ECONOMIES OF INTEGRATION WITH NONCOAL MINING INTERESTS

In recent years there have been a number of mergers of coal mining firms and firms in other industries. Of the 16 major coal interests acquired by firms in other industries in recent years, nine were acquired by 5 major oil firms, and 7 were acquired by 6 other large industrials such as General Dynamics, Kennecott Copper, and Wheeling-Pittsburgh Steel [Hearings, p. 46]. This recent trend has aroused considerable comment and controversy. Some have seen this as an attempt by oil companies to monopolize the energy market. Others have seen it producing savings by creating energy companies. Still others believe that it has resulted solely from the tax advantages to purchasing coal mining operations. Because of special provisions in the tax law (these provisions were changed in 1969) dealing with mineral development, coal mines have been more profitable to a purchaser than to a firm which has owned the enterprise for a long period. The result naturally has been that many of the major coal mines have been bought by outside interests. It is noteworthy, however, that over half of the mines purchased have been acquired by petroleum firms. The question then arises as to whether there are any cost savings or improvements in economic efficiency that would explain oil company acquisitions.

In recent years, oil companies have become increasingly involved in coal mining. In 1970, 11 out of the largest 25 oil companies held about 24 percent of the leases on public coal and outstanding [Hearings, p. 433]. However, it should be noted that only about 2 percent of the public domain lands classified as coal lands are under lease [Hearings, p. 433] and the Bureau of Mines has estimated that about 65 percent of the 220 billion tons of reserves are not now under lease to any coal company [Hearings, p. 130].

Petroleum companies have explained their movement into coal as a need to build a secure base of supply for their research on methods of converting coal to pipeline gas and on the production of gasoline from coal. For example, Howard Hardesty, Senior Vice President, Continental Oil Company, testified:

It is my firm belief that the association of Continental and Consol has resulted in increased supplies of coal at fair and reasonable prices and that the blending of talents and research facilities of the two companies had made and will make a substantial contribution toward meeting the nation's escalating demands for fuel. [Hearings, p. 98]

Hardesty claimed that the blending of Continental and Consol research and engineering facilities hastened the development of new technology. He said: