The first United States oil law appears to be the act of February 11, 1897. This law essentially confirms the holding of the Commissioner of the General Land Office made in 1875, and specifically authorizes the location of oil claims under the placer laws.

At that time, 1897, the internal combustion engines and automobiles were still not in common use. The annual production of oil amounted to about 60,000,000, and the price was about $1 per barrel. The total production of the United States up to that time amounted to only 820,000,000 barrels, which is less than one year's production as of the present time.

After the passage of this act, rather large areas were withdrawn for exemption and classification with the view to preventing agricultural entry, but no barrier to mineral entry was effective until 1909. In September 1909, the policy was adopted