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By Joseph E. Pogue

Proration in the petroleum industry has come to mean a method for curtailing the production of crude petroleum by artificial effort, and it is in this sense that the term is employed throughout this paper. Although a contrived curb on supply has been invoked at various times in the past in particular fields and to meet specific situations, it is not until the past few years that this procedure has become general and assumed a dominant role in the oil business. In the sense that we now understand it, proration had its inception in the Seminole area of Oklahoma in 1927, from which time and place the practice spread to include practically all the flush oil fields of the country, especially those of California, Kansas, Oklahoma and Texas. At present there is perhaps no phase of the oil business that commands more attention than proration, nor one that engages more time and effort on the part of executives in the business. The practice of proration, indeed, has not only become an integral part of the policy of most companies and operators, but it has also taken on the aspects of a "movement" involving two schools of thought with considerable feeling, and at times some bitterness, on both sides. In this atmosphere it is difficult to find calm, dispassionate consideration of proration, for most discussions are either vigorous exhortations by its proponents, or else sharp condemnations by its opponents; although it appears that the majority of the industry is clearly "in favor of" proration. It is hoped that this analysis will be taken as an attempt to appraise the movement as an economic force, without bias and without regard to the incidence of the conclusions upon any preconceptions that the industry may entertain. Evolution of Proration To appreciate the causes that brought proration into being, it is necessary to view briefly the development of the petroleum industry over the past twenty years, approximately the span of the gasoline era., For the first ten years of the period, the industry was seeking capital

Jan 1, 1932

By J. E. Pogue

It is the purpose of this paper to attempt to establish three theses which may be stated in advance as follows: 1. The crude oil potential is the accumulation of surplus initial production. 2. The crude oil potential is a semi-inventory and therefore is a causal factor in the price of crude petroleum. 3. The price of crude petroleum no longer correlates with above-ground inventories but does correlate with corrected inventories (i. e., above-ground storage plus the inventory equivalent of the crude oil potential). The factors and principles set forth in this study are thought to yield an approximate answer to a number of questions of active interest in the petroleum industry today, to wit: (a) How long would be required to eliminate the potential if all drilling ceased? (b) What would be the indicated crude oil production of the United States in 1931 if proration were abandoned? (c) What economic change would be necessary to warrant a higher price for crude oil? Definitions For the purposes of this study the following definitions may be stated: The crude oil potential in the United States is the quantity of oil that all the oil wells would make the first 24 hr. if permitted to flow unrestricted. The surplus potential is the above-mentioned quantity minus the volume currently produced. Initial production is the first day's unrestricted flow of an oil well. Aggregate initial production is the sum of the initials of all wells completed during a year. Surplus initial is the initial not needed to bring production into balance with demand. The surplus initial is equal to the crude oil potential minus the current rate of production. The annual production-equivalent of the crude oil potential is the volume of oil that would be produced in one year if all wells were permitted

Jan 1, 1931

By Norman F. Patton

The subject assigned is so broad that thorough discussion is well-nigh impossible within the space allotted, and further, few specific data are available upon which to predicate conclusions concerning the efficiency of present methods of distributing anthracite. This paper treats briefly the various agencies through which both primary and secondary distribution are effected, the methods of transportation and the general interrelation of production, demand, inventories and price. Avenues of Distribution Three distinct types of primary distribution are common in the marketing of anthracite. First, though not most important, is the sale by the producer, or operator, direct to the consumer. These sales, other than to employees and the local trade, are generally confined to steam sizes for industrial uses, and are consigned to the sidings or docks of the consumer. Sales of this type often are so closely priced to compete with oil and bituminous that the addition of even a small dealer's margin is sufficient to increase the cost to the point where the business might be lost. Second, the operator sells to a wholesaler or broker for subsequent resale, either to a retail dealer for clearance through his yard or direct to large consumers. Usually this method of distribution is employed by the smaller operators, who do not find it economically feasible to maintain extensive sales organizations. In most instances, the wholesaler retains some 5 per cent for his services, paid, of course, by the producing company whose anthracite he handles. He may, and frequently does, handle the output of several different companies, suited to the varying needs of the different communities he serves. His business includes all sizes of anthracite. The third, and by far the most general method, consists in selling to retail dealers, shipments being made direct from the breakers to the yards of the dealers. In large consuming areas, such as the metropolitan districts of New York or Philadelphia, one operator may sell to several

Jan 1, 1936

By Norman F. Patton

The subject assigned is so broad that thorough discussion is well-nigh impossible within the space allotted, and further, few specific data are available upon which to predicate conclusions concerning the efficiency of present methods of distributing anthracite. This paper treats briefly the various agencies through which both primary and secondary distribution are effected, the methods of transportation and the general interrelation of production, demand, inventories and price. Avenues of Distribution Three distinct types of primary distribution are common in the marketing of anthracite. First, though not most important, is the sale by the producer, or operator, direct to the consumer. These sales, other than to employees and the local trade, are generally confined to steam sizes for industrial uses, and are consigned to the sidings or docks of the consumer. Sales of this type often are so closely priced to compete with oil and bituminous that the addition of even a small dealer's margin is sufficient to increase the cost to the point where the business might be lost. Second, the operator sells to a wholesaler or broker for subsequent resale, either to a retail dealer for clearance through his yard or direct to large consumers. Usually this method of distribution is employed by the smaller operators, who do not find it economically feasible to maintain extensive sales organizations. In most instances, the wholesaler retains some 5 per cent for his services, paid, of course, by the producing company whose anthracite he handles. He may, and frequently does, handle the output of several different companies, suited to the varying needs of the different communities he serves. His business includes all sizes of anthracite. The third, and by far the most general method, consists in selling to retail dealers, shipments being made direct from the breakers to the yards of the dealers. In large consuming areas, such as the metropolitan districts of New York or Philadelphia, one operator may sell to several

Jan 1, 1936

By Sidney A. Swensrud

The writer has been interested for some time in trying to appraise our industry's prospects for gasoline consumption over the next half dozen years or so. Anyone who has even approached the problem knows the intimate relationship to it of the number of automobiles in use— by automobiles I mean both passenger cars and trucks. Probably at least 90 per cent of our gasoline is used in automotive vehicles. Some recent estimates secured from the Department of Commerce show the following breakdown: Per Cent Passenger cars............................................ 60.0 Trucks................................................... 27.4 Busses................................................... 2.9 Taxicabs................................................. 2.2 Subtotal............................................... 92.5 Aviation, motor boats and railroads......................... 0.5 Agricultural: farm tractors, etc.............................. 3.3 Balance (manufacturing, government use, construction, etc.)... 3.7 100.0 Up to the beginning of the depression there was, of course, a constant annual increase in the number of automobiles in use, for each year the industry added to the total inventory or ''population" more new units than were being scrapped, as may be seen in Fig. 1. Few of us in the oil industry needed to give much attention to the detailed figures, although the automobile industry seemed to interest itself in all sorts of calculations of replacement demand vs. new car demand, the average life of the car, the number scrapped, and the like. Probably many people in the oil industry, as well as outside it, were surprised at the way in which automobile registrations and gasoline consumption held up during the early years of the depression. Nor were they greatly perturbed when, as in the last two years, both registrations and consumption began to fall somewhat. That was natural enough; it

Jan 1, 1933

By H. J. Struth

In these trying times of proration and low oil prices, it is decidedly necessary for all branches of the petroleum industry to accord full recognition to the economic phenomena that contribute to its varying state of welfare. Perhaps no other single factor has a more important bearing upon the general oil situation than the supply and demand of gasoline. Year after year, the records have shown that the degree of prosperity or depression accompanying the industry's developments has been to a large extent influenced by the degree of balance maintamed between the supply and demand of gasoline. More and more it is being realized within the industry that equilibrium between the supply and demand of gasoline forms the basic structure of crude and product market values and, consequently, the deciding factor in the financial results of the industry as a whole. The influence of the gasoline situation upon the market and financial structure of the petroleum industry was effectively demonstrated during 1930, when excess accumulation of gasoline undermined not only the refined oil market but the crude market as well. In fact, it was a top-heavy gasoline situation that defeated the realization of benefits that might have accrued from an otherwise favorable statistical position in the producing branch of the industry. Indicative of this is the fact that crude oil production was curtailed to the extent of 98,323,000 bbl. last year, while refinery runs to stills were maintained at an excessive rate until late in the year, creating an excess gasoline production of 6,663,000 bbl. above actual requirements. Nevertheless, the movement to curtail refinery operations during the closing months of the year prevented a far worse situation, although it came too late to turn the ebbing momentum of the general oil market. Despite the severe depression of the market values that accompanied 1930 developments, it can be said that the results attained during the closing months of the year, in the direction of production control, marked a decisive turn in the industry's economic affairs. In fact, a review of the oil situation from every angle points definitely to a better general understanding and recognition of the workings of the economic law of supply and demand. As a result, the year closed with crude production in

