Atlantic and Great Western, as follows:
Erie Railway Company,Office of Second Vice-president.New York, March 29, 1873.MEMORANDUMBetween John D. Archbold, Mr. Bennett, and Mr. Porter, and Mr. Osborn, and self. Rate for March, 1873, to be 132½ from Union. Rate thereafter to be 125 from same point as the maximum for 1873. If the common point rate is made from Titusville at any time in 1873, on bona fide shipments, Erie and Atlantic and Great Western will make same rate from same date. With this rate the refiners agree to give us their entire product to New York for the year, and the preference always at same rate as actual shipment by other lines.
(Signed) John D. Archbold.G. R. Blanchard.This Mr. Bennett was also one of the signers to the agreement of March 25, as a refiner, and from these gentlemen I also learned at that time that this producers’ agreement was exploded by the action of the Producers’ Union before that time.
Notwithstanding this agreement of March 29, 1873, with its reduced rates, its signers left us in November, 1873, and gave the Empire Line their entire shipments; and we were then left with but one small shipper of refined oil, Mr. G. Heye, whose consignments were small, and to retain even this small business, against similar solicitations by our rivals we were compelled to make his rate $1.10 in November, 1873, instead of $1.50, as provided by this producers’ agreement.
These facts effectually refute the testimony of Mr. Patterson that the agreement of March 25 continued for two years, or any other period beyond three weeks, at the rates it stipulated, and show that at least two of its signers did not feel bound to pay the rates it named, and that they and others by other lines endeavoured immediately after it was signed to obtain, and did secure reduced rates, as usual before its execution and peddled their oil among different railroads wherever they could secure an advantage, however small, over each other or the railroads.