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Mr. VERNON. NO.

Mr. Collins. I notice from the files that our staff gave us that it cost just about as much, according to these figures we have here, to have an operating rig on duty as it does just on standby. In other words, if they had you come over there and they could not have gotten the pipe, they would have been charged just as much, wouldn't they?

The figures show the operating rate is $2,950 to operate and the standby rate is $2,830. In other words, about $100 is all you save even when you are running full time.

If they had made a commitment and they didn't run it I would have said the man with Cities Service would have been a pretty stupid manager. Is that a true statement?

Mr. VERNON. I don't know about that.

Mr. Collins. Let me put it this way: If a Cities Service man had contracted for this rig and didn't have this pipe, do you think he would have been promoted or fired!

Mr. VERNON. I think he would have made an error.

Mr. Collins. Do you see many companies hiring rigs unless they have the pipe on hand ?

Mr. VERNON. Absolutely not.

Mr. COLLINS. So, the basic point is here that unless they got the pipe they could not go out negotiating for a rig?

Mr. VERNON. That is right.

This is one of the conversations I had with John Heck. They were having trouble getting pipe. I knew this.

Mr. Collins. I want to emphasize this.

You said in your first conversations that the hesitancy on Cities Service's part was the fact they were having difficulty getting pipe?

Mr. VERNON. This is one of them; yes, sir. Mr. Collins. They told you they were having difficulty getting pipe, didn't they?

Mr. VERNON. Right.

Mr. Collins. You made reference to your file. You said in your letter all you had was probably one or two bid letters or correspondence to John Heck.

Was there much occasion for you to have a file on something like this or would most of it have been conversation?

Counsel asked why you didn't have a file. You said you had a bid letter and maybe correspondence to Heck and that is probably all you would have had in your file.

Mr. VERNON. Yes, sir.

Mr. Collins. So, the file wasn't consequential. What was consequential was the personal interviews you had with Cities Service.

Mr. VERNON. That is right.

Mr. Collins. In this particular case, I see when they finally acquired tubing that they got a 27, instead of 31/2.

Are you familiar with what happened on it? Did you do the workover job eventually or not?

Mr. VERNON. No.
Mr. COLLINS. You didn't so you wouldn't know.

You have been in this business. Do you have any idea what caused the trouble that Cities Service was having while their pipe had corroded ?

Mr. VERNON. I am sure it was saltwater. Of course, you get a certain amount of corrosion in your gas-producing wells, even in your oil wells.

Mr. COLLINS. In other words, whenever you have offshore gas wells you are very likely to have corrosion?

Mr. Verxox. You will have corrosion inshore, also, but you certainly do offshore. Mr. COLLINS. It is much more intense if you have it offshore.

Could the fact that they were producing very, very heavy loads have accentuated this condition?

Mr. Vernox. I am sure it would. I am not an expert in that field, in the producing end. Mine has been in drilling and servicing.

Mr. COLLINS. Once they have the problem is when you get involved in it? Mr. Verxox. That is right.

Mr. COLLINS. Now, when you went out there and looked that rig over, you looked that situation over, and they talked about what is involved in a workover, it involves a complete shutdown of the operation from the time you start working it over, doesn't it? Mr. VERNON. Yes, sir. If we had been successful, they would have had to shut it down. Mr. COLLINS. In that particular operation.

Now, how many of these did you think should have been worked over at the time after talking with them?

Mr. Verxox. How many what? Mr. COLLINS. How many wells should have been worked over? Did you agree with them on the number of wells?

Mr. VERNON. It wasn't a matter for me to agree with them. They had three, I believe, possibly four wells that needed immediate attention. In my conversation with John, I just assumed that possibly they would work them all over before we moved the rig.

Nr. Collins. One other thing came up in your discussion. You said the man you first talked to was relatively new with the company, that the

had dealt with before had been moved up. Mr. Moss. No, Mr. Collins. The witness has made no such statement.

Mr. Collins. Mr. Chairman, if I could I would like to find out to whom he spoke. He made a statement that he spoke to someone but this man has been transferred. Didn't you speak to someone who now had been moved up?

Mr. VERNON. My conversation with Cities Service in this particular instance here was with Mr. John Heck.

Mr. Collins. Is John Heck still doing the same job?
Mr. VERNOX. I am not sure.
Mr. Collins. At that time was he still doing the same job?
Mr. VERNON. Yes.
Mr. Collins. All of your conversations were with Mr. John Heck.
Mr. Verxon. Up until the last end.

Mr. Collins. The reason I am asking here is because in the report by our staff which is a capable report they mentioned someone else's name.

Mr. VERNON. Mr. Dan Mustarde.
Mr. COLLINS. Is that right? How did he come into it!

man you

Mr. Vernon. I was referred to Dan at the very end of my dealings with Cities on this particular situation.

Mr. COLLINS. Is he new to it or is he an experienced man?

Mr. VERNON. I am sure he is. I understand he has been with one of the major oil companies for several years. I don't know how long he has been with Cities Service. I am sure he is a knowledgeable person in his field.

Mr. Collins. Did Cities Service tell you why they didn't want to start any at that time with you in making a firm commitment on the

rig?

Mr. VERNON. Did they tell me what?

Mr. Collins. They didn't make a commitment. Did they tell you why they didn't make a commitment?

Mr. VERNON. No. The reason that they actually told me is that they had a lead on a bootstrap rig that they could get possibly before they could get my rig.