Jan 1, 1931

By A. B. Bowman

The 1963 Jackling Award lecturer describes the founding of Banner Mining Co. and its trials and tribulations before becoming an established firm. Such aspects as geological description of Banner mining areas, history of exploration and production, areas of present interest to the company and research work conducted by the company are included. Several years ago a wealthy Chinese business friend of mine purchased an interest in a proposed oil well to be drilled a great distance from his home. A few months later it came in as a producer and proved to be a huge success and materially added to his resources. I asked him why a man of his wealth should be so lucky in a venture outside his sphere of knowledge when most people of modest means never seemed to get ahead. His answer was, "Fat Hoy takes a chance." Even though this was his answer, I knew from my association with him that there were other tempering considerations which Mr. Hoy applied before making up his mind to enter any transaction. First, he was a cautious individual. He was also a great believer in details and insisted on knowing everything possible about a situation, and finally, he was what we call a very solid individual with good basic instincts and judgment. This philosophy of Mr. Hoy may be applied to most any business but especially to those engaged in a search for natural resources such as mining where great risks are involved. This article concerns events in the history and growth of Banner Mining Co., with which I have been associated for 27 years in capacities from mine surveyor to vice president. Mr. Hoy's philosophy has played a significant role in the exploration projects of this company over the years, but what is more important, the officers, directors, and controlling interests in Banner have been aggressive in their search for ore reserves. THE BIRTH OF BANNER Banner Mining Company was incorporated in September 1935 by a group of Oklahoma and Texas oil men for the purpose of exploring and developing the Bonney-Manilla mines at Lordsburg, N.M. These properties had a history of intermittent production since the first ore discoveries as far back as 1870. Most of the production from the district has come from four mines, namely, the Eighty-Five, the Atwood, the Bonney-Manilla, and the Misers Chest. The last two are now owned by Banner Mining. The Eighty-Five mine operated between 1885 and 1931, and production totalled 1,494,287 tons averaging 0.11 oz of gold per ton, 1.23 oz of silver per ton, and 2.80% copper. The vein extended for a distance of about 3000 ft northeast and was mined to a depth of 1650 ft. The Atwood mine, adjoining the Eighty-Five mine, to date has been of lesser importance as a producer, but it has been operating for several years producing high silica flux ores for a smelter. Production totalled 352,828 tons up to January 1, 1962 From the Bonney-Manilla and Misers Chest mines, owned by Banner, production through 1961 totalled 2,006,343 tons with an average grade as mined of 0.0192 oz of gold per ton, 0.760 oz of silver per ton and 2.63% copper. Banner built a 150-tpd flotation mill in 1936 after almost a year of development on the 600 level of the Bonney mine. After less than one year's operation, it became apparent that the 150-tpd rate was not sufficient to make a reasonable profit due to the marginal grade ores. The low tenor of the ore, mainly chalco-pyrite in a highly siliceous gangue, made mandatory the close control of costs in order to make ends meet. A 300-tpd unit was added to the mill in 1937, and it is still the operating unit today. The clean sulfides presented no problems in milling. A metallurgist doing research on it at the time stated that the copper minerals seemed to have a built-in desire to float. Mill recovery of copper throughout the 27 years of operation has averaged 96.23%. A PERIOD OF FORCED GROWTH World War II brought many hardships to Banner. Labor and supply shortages caused drastic curtailment in development work. Rapidly rising costs far outdistanced any relief from pegged prices which we received from Government agencies. Finally, a branch of the Government asked us to stop all devel-

Jan 1, 1963

By Barnabas Bryan

During the boom period of 1928 and 1929, several oil companies took advantage of high security prices to sell stocks, thereby securing money for the company very cheaply. Few if any of those companies realized that the money received was not at all cheap in view of the fact that it was for investment in fixed assets at inflated prices. Suppose a company borrowed twenty millions of dollars to expand its marketing facilities during the boom. It diluted its capital and acquired fixed property which could not earn its interest requirements during the following deflation and therefore consumed income from other company activities. The company also had to stand the deflation in the capital value of all the property it bought. Since the mistaken expansion during the boom accelerated the decline in net income during deflation, the financial position of the company was harmed in proportion to the amount of that expansion. Thus the company was unable to get money to buy fixed assets in the depression when all property is cheap. The same condition holds for the company that sold common stock for the purpose of developing potential production in a newly discovered oil field. Regardless of what the ultimate value of the new field may be, potential production does not increase the net income of the company. The difficulty of meeting the enlarged dividend requirements due to the increased number of shares outstanding impairs the financial position of the company during deflation in some relation to the probability of decreased dividends. This company also is not in a position to expand during the depression when properties and companies can be bought for a fraction of their real value. Expansion of fixed assets during boom times has been the ruin of many otherwise good companies. Some of those which most extensively bought property during the post-war boom have not yet recovered. A number of cases could be cited in sugar, leather, fertilizer and wool. This does not seem to be governed by the quality of the property bought, for examination shows the assets to have been of individual high quality in many cases. When recovery is long deferred it is likely to be true, as in sugar or textiles, that the industry has a large "potential" capacity for overproduction.

