[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.
MEMORANDUM
Between 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.
Erie Railway Company,
Office of Second Vice-president.
New York, March 29, 1873.
MEMORANDUM
Between 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.
NUMBER 19 (See page [1133])
TESTIMONY OF W. T. SCHEIDE
[Report of the Special Committee on Railroads, New York Assembly, 1879. Volume III, pages 2774–2777.]
Q. Why were you shipping over the Pennsylvania road and not over the Erie?
A. For the reason that the Pennsylvania was most eligibly situated for our purposes.
Q. How did you come, then, to ship over the Erie at all?
A. We came to ship over the Erie because of what we considered very bad treatment on the part of the Pennsylvania Railroad.
Q. What was that bad treatment that you received at the hands of the Pennsylvania road?
A. It consisted, principally, in a discrimination against us in furnishing us with cars.
Q. They refused you transportation?
A. Yes, sir.
Q. Were they refusing you transportation in the interest of the combination?
A. In the interest of a peculiar idea that they had, that all shippers should be placed upon the same basis.
Q. And in consequence of that peculiar idea, they gave to other shippers transportation and did not give it to you?
A. Yes, sir.
Q. And that was the practical way in which that corporation carried out that idea?
A. Yes, sir; you will allow me to explain, please?
Q. Yes; go on.
A. The oil business differs from other business in this, that it is a daily crop; there is a certain amount of oil produced that has to be shipped every day; the consumption, however, is not equal to the daily production of our trade; the consumption varies and the demand varies; the consequence is that there are seasons of the year when a man engaged in shipping oil ships oil really at a loss because there is no demand for it, and there are other seasons when there is a large profit; now the Pennsylvania Railroad always insisted upon having a large number of shippers; this large number of shippers would ship only when there was profit, and when there was no profit somebody else had to ship; we had been their shipper for a number of years.
Q. When you speak of their shipper—their leading shipper, do you mean?
A. Yes, sir; we did their business between Philadelphia and Baltimore and New York.
Q. Were you their evener, so to speak?
A. We did not have any eveners in those days.
Q. Did you practically stand in the position of an evener?
A. No, sir; we were simply their shipper of crude oil.
Q. When you speak of their “shipper,” in the singular, do you mean that you were their sole shipper, as you subsequently became on the Erie?
A. I mean we had better rates of freight than anybody else could have obtained over the Pennsylvania Railroad at that time.
Q. And therefore monopolised the business; go on?
A. And the consequence is that in consequence of this change in the demand that when there comes a season that there is a little money in it, the Pennsylvania Railroad would encourage these numerous small shippers who would come in and they would pro-rate cars with them; they would only allow us to put in a requisition for a certain number of cars and they would allow anybody else, an entire stranger, a man who never shipped any before, to put in an equal requisition, and they would pro-rate with him, and the consequence was in the paying business we were out and in the unpaying business we were in.
Q. And you left it?
A. Yes, sir.
Q. Because you could not get rates better than other people?
A. No, sir; because we could not stand it; because we were losing money.
Q. On the same basis that other people were?
A. No, sir; other people were not shipping except when there was a profit.
Q. Why did you ship when there was not a profit?
A. Because that was our business; we were shippers of petroleum.
By the Chairman.
Q. I don’t understand why you were obliged to ship at a loss?
A. That is the reason why we left the Pennsylvania Railroad.
Q. I don’t understand why you were obliged to ship at a loss?
A. We were in the petroleum business and shippers of petroleum, and we had contracts; in order to keep the cars running it was necessary for us to make a contract for one, two, three, five, or six months ahead.
By Mr. Sterne.
Q. Isn’t it true that upon the basis of your having better rates than anybody else, you proceeded to make contracts to extend your business?
A. Yes, sir.
Q. With the Pennsylvania road?
A. Yes, sir.
Q. And that the moment that you were placed in the position of having——
A. No transportation.
Q. No transportation equal to your expectations, with your special rates?
A. I had to buy oil in New York.
Q. That was the real fact?
A. Yes, sir.
Q. The business was based upon the rate of transportation?
By the Chairman.
Q. Why did you have to buy oil in New York?
A. To fill my contract.
Mr. Sterne.—He had made his contract upon the basis of his special rate.
The Witness.—And there was a certain supply of transportation which was given to me.
By Mr. Sterne.
Q. Practically an exclusive supply of transportation you had at one time over the Pennsylvania road, hadn’t you?
A. Yes, sir.
Q. And when they changed their policy in that respect and gave other people transportation, you could not fill the orders upon the basis of which you had made your contracts?
A. You will excuse me; this would seem as though this was a sudden arrangement; it was not; it lasted three or four years.
Q. You had reason to suppose that it would last, had you not?
A. This policy of theirs.
Q. This policy.
A. Yes, sir.
Q. That drove you on the Erie?
A. Yes, sir.