Bonds & Borrowers

Because U. S. banks are awash with funds to lend, many a U. S. oil company has lately found it advantageous to flaunt one of the oldest rules of corporate finance. The rule: retire bank loans as soon as possible by floating bond issues. The purpose: to substitute long term debt for short term debt. Instead, major oil companies have been borrowing from banks to retire long term bonds.

Few weeks ago Standard Oil of New Jersey called $90,000,000 in debentures by paying off $8,000,000 with surplus cash, selling $37,000,000 worth of notes privately, borrowing $45,000,000 from the banks. Shell Union called $26,000,000. Last month Socony-Vacuum laid plans to retire through bank loans $28,000,000 in bonds after paying $1,000,000 in maturities. Last week potent Gulf Oil announced it would retire $41,582,000 outstanding in bonds of a subsidiary, Union Gulf Corp. Financial pundits expected the bonds to be redeemed with borrowed money.

Famed among oil companies for financial stability, Gulf's capital stock consists of 4,538,000 shares, of which 90% are owned by the House of Mellon. The Mellons started Gulf Oil in 1901 with Pennsylvania's James Guffey, uncle of U. S. Senator-elect Joseph Guffey. It was then called the J. M. Guffey Petroleum Co. Guffey Petroleum went into the red when its wells in the fabulous Texas Spindletop field turned to water. By 1913 the Mellons had built Gulf Oil into a dividend-paying property. By 1929 its net income had averaged $25,000,000 a year for nearly a decade. It was the world's third largest producer of crude when William Larimer Mellon retired from the presidency in 1931. He and Uncle Andrew surveyed the list of Mellon first-string executives and selected as Gulf's new president a lean, handsome man of 51 named James Frank Drake.

Mr. Drake had been in Gulf once before, as assistant to William Mellon. Subsequently he had distinguished himself by serving Andrew Mellon "in a confidential capacity" during the Harding and Coolidge administrations. A moderately successful Springfield, Mass. businessman, he went to Pittsburgh with the Army Ordnance during the World War. There he met the Mellons and the Mellons liked him. They made him successively president of Standard Steel Car, and, in 1930, chairman of Pullman, Inc., where he represented the Mellon interests.

During his three years as president of Gulf Oil, Mr. Drake has had two years of deficits, only one of profit. But like the heads of most Mellon-owned enterprises he has a whopping corporate surplus ($173,000,000 at the last accounting) to give confidence. Mr. Drake's chief corporate worry last week came not from the oil business but from a Federal Grand Jury in Philadelphia which indicted Gulf Refining on 72 counts for working its employes longer than code hours during a labor squabble last July.

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