Jan 1, 1931

By G. M. Wiles

The increasing number of problems of the modem mine manager has led the author to discuss the art of management. He lists the principles concerning selection of personnel, exploitation and development, new equipment, process improvements, new processes, maintenance, operating cost data and public relations. Application of the principles to problems of mine startup, operation and rehabilitation are described. Since D. C. Jackling was famous for his adeptness at organizing and training teams of operating personnel, the subject of mine management is particularly appropriate for a Jackling Lecture. In fact, it is doubly appropriate because in very basic ways Jackling's career changed the nature of the tasks and challenges facing a mine manager. Management of mines, of course, is the art of finding and winning minerals economically from the earth's crust, and it involves the use of all the engineering sciences. But also of prime importance is a skill which is not yet a science - the area of management often referred to as human engineering. Since expenditures on staff and labor may well involve more than 50% of the direct costs of operating a mine, ability at human engineering is just as important as the ability to plan and put into effect the most efficient operating procedures. In addition to his ability to select and train operating personnel, Jackling possessed, to a degree unmatched by many of his contemporaries, broad, analytical powers covering both the economics and operating phases of large scale mineral extraction. His breadth of vision found its greatest expression at the time he analyzed the Utah copper deposit. Fortunately, Messrs. Penrose and Gemmell had enough faith in his analyses to furnish the capital needed to begin operations. The result, as is well known to all of you, was Kennecott's lucrative Utah copper mine — and the beginning of the open pit porphyry copper era. The Utah copper mine, and Jackling's subsequent similar successes in Arizona, New Mexico and Nevada, had one thing in common —all of these large porphyry deposits were worthless until open pit, large daily tonnage schemes were developed for their exploitation. The successful development of such schemes made vast new mineral resources available for economic exploitation. But at the same time, the trend away from smaller high grade operations in favor of the far more complicated operations required to handle large deposits of low grade ore have greatly altered a mine manager's problems. We are all familiar with the saying "mines make managers." There is still some truth in this statement, but far less than there used to be in the days when high grade properties were the rule rather than the exception. When high grade orebodies prevailed, many managers, superficially at least, could not make a mistake because the profits of their mines

Jan 1, 1962

By L. D. Clark

Pay-out, the ratio of capital expenditure to annual cash return can be very revealing when employed to gage the merits of a proposed mining venture. It is a quantity, numerically but not physically equal to a factor, by which cash return may be discounted to equal required investment. The fewer the pay-out years, the greater the average annual earning power of the project. Considerable material has been written in the past about the most important and difficult problem mining management faces in evaluation of a property: the optimum production rate for the venture. What daily capacity should be adopted for the proposed operation that it may be the most rewarding to those underwriting it? H.C. Hoover has said, "The most important objective is the least cost per ton mined; and minimum working costs can only be gained by the most intensive production." Theoretically and practically, the quicker the ore is removed, the more profitable should be the venture because of the saving in fixed charges, the consequent lower unit costs and the interest unearned by the profit from the unmined ore. Yet, such performance will be tempered by policy and a restraint imposed by the ratio of capital expenditure to annual cash return. * The 'Annual net profit after taxes but including depreciation and depletion allowances. former will be based upon an analysis of the economic climate anticipated, with its many ramifications including the demand for the product, prices, tax laws, the conduct of labor and related wage scales. The variables and intangibles involved in estimating the optimum production rate for a mine do not readily lend themselves to mathematical relationships or equations and the problem can become complex indeed. The more readily applicable and relatively faster appraisal method will be used which, in addition to being reasonably adequate in most cases, will serve as a guide, should a more expanded and detailed estimate be desired. The first question is what is company policy with respect to the rate of investment return? This will depend on that significant period of time referred to as the pay-out, which can be defined as the estimated interval during which capital investment is returned through application of annual cash return to its recovery. Expressed another way, it is the ratio of capital expenditure to the annual cash return. For example, if the capital investment is $C and the annual cash return is $A (after Federal tax), then $C/$A = the pay-out period in years. That is to say, if $C = $1,500,000 and $A = $214,000, then which is the mathematical expression for the period of time it takes to recover the funds originally invested in a mining enterprise. The relationship yp = $C/$A can be useful — an expression which requires only the significant tern yp to be fixed; in other words, the long range investment policy. For what is the pay-out period but an expression of that policy in terms of the speed, within practical limits, with which an individual or company may want to recover capital expenditure? A policy by which pay-out will be fixed is imperative. This ratio must lie within relatively narrow limits governed by what is economically feasible. It cannot be too low, rendering the ratio impractical or absurd, nor too great, delaying the return of capital for reinvestment beyond a commensurate interval. What pay-out will govern this policy? Federal corporate taxes would seem to present the best measure. Consider mining in Canada where new mines are exempt from Federal income tax for 3½ yr from date of first production. This exemption expressly allows The Act states: "A corporation . . . i s not required to include the profits . . . for the period of 36 months commencing with the day on which the mine came into production in reasonable commercial quantites." a company to recover capital expenditure during the early stages of production. With such an incentive, it is logical to strive for as much capital redemption as possible during this period. Thus, 3½ yr would be a major contribution to the pay-out in Canada. Furthermore, it generally takes from 1½ to 3 yr to develop

