. This is a radio program i recorded then on rice university’s to the point program which was syndicated throughout the state of texas. Bainker is my guest and he was at the time, president of pennzoil and we’ll talk about the oil industry and consumer issues. A little background on him. He graduated from the university of texas with a degree of history and a phi beta kappa membership. He eventually got his law degree there as well. At the outbreak of world war ii. He entered the marine corps, he was wounded at guadalcanal, fought in several other battles in world war ii in the pacific, and when the war was over, he became a major in the marine corps reserves. He then joined baker. Botts, a prestigious law firm in houston, texas, was on the board of pennzoil and then became its president in 1977. Just a little before i talked to him. He continued working there leading that organization through 1994 and also served on the board of governors for rice university and he passed in 2008 at the age of 89.. I looked all over and could only find one photo so that’s. Why you’re only going to see one picture of bainker in this interview so now to the 1977 interview as it was originally played on radio president carter recently said that the oil companies, the major oil companies, are ripping off the american society. We’Ll be back to talk about that from the oil companies point of view in just a moment to the point presented by rice, university, hello, i’m, phil constantine for to the point and with me is bain kerr.
Who is the president of pennzoil oil company? Mr kerr? Welcome to the program, thank you and i guess to the beginning, to better establish the position uh i’m going to assume most people have heard of pennzoil, but just in case they haven’t. They have sales in excess of a billion dollars in assets in excess of 2 billion and you’re right around the top 20 um oil companies or toward the bottom. As you said, of the top 20 oil companies that’s right, so you’re involved in producing refining natural gas. Copper mining and potash, and sulfur too i understand i have sulfur and molybdenum yes, so you’re involved in pretty well the entire spectrum of oil production right. So how do you feel about the comment that the president has made about the oil companies? Are you ripping off the american people? Well, i think, obviously, no one in that business would think so, but i i think that was a very unfortunate approach, because it tended to uh confuse all the issues and not really address some serious issues that really need to be understood, and for that reason uh, I think it was. It was particularly bad not just because he criticized the oil industry for something that i think was totally unjust, but but more importantly, because it tends to to distract everyone’s attention from what the real issues are. What do you consider to be the real issue? Well, i think it’s not as complicated as perhaps it may seem.
It seems to me that the president’s program is one that i personally at least can support, at least in part, because it involves pricing, oil and gas products to the consumer at the real cost of those products. That is at the price we have to pay for. Uh any alternate supply that we that we need to complete our requirements. So now is this deregulation, or is this strictly cost? Oh this is this is just the the question is how do you get to or how do you handle the pricing of oil and the pricing of gas to the consumer, to the person who uses it at its real cost and the president’s program contemplates doing that And to that extent, i think everyone familiar with the problems would would agree because there’s no way we can uh have any real efficiency in the use of energy or any real conservation as long as we’re subsidizing the use of gas and oil. In other words, if, as long as we make it cheaper than it really is to the person who’s using it, you can’t expect a person using it to have much interest in in reducing his his own use of gas or electricity or whatever. It is so, to that extent, i think i think they’re on the right track, but where, where people in the industry disagree with the program, is that the administration’s plan uh involves accomplishing this by holding the price to the producer where it is today or even in Some cases rolling it back and they dispute this, but that’s really the effect of it and the difference between what the producer gets for producing it and what the consumer pays for.
It is a tax, a federal tax, an enormous federal tax that i don’t know how much it would raise or their differences of opinion, something like 45 billion dollars, which would be the biggest single new tax. I think in the history of the country – and this would all go into the federal treasury and and under the administration’s program, none of it would be used to get a solution to our basic problem of developing either new sources of energy or developing the ones that Are available to us now i’d say that the industry feels that that we should put more emphasis on developing oil and gas that we could develop in this country and uh on developing other sources of energy. He said president carter said that i believe by the year 2000, the profits would be somewhere around 130 billion some odd dollars, i believe, for the industry wide now that was using the uh. What would be the inflated value by the year? I believe two thousand, maybe a little bit off on the figures. There is this: according to your own uh research, is this uh approximately the kind of money that’s going to be made out of the industry, or would you know beyond your own corporation? Well, i don’t. I think that that that’s – a if i may say so, a really phony kind of extrapolation who knows what the profits are going to be. This is one of the most confusing things about is to to talk about higher prices as being essentially all profit it’s, going to cost a tremendous amount of money to produce a lot of the additional oil and gas that we might produce in this country.
It’S. Not a question of how much money should the oil companies make or are they making enough money, or are they going to make more money? I think the real question ought to be is: are we willing to develop as much oil and gas as we can develop? So long as the cost of doing that is no more than we’re willing to pay for imported oil. That to me ought to be a simple question. The fact is that at fifteen dollars a barrel for oil uh, depending on your luck and how you find it and where you have to drill for it, it could either be more or less profitable and all at three dollars a barrel found much more easily. So you you can’t, talk in terms of profit and price of being synonymous, so it depends on those in circumstances at that particular time. Well, just as one example uh we, we are uh involved in a uh venture in in the north slope of alaska and exxon. Just drilled a well there and it’s uh turned out to be productive. We have an interest in it that well cost something around 20 to 22 million dollars to drill. Now, they’ll never come out on that. Well, i would hope that other wells won’t have as much in the way of problems as that one did and that you may make make a profit. But what is the profit going to be on that? Even if you had 15 or 20 dollars a barrel, we have to it’s been us about saying.
