Refineries can also be classed according to their location into three gen eral classes and should be given rates of depreciation accordingly. three classes and suggested relative depreciation are as follows:

The

Well-constructed refinery plants located on the Atlantic coast or Gulf coast or at points that are assured of a supply so long as there is production east of the Rocky Mountains or from Mexico....

Refinery plants of good construction located on trunk pipe lines or where a supply of crude is assured for several years

Years

Skimming plants and small refineries of poor construction or located at points where the supply of crude is not assured for a long period of time.....

It is suggested that the last named be depreciated according to the decline curve of the oil field supplying the oil.

The estimates of the total depreciation were based on what was considered the normal life of the plant, and no conditions that were purely local were taken into consideration. However, in making any depreciation charge the relation of the location must be taken into account. Such things as the supply of raw material, removal of market, climatic conditions, soil conditions, and the nature of the raw material are points brought out by local conditions.

Plants situated on pipe-line terminals and those on the seaboard that can be fed by tankers and pipe lines have an advantageous position. Plants in the midst of an oil field relying solely on that field for crude supply have a length of life depending on the life of the field. Plants on pipe lines controlled completely or in part by the company owning the plant are in much better shape than those dependent on a rival company for their supply of crude.

A plant is subject to the removal of its market in whole or in part when it is situated a great distance from that market and is confronted with a new plant or competitor adjacent to the market that is able to undersell the products of the distant plant. The foreign market may be completely removed through the growth of new oil fields and competitive tariff conditions.

Any abnormal rate of depreciation due to the chemical nature of the soil causing ironwork to deteriorate rapidly must be considered. Conditions of high humidity shorten the life of ironwork and brickwork.

High sulphur crudes cause stills and condensers to deteriorate rapidly. Crudes containing salt, other solid or colloidal matter and those carrying a high content of water and foreign matter cause a shorter life for general refinery equipment.

An agreement must be reached between the Treasury Department and the

refiners in cases for special districts as to just how much extra depreciation they should be allowed for a condition that is peculiar to their territory. The total general depreciation that is allowed takes in the skimming plants and so-called complete refineries that have a lubricating plant. For plants that have a complete refinery and in addition cracking plant, certain extra depreciation charges must be allowed. In many cases the cracking plant is as much as one-tenth the total plant investment and should be given a shorter life than the average plant's life.

CLASS D.-SALES OR MARKETING EQUIPMENT.

Sales or marketing equipment is summarized in the following table:

Tankers:

Where such have been bought or built during the war period, that such cost be written off to $125 per D. W. ton and at that rate....... Barges, harbor tugs, or other small floating equip

In considering depreciation on filling stations the factor to be given the most consideration is location. The normal life of equipment and build. ings is at least 10 years, but unless the station is favorably situated it may only last 2 or 3 years.

Note.-Filling stations are divided into two classes: (a) Stations that have temporary wooden or corrugated iron buildings; and (b) stations that have buildings of brick or terra cotta, where the investment in buildings represents a large percentage of the total investment.

Distributing stations with exception of delivery equipment do not depend to such a large extent on location, and for that reason are given a longer life, although if delivery equipment is taken into consideration the depreciation rate for the whole plant would no doubt be higher than for filling stations. Delivery equipment, such as tank wagons, horses, trucks, etc., constitute a large percentage of the investment in distributing stations and are short lived; therefore, in calculating depreciation on distributing

stations the relative investment in warehouse equipment and in delivery equipment must be taken into consideration.

The rate of depreciation on tank cars is the same as that given under refinery equipment. The investment in tank cars is really a special item when considering sales equipment as a large number of marketers do not own any tank cars at all.

The same thing applies to marine equipment, since only the large companies that do an extensive export business possess marine equipment. It is believed that an average depreciation rate of 10 per cent or a life of 10 years will cover this class of equipment, since equipment such as bulkheads, docks, etc., have a life of only 4 to 6 years, while floating equipment, such as tankers, will easily last 20 years.

CLASS E-NATURAL GAS-UTILITY COMPANIES.

The drilling equipment and well equipment of natural gas companies should be depreciated at the same rate as drilling equipment and well equipment for oil wells, previously given.

The following depreciation rate is suggested for gas-pipe lines:

Compressor stations, including gas compressors, engines, boilers and equipment, should be grouped into one heading and depreciated at an annual rate of.

Gathering stations.

Field stations....

142-7

16 2-3 25

Meters and regulators.

20

The information at hand in which the cost of the equipment was taken into account showed that a natural gas plant could be depreciated, as a whole, at a rate of 10 per cent. It is a general consensus of opinion that the average life would not be over 10 years.

It is recommended that conditions existing on January 1, 1916, be used as a basis, and that all expenses incurred to maintain the output or carrying capacity of lines, as of that date, be treated as follows:

That intangible expenses may be charged direct to maintenance as an operating expense.

That tangible items be charged to investment or capital account and should be given a 25 per cent salvage value and the remaining 75 per cent charged off at the rate of 171⁄2 per cent per annum for all gas properties other than those in West Virginia, Pennsylvania, and possibly Ohio, where the natural gas plants, as a whole, should be given a 15-year life, and the extensions figured on a 7-year life on a 15 per cent salvage, and the remainder charged off at the rate of 12 per cent per annum.

The above conclusions are based upon a 7-year life for gas fields in West

Virginia, Pennsylvania, and possibly certain portions of Ohio, and on a 4-year life for all other gas fields.

The shorter life for the other gas fields can be substantiated by numerous examples, such as Southern Kansas, Hogshooter, Cushing, and Pawhuska fields, all of which were large producers and were all practically exhausted within less than five years, in which the bulk was taken out within the first three years.

CLASS F.-NATURAL GAS GASOLINE PLANTS.

Compression plants may be divided into compressors, engines, boilers, auxiliary equipment, cooling equipment, gathering and distributing lines, blending tanks, buildings, and electrical equipment.

For absorption plants, separate items of absorbers, stills, condensors, cooling equipment, auxiliary equipment, boilers, engines, electrical equip ment, tanks, and loading racks may be considered.

On the whole the average life of these plants is not over five or six years. The Fuel Administration made a survey of cost of natural gas gasoline plants. Over 800 questionnaires were sent out and of these about 400 were considered. Out of 175 plants tabulated nearly all are new plants or less than two years old, and of those operating at a loss almost all were over four years old. The returns of some 200 other plants were considered and are older plants, and were either not operating or were so defective in their detail as not to be usable for comparative purposes.

In consideration of these data and other data at hand, it is recommended that:

The original cost be placed on a 20 per cent salvage, and the remaining 80 per cent be depreciated in four years at 35, 20, 15, and 10 per cent in the respective years.