Jan 1, 1963

By J. Elmer Thomas

If 1929 witnessed a growing realization on the part of the oil industry that supply must be balanced against demand, 1930 proved conclusively that excessive inventories constitute a price depressant even with balanced conditions. Increased attention was certainly paid to economic considerations last year, and the achievement of holding daily crude production, with a constantly mounting potential, to levels 500,000 bbl. below the output of the summer before, deserves special mention. The ill-advised accumulation, however, of gasoline stocks, at least 10,000,000 bbl. larger than necessary, nullified the restraint exercised by the producers and finally necessitated drastic downward price revisions. An event of special significance was the appointment by the Federal Oil Conservation Board, last March, of a temporary Committee on Petroleum Economics that attempted a forecast of demand, an estimate of supply, and an allocation of the latter between the principal producing states. Thus for the first time was an economic program for an entire basic industry drafted by an independent body under the auspices of the Federal Government. The report was widely discussed and generally approved, but its schedules were not adopted by the refining division nor by oil producers in the State of Texas until too late to contribute to the industry's prosperity during 1930. If the restraint of November had been exercised in May a profitable year might have been the result: The gasoline price war in California during June, however, illustrated the point that even with a fairly sound statistical position insistent pressure to expand normal marketing outlets must result in losses to all concerned. The balanced program so painfully attained by producers must be maintained by refiners and distributors to be completely effective. Again in November the Federal Oil Conservation Board, acting on the request of the directors of the American Petroleum Institute, called its Committee on Petroleum Economics back into existence to prepare a new estimate for the next six months. An economic program adopted in advance of the winter period of accumulating inventories may aid this large and essential industry toward the profits to which it is entitled

Jan 1, 1931

By H. J. Struth

The benefits of proration of oil production were perhaps more concretely realized in 1932 than at any time since the oil industry adopted nation-wide production control. Reduced output of crude petroleum, which brought the daily average of the United States down to approximately 2,000,000 bbl. from a peak in 1931 of more than 2,600,000, had a telling effect on the trend of oil prices. Mid-Continent crude was advanced in price from 776, for 36-gravity oil, to $1.04 a barrel. California crude, of 26-gravity at Signal Hill, moved forward from 736 to 976 a barrel. Pennsylvania crude, the only exception to the upward trend, rose in price from $1.82 per barrel to $2.02, only to react to $1.72. This was due to local conditions which necessitated an adjustment to overcome competition from other areas of the United States. East Texas continued to exert a far-reaching influence on the crude and gasoline market during 1932. Despite the fact that oil prices were advanced in most fields, large quantities of oil were produced in East Texas in violation of state proration orders, and sold in the market at prices considerably below official postings. This created competitive conditions in the gasoline market that were felt by all refining centers of the United States. The quantity of gasoline produced from cheap East Texas crude was not large, but the volume was sufficient to influence prices in practically all sections of the country. Thus, while the industry's' economic situation showed visible improvement statistically, the unreported and unseen statistics originating in East Texas proved to be an insurmountable obstacle to the economic betterment that was otherwise apparently justified. Somewhat surprising to many was the fact that gasoline consumption was maintained within 10 per cent of the preceding year. Domestic consumption showed only a net decline under 1931 of about 8.5 per cent; exports dropped in volume to the extent of about 23 per cent. As a matter of fact, domestic gasoline consumption was only about 1.4 per cent less than it was in the predepression year of 1929. Exports, however,