Mr. Collins. Thank you, Mr. Chairman.
Mr. Moss. The gentleman's time has expired.
Mr. Moffett?
Mr. MOFFETT. Mr. Vernon, I have just a couple of questions.

It is clear that Mr. Mustarde made contact with two companies in mid-April and it is also clear, that Cities could have known in late April or early May about the availability of a rig from you. You did offer a rig to Cities, that is correct, is that right?

Mr. VERNON. Well, let us set the record straight. I was not with Dresser Offshore or with Progress Marine until June 1, 1974.

Mr. MOFFETT. Fine. But a rig was available? It was made clear to Cities, wasn't it?

Mr. VERNON. They would have been available down the line.

Mr. MOFFETT. Then it was available regardless of whether you were there or not?

Mr. VERNOX. I am sure we had—you see, we had 11 units, they were on and off platforms all the time. They attempted to line work up ahead.

Mr. MOFFETT. So what is the answer to the question?

The answer to the question is yes, it would have been available earlier if Mustarde had asked?

Mr. Vernon. If they had possibly contacted Dresser, probably it would have been available.

Mr. MOFFETT. Again when they turned you down—
Mr. VERNON. I am not saying they turned me down.

Mr. MOFFETT. But you just testified a minute ago in answer to Mr. Collins' question, the reason they gave, when turning your offer down, was that they had a lead on another rig.

Mr. Vervon. That is right.
Mr. MOFFETT. Did they mention lack of tubing at that time?
Mr. VERNON. Oh, yes.

Mr. MOFFETT. At the time that you learned that they were not going to use your rig but in fact they had a lead on another rig did they mention tubing?

Mr. VERYON. I was aware of it.

Mr. MOFFETT. You were aware of it now but did they mention it at the time?

Mr. VERNON. That is right. Mr. MOFFETT. Did they mention it at the time when you were advised your rig would not be used ? Mr. VERNON. I don't recall.

Mr. MOFFETT. The major reason given was that they had a lead on another rig.

Mr. VERNON. That is right. We didn't discuss tubing. We discussed equipment. M. MOFFETT. Thank you. Thank you, Mr. Chairman.

Mr. Moss. The gentleman has consumed 3 minutes. Mr. Wunder, do you have some questions at this time!

Mr. WUNDER. No, Mr. Chairman.
Mr. Moss. Mr. Smethurst?
Mr. SMETHURST. No questions.

Mr. Moss. The Chair has just a couple of questions to clarify the record.

The question of your file in reference to your contacts with Cities Service was raised by you at the time the staff of this committee appeared in your office with a request and you informed them that that particular file could not be found.

Mr. Vernon. No. When Mr. Raabe came to my office I had no idea he was coming. I was not aware he would be there or anything. When he came I had my secretary look for my files and it just wasn't there. Mr. Moss. You have not been able to find it since?

Mr. VERNON. No, I have not. Normally when I am visiting the companies. Cities Service. I will take a complete file with me, Cities Service file, Exxon, whatever it might be.

I could have left it somewhere. There wasn't much in it but I just don't know how it disappeared.

Mr. Moss. I have the same problem from time to time. I merely wanted to establish that the mention of the file was on your part to inform the staff when they talked with you that you could not find it and you have affirmed here this morning that you have not found it subsequently. Mr. VERNON. I sure have not found it. Mr. Moss. Thank you, Mr. Vernon. Mr. Vernon, you are excused with the thanks of the committee. Mr. VERNON. May I leave? Mr. Moss. You may indeed. Mr. VERNON. Good. Mr. Moss. The next witness will be Mr. Bob G. Murphy, manager of production, Gulf of Mexico Region, Cities Service Oil Co. and Mr. Don Oliver, production operations manager, Gulf of Mexico Region, Cities Service Oil Co.

You gentlemen are appearing in response to a subpoena issued by the committee, is that correct? Mr. MURPHY. Yes, sir. Mr. OLIVER. Yes, sir.

Mr. Moss. Do you solemnly swear the testimony you are about to give the subcommittee shall be the truth, the whole truth, and nothing but the truth, so help you God?

Mr. OLIVER. I do.

55-317 0 - 75 - pt. 2 - 5

Mr. MURPHY. I do.

Mr. Moss. Will you identify yourselves and your title and address for the purpose of the committee record.

Mr. RAABE. Mr. Chairman, they are accompanied here by Mr. Russell Smith from the legal division of Cities Service.

Mr. Moss. As counsel for the two gentlemen.
Mr. Smith. Yes, Mr. Chairman.
Mr. Moss. Fine.

You have been supplied with a copy of the rules of the committee and the applicable rules of the House, is that correct? TESTIMONY OF BOB G. MURPHY, MANAGER OF PRODUCTION, GULF

OF MEXICO REGION, CITIES SERVICE OIL CO., HOUSTON, TEX.,
AND DON OLIVER, PRODUCTION OPERATIONS MANAGER, GULF
OF MEXICO REGION, CITIES SERVICE OIL CO., HOUSTON, TEX.,
ACCOMPANIED Y R SELL H. SMITH, ASSISTANT GENERAL
COUNSEL, CITIES SERVICE OIL CO., TULSA, OKLA.
Mr. SMITH. Yes, Mr. Chairman.

At this time I have a prepared statement by Cities Service Oil Co., prepared by me, which I offer into the record of this proceeding.

Mr. Moss. Without objection the request of counsel will be granted and the material will be included in the record at this point in its entirety.

[Statement referred to follows:]

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