Well, this higher price will all be profit to the producers is is ridiculous. It ignores the fact that anything we produce is going to cost far more to produce than what we have found in the past we’re not going to find any east texas oil fields at 4, 000 feet anymore. So the is that to your own uh estimation and the best of your knowledge that all the easy oil has been found. Well, i think we’d have to say that here in the u.s at least, what kind of effect will the new uh mexican feels, which there’s been varying uh stories as to how strong or how or how good it is uh one way or the other? Well, what kind of effect will these kind of things in our own hemisphere and in relatively close uh things, and also the canadian situation where they may not be sending us anymore? What kind of effect is this going to have on the american market itself? I don’t think it’s going to really have much effect as far as what it does to our economy to have to pay for imported oil. It’S helpful, i think, to have it in a more secure location, less subject to political interruption, but as far as costs, the both the canadians and the mexicans have made it clear that they are. They want the same price that everyone else gets so we’ll be paying just as much for that oil as we do for middle eastern oil, it may come from a little more secure, uh location.
Music. Do you add pennzoil? Are you involved in any importation of oil as as a middleman or agent? Well, in that sense, we’re a little uh atypical? I suppose we are basically a domestic company. We have some foreign production uh. We saw we produce gas in the dutch north sea, but that’s all sold uh in holland and our refineries operate on u.s our own u.s production and we produce as much or more than we refine so we’re we’re, not quite the same as as the typical oil Company, do you think that that will help you in the long run uh due to what some people can call the inflammatory political or the politics of uh? Shall we say the middle east? Well, frankly, we always thought it was a big plus to be domestic, and we thought it was a big plus to to spend the money that it took to maintain our own domestic production equivalent to our own requirements. But the way it’s worked out we’ve had no advantage at all it’s. As a matter of fact, refineries that opted to our companies and refineries that opted to rely on foreign oil have been treated just as well. Their costs have been equalized with our cost and in fact we lose on that proposition so that we’ve been penalized really for having developed u.s production. Well, what can you do about this uh, particularly since it appears that the president is less than a solicitous towards the major oil companies, or is that true? Is this merely what john kennedy had done when he was talking about the steel mills having the same particular hold as it were on the american people? Well, i i think there’s a lot of politics in it i mean i.
I think that, undoubtedly, the strategy of that rose garden news conference was to get support for his program by uh uh, redirecting the resentment against the american oil companies. Actually, it has american organs had nothing to do with there’s no ripoff involved. The none of the bills would give the american oil companies profits from their existing production. All these all we’re talking about is what are we going to pay for future production and what the profits are going to be from that is anybody’s guess i can tell you. I don’t think it’ll be much, but going back, though, to to what his real motives were. I’D have to say that that’s not an unusual political ploy to find a common enemy or someone who can be designated as a common enemy and you attack them and it obscures things, and maybe you get some support, but i don’t think it worked. I don’t think the american people were really fooled by that. What future is there in the oil production industry? Obviously, there has to be a limit to oil, uh and there’s talk of some say we say anti trust legislation that would keep too many uh oil companies from you know putting investments into other areas of uh, shall we say: energy, uh prof. You know consumption such as coal or even solar energy as far as that’s concerned. Well, there certainly are a lot of negative factors uh. I would say, though, that if we’re willing to look facts, squarely look at facts squarely and and make decisions that are in the best interest of this country.
I think we are definitely going to opt for developing all of our own resources we can, which do not cost us any more at the minimum than what we have to pay for foreign production. We are now buying almost 50 percent of our requirements from abroad. We have no control over that price there’s only one way. We can counter that and that’s to develop everything we can develop in this country, which can be developed at at or below the same price as we have to pay for foreign oil, and that seems so simple to me that i cannot understand why. There’S all of this ripoff talk. Do you get any tax incentives for additional production or new developments, no there’s, no real tax advantage to being in the oil business anymore, except for what, in effect, is a form of accelerated depreciation which is which is called intangible drilling cost deduction you get to deduct That early and not have to spread it over the life of the production, so that helps you, but you ultimately pay the statutory rate on the production. So you don’t there’s, no real tax saving, it’s, just a timing benefit out of one pocket and into the other case yeah. It is beneficial because you get to deduct it early and the use of the of what you save by being able to do. That has value to you, so it is a benefit i don’t mean to imply that, but the fact is, you still are going to have to pay 48 tax on all your profits from that production.
So, overall jimmy carter has done nothing good for the oil industry. In the last couple of days or weeks no well, i i have to hope that they know a little more than one would think from some of the public statements. Well. I’D, like to thank you very much for being here. My guest has been mr bain kerr and i’m phil constantine for to the point, and we thank you very much for tuning in. Thank you, Music to the point is produced by the rice university information office at the studios of rice, radio ktru in houston. Thank you very much for watching this video. Please feel free to leave comments down below as long as the language is family friendly, and if you would like to subscribe to my channel just click on the button over on the right hand, side.