Jan 1, 1933

By H. J. Wasson, L. W. Mayer

The existing large stocks of raw materials have induced misgivings in the minds of many as to near-view prospects for a return to higher commodity price levels. Until stocks are materially reduced—and this operation will probably extend over a protracted period—a buyers' market will continue. Meanwhile the matter of production cost becomes more and more a factor of consequence to industrial management, finance and the investing public. With many commodities a general level of costs exists with which the public has been made familiar. Certain conditions surround these industries which, at the outset, determine whether there is a basis for sound commercial results. In other words, it can generally be determined in advance whether or not the cost of production is sufficiently below the normal average price to return a reasonable profit over the years. With all domestic agricultural products there are available exhaustive Government studies in the field of production costs. Such figures as the average cost of wheat, cotton, sugar, etc., are reiterated constantly. There are many products of foreign origin such as coffee, rubber, raw silk, etc., the production costs of which are to most of us matters of deep mystery. Forest products also are so diversified that few but specialists know what a thousand feet of lumber really cost at the mill, especially where remotely located. However, with respect to products of mines, production cost information has been widely disseminated. The literature is replete with such data. Here we find that without any special help from outside agencies the industry itself has given publicity to a large variety of cost figures. For example, we know, or know where we can ascertain, the cost of producing a pound of copper from Chile, Arizona or the Lake Superior district. In many cases we can secure from the company reports a vast amount of detail leading up to the cost per ton of ore and the cost per unit of the metal yield. These records are of great assistance to the mining industry as a means of estimating on new exploitations. This industry has been production-cost-minded almost from the beginning.

Jan 1, 1931

By David Donoghue

Efforts made in the year 1930 and in previous years restricted production in most of the fields of Texas to a point that was satisfactory, at the beginning of 1931, to the majority of producers and buyers. In the Panhandle, North Texas and West Central Texas districts, a few operators with refinery affiliations or contracts either ignored, or by virtue of injunction suits, did not comply with the Railroad Commission's orders, and there was some oil sold at less than posted prices, which, with the Oklahoma City difficulties, caused the first general price reduction. More could have been done perhaps to help the situation on the Gulf Coast and in the Laredo district, but natural advantages are not readily surrendered. East Texas Proration troubles in 1930 were insignificant when compared with those of 1931. In January, 1931, efforts were begun to convince the producers and citizens of East Texas of the necessity of curtailment. Opposition quickly developed and meetings were held in the towns of the region and proration denounced vigorously. Notwithstanding a strenuous campaign for additional legislation waged by many producers, the regular session of the State Legislature refused to strengthen the conservation laws and passed only the Marginal Well Bill, designed to prevent the Commission from prorating small wells. The Railroad Commission held a heated hearing on East Texas in the latter part of March. During April the Commission issued three orders based on the Yates plan for the proration of the East Texas field. Each succeeding order raised the allowable for the field. In June the opposition held more mass meetings at which a plan based on acreage was endorsed. Apparently on the theory that any plan was better than none, the Commission issued an order on July 2 embodying some of the features of the proposed plan, limiting production to 250,000 bbl. per day, and dividing the producing area into 20-acre units participating equally in the outlet. Owing to the bringing in of many wells and the many violators of the Commission's orders, production increased to such an extent that prices went as low as 5c per barrel.

Jan 1, 1932

By Armando M. Lago

Secular and cyclical patterns of postwar sources and uses of funds of the mineral sector are analyzed. A simultaneous equation behavior model of sources and uses of funds is developed for both mining firms and integrated producers, and these models were put through the task of predicting the financial and expenditure be-havior of mineral corporations in response to mergers and changes in investment tax credits and depletion allowances. Finally, the quantitative analysis methodology is applied to the analysis of optimum capital structure of mining corporations. The postwar changes that have occurred in the expenditure and financial behavior of mineral corporations are reviewed, particularly the relative importance of factors that affect the industry's supply and demand for funds. This quantitative statistical investigation of factors affecting sources and uses of funds of mineral corporations is achieved through the formulation of a simultaneous equation model of sources and uses of funds. After a description of the study sample, the postwar cyclical and secular financial behavior of mineral corporations is analyzed in detail. An econometric model of mineral corporate financial behavior is formulated. This model is then estimated and reviewed. Policy issues regarding depletion allowances, investment tax credits, and industrial organization of the mineral sector are discussed. Finally, the optimum financial structure of mining firms is discussed and the effect of corporate financial structure on the mining corporations' average cost of capital is analyzed.

