The History of the Standard Oil Company/Volume 1/Appendix/Number 10
NUMBER 10 (See page 80)
DRAFT OF CONTRACT BETWEEN THE SOUTH IMPROVEMENT COMPANY AND PRODUCERS OF PETROLEUM IN THE VALLEY OF THE ALLEGHENY AND ITS TRIBUTARIES. DATED JANUARY, 1872[1]
[From "A History of the Rise and Fall of the South Improvement Company," pages 121-122.]
Agreement made and entered into this day of January, a.d. 1872, by and between the South Improvement Company, a corporation under the laws of Pennsylvania, and embracing among its stockholders more than two-thirds (reckoned by their refining capacity) of the refineries of petroleum in the United States, parties hereto of the first part; and the Associated Producers of Petroleum, a corporation also organised under the laws of Pennsylvania, and embracing among its stockholders more than two-thirds (reckoned by the actual production of the crude petroleum at their wells) of the producers of petroleum in the Valley of the Allegheny and its tributaries, party hereto of the second part. Witnesseth.
That whereas, The party of the first part has entered into certain contracts, viz.: The first with the Pennsylvania Railroad Company; the second with the Erie Railway Company; the third with the Atlantic and Great Western Railway Company; and the fourth with the New York Central and Hudson River Railroad, and the Lake Shore and Michigan Southern Railway Company, which contracts secure certain advantages in relation to the transportation of petroleum and its products, which it is the purpose of the contracting parties to use for the promotion of the common interests of the producers, refiners, and transporters of petroleum.
To the end that the said object may be more fully attained the said parties hereto have covenanted and agreed, each with the other, as follows, viz.:
I. The party of the first part, that it will appoint five of its members to form, with a like number of the party of the second part, a joint executive committee, who shall choose some competent and discreet person not of their number who shall serve as the chairman and the eleventh member of the joint committee.
II. The party of the first part, that it will submit all questions, arising under said railroad contracts, which affect the interests of both producers and refiners, to the decision of the joint committee provided for in Article I of the agreement.
III. The party of the second part, that it will appoint five of its members to constitute, with the five members of the party of the first part, the joint executive committee provided for in Article I of this agreement; and will submit to said committee all the questions mentioned in Article II.
IV. The said parties mutually, that the decisions of said joint committee on all questions, affecting the joint interests of producers and refiners, which shall be submitted to them, shall be final and conclusive upon both the parties hereto. That upon the questions which shall at all times be held to affect the joint interests of both producers and refiners are the following, viz.:
1st. The rates of transportation of both crude and refined oil.
2nd. The price of crude oil at the wells and in the market.
3rd. The price of refined oil in the market.
4th. The amount of rebate and drawback which from time to time it may be necessary for the interests of the trade to ask from the railroads.V. The said parties mutually, that the joint committee shall meet once a month, and at any intermediate time, or times, at which a meeting shall be called by the chairman, or by any four of its members, to consider such questions as shall affect the joint interests of the parties hereto.
VI. The party of the second part that it will agree to increase and lessen the aggregate production of crude petroleum, as the said joint committee shall direct, to adapt as nearly as practicable the supply of the same to the capacity of the markets of the world to absorb at a price remunerative to the producer, the refiner and the transporter.
VII. The parties hereto mutually, that the said joint committee shall, at the beginning of each year, fix the minimum average price at which crude petroleum can be produced and delivered on board railway cars, which price shall be called the minimum cost of production—that at the same periods the said committee shall also fix the minimum average price at which crude oil can be refined, put up in packages and sold, which price shall be called the minimum cost of manufacture.
VIII. The parties hereto mutually, that after paying the minimum cost of production of crude petroleum, the minimum cost of its manufacture, and the cost of transportation and storage, and shipping also, in the case of exported oil, the profits shall be apportioned between the producers and refiners, in the ratio of . . . per cent. to the former, and . . . per cent. to the latter.
IX. The said parties, that in case of a temporary over-production of crude petroleum, the excess shall as far as practicable be taken and withheld from market, and an advance of three-fourths of the minimum cost of production advanced thereon by the party of the first part at eight per cent., intrust the party of the second part keeping the tanked petroleum insured in good and responsible companies to the full amount of the advance, one year's interest added.
X. The said parties mutually, that the party of the first part shall only be bound to pay the prices and make the advances aforesaid, in case the producers shall in good faith obey the instructions of the joint committee, to limit production by stopping the drilling of new wells.
XI. The party of the second part that it will keep a register of the date of the commencement of all new wells, the date at which the same shall be finished, the character of the well and the monthly production, and the date at which it may be abandoned, and that it will make it a condition, precedent to the holding of stock in its company, that the date aforesaid shall be finished by its stockholders.
XII. Both parties, that it is the especial object of this agreement to bring the producers and refiners of petroleum into harmony and co-operation, by reciprocal, fair, and just dealing, for the promotion of their mutual interests, and everything in this agreement is to be construed liberally for the carrying into effect of this object.
- ↑ This draft was presented to the committee in lead pencil. It was never presented to the producers. See P. H. Watson's testimony, Appendix, Number 12.