Jan 1, 1971

By Howard N. Eavenson

One who has been trained in belief in the law of supply and demand and its effect upon prices finds it difficult to adjust himself to the minute regulations imposed by the New Deal, and also to the bewildering changes of government policy as expressed within a short period of time between the antitrust laws and the N.R.A., and later by the Bituminous Coal Conservation Act of 1935. A survey of the coal industry since the World War, both in this country and Great Britain, however, shows that regulation of some sort is needed if any stabilization is to be achieved and if the wage structure and economic welfare of the many communities dependent solely upon coal are to be maintained. Let us look at what has happened to the industry since 1920, which can be considered as the end of the period affected by the war influence. This discussion will be confined solely to bituminous coal, although many of the general conditions are equally applicable to anthracite, the position of which now is at least as bad as that of the softer variety. Since 1920—to the end of 1934—the production of coal has decreased from 568.7 million to 358.4 million tons, or 37 per cent; the number of mines from 14,766 to 6,258, or 58 per cent; the average annual production per mine has changed from 38,512 to 57,425 tons, or 50 per cent. The number of large mines has increased considerably, and the number of men employed has decreased from 639,547 to 458,011, a reduction of 28 per cent, while the average output per employee has changed from 4.0 to 4.4 tons, or an increase of 10 per cent. The average price per ton of coal at the mine has varied from $3.75 to $1.75. During that time wages decreased largely until 1933 and since that time have increased, until now the rates paid are considerably above those in other occupations, although the actual yearly earnings are low, because of part-time work. From 1920 to the signing of the Jacksonville wage agreement in 1924, about two-thirds of the men were union members and practically all of the nonunion mines were south of the Ohio River; with the fixing of the high wage scale of that agreement, which soon proved to be an uneconomic one, many of the mines found that they could not retain their business, so gradually changed to nonunion. By 1928 the proportion

Jan 1, 1936

By Howard N. Eavenson

One who has been trained in belief in the law of supply and demand and its effect upon prices finds it difficult to adjust himself to the minute regulations imposed by the New Deal, and also to the bewildering changes of government policy as expressed within a short period of time between the antitrust laws and the N.R.A., and later by the Bituminous Coal Conservation Act of 1935. A survey of the coal industry since the World War, both in this country and Great Britain, however, shows that regulation of some sort is needed if any stabilization is to be achieved and if the wage structure and economic welfare of the many communities dependent solely upon coal are to be maintained. Let us look at what has happened to the industry since 1920, which can be considered as the end of the period affected by the war influence. This discussion will be confined solely to bituminous coal, although many of the general conditions are equally applicable to anthracite, the position of which now is at least as bad as that of the softer variety. Since 1920—to the end of 1934—the production of coal has decreased from 568.7 million to 358.4 million tons, or 37 per cent; the number of mines from 14,766 to 6,258, or 58 per cent; the average annual production per mine has changed from 38,512 to 57,425 tons, or 50 per cent. The number of large mines has increased considerably, and the number of men employed has decreased from 639,547 to 458,011, a reduction of 28 per cent, while the average output per employee has changed from 4.0 to 4.4 tons, or an increase of 10 per cent. The average price per ton of coal at the mine has varied from $3.75 to $1.75. During that time wages decreased largely until 1933 and since that time have increased, until now the rates paid are considerably above those in other occupations, although the actual yearly earnings are low, because of part-time work. From 1920 to the signing of the Jacksonville wage agreement in 1924, about two-thirds of the men were union members and practically all of the nonunion mines were south of the Ohio River; with the fixing of the high wage scale of that agreement, which soon proved to be an uneconomic one, many of the mines found that they could not retain their business, so gradually changed to nonunion. By 1928 the proportion

Jan 1, 1936

By DeVerle P. Harris

Risk for most mineral investments is greater than that of average business ventures, because the physical and economic characteristics of the mineral deposit are never known with certainty. Inasmuch as the merits of a potential mineral investment cannot be fully appraised without consideration of the impact to the investor of the possible unfavorable events associated with the adoption of the project, methods of risk analysis are important in project evaluation and investment selection. The conceptual framework for risk analysis and the means by which some of the recommended practices might be implemented are examined. In addition to the normal business risk due to market forces, the physical and economic characteristics of the mineral deposit are never known with certainty, for only partial or indirect information is available, such as data from drill cores or surface and underground workings. Consequently, risk for most mineral investments is greater than that of average business ventures. Inasmuch as the merits of a potential mineral investment cannot be fully appraised without consideration of the impact to the investor of the possible unfavorable events associated with adoption of the project, methods of risk analysis are important in project evaluation and investment selection. This paper examines the conceptual framework for risk analysis and means by which might be implemented some of the recommended procedures. Utility Theory A discourse on risk and its impact upon investment selection quite often leads the reader into the concept of utility theory, for utility theory is a device constructed by economists to measure the satisfaction an individuai receives from a good; in the case of investment analysis, that good is the outcome of an investment. It briefly is reviewed here to describe the reaction of the individual to risk and as a stepping stone to other techniques more suited to risk analysis at the level of the firm. Utility theory proposes that an investor possess a utility map (curve), such as indicated in Fig. 1, which indicates the value in utiles of potential monetary rewards to an individual with some specific endowment of resources. Points on this map are obtained from the following relationship:

Jan 1, 1971

By E. B. Swanson

Frequent reference has been made to the increased domestic gasoline demand recorded for 1931. This increase was in the neighborhood of 7,000,000 bbl. Although smaller relatively than that to which the oil industry had become accustomed by virtue of the experience of preceding years, the increase was of substantial amount, particularly at a time when any increase at all could be regarded with eminent satisfaction. Less has been said, however, of the 18,000,000 bbl. decline in gasoline shipments to territories and foreign countries. When the loss of business outside the United States is combined with the domestic increase, there results a net loss of some 11,000,000 bbl. in total gasoline demand. The gain of 2 per cent in domestic sales gives way to a loss of 2.5 per cent in total domestic and foreign sales. The United States actually has been losing ground in the international gasoline market since 1924, when shipments from this country equaled 72 per cent of the gasoline shipments from the leading gasoline-producing countries of the world. A loss in relative standing was recorded with each succeeding year. As long, however, as gasoline shipments showed an actual increase, the loss in relative standing was of little concern. Foreign producing centers annually supplied an increasing share of the foreign gasoline markets, but, until the past year, the demand abroad continued to increase at a pace which could accommodate all of the increased output of foreign plants and yet require increasing quantities from the United States. It was not until 1931 that the various factors were combined so as to produce an actual and substantial decrease in the foreign demand for United States gasoline. Consumption in foreign countries generally declined, while the output of foreign refineries and the foreign manufacture of substitute fuels continued to increase. From our own viewpoint, this meant a loss of some 18,000,000 bbl. of gasoline business in foreign countries, one-half of it probably due to the lowering in foreign demand and the other half to the increased output of foreign refineries and the increased utilization of substitute fuels.

Jan 1, 1932

By A. Weiss, W. A. Coster

The search for ore is characterized by a great variety of uncertainties, each of which can be resolved by obtaining information at a cost. Three exploration stages may be distinguished in which information can be obtained, based on inherently different cost structure: 1) the reconnaissance or scanning stage, 2) the examination or screening stage and 3) the project stage. This exploration sequence would roughly coincide with replies to questions as to: where, how, why and how much. As complete information in each stage is too costly to acquire, we must assess the probability that adequate information will be furnished by a limited amount of effort and attempt to maximize the expected value of ore to be found for a given exploration expenditure. Several problems are discussed relative to the mathematical formulation and possible computer procedures for determining the optimum allocation of a total exploration effort. Based on the available literature possible solutions to this problem are indicated. When scanning through published literature on mineral exploration, it seems at first that there is little room for substantial and systematic improvements in the efficiency with which the problem of discovery of new ore deposits is presently being handled by large organizations active in exploration. It appears equally difficult to offer something relevantly new which could generate a break-through in exploration thinking and cause a marked improvement in the ratio of successful undertakings to the total exploration projects started. On the other hand, a number of experts in recent years have urged that the problems in prospecting be analyzed in a more skillful and sophisticated manner than in the past. Their thesis is based mainly on the premise that the cost of finding mineral deposits will increase with increasing technical difficulties. In present large-scale exploration ventures, especially in those regions where outcrops and immediately visible geologic evidence are scarce, older methods of prospecting are increasingly being replaced by more indirect and systematic geophysical and geochemical methods with more emphasis on correct statistical design of exploration patterns. It is perhaps the oil industry which has made the greatest strides in developing statistically, well justified patterns in its search for oil; possibly because oil seepages, as indicators of the presence of oil, left off at an earlier point in time than did outcrops as indicators of base metals. Among the pioneers in the field of statistics and operations research, as applied to mineral exploration, the excellent works of Allais, Slichter, Koop-man, Mickey, de Guhnin, Krumbein, Griffith, Sichel, Krige, de Wijs, and Matheron may be mentioned. It should, however, be pointed out that three subjects of basic importance to the allocation of exploration efforts have so far received only scant attention in published literature, even by the aforementioned authors. In the first place, a more precise definition of the object of the search, i.e., a minimum-size orebody, seems to be outstanding. Secondly, a decision model is not a widely-discussed subject. Thirdly, no concentrated attempt so far seems to have been made to establish probabilities of the occurrence of economic deposits on a regional scale and to arrive at a slightly more accurate knowledge of the probability laws governing the deposition of ore. It is not the purpose of this paper to create new order in the complexity of uncertainties in which our decision processes in exploration necessarily have to be conducted. Rather, we intend to highlight some of the outstanding, hitherto unmapped territory, where diligent compilation and a utilization of present and historic data may statistically improve our chances of success. We hope that the contribution of this paper will lie in bringing allocation problems into better focus and in increasing the mineral industry's realization of the magnitude of the factors involved. THE MINIMUM-SIZE OREBODY The concept of target specifications for what constitute a minimum-size orebody in exploration is a rather variable one and depends to some extent on

Jan 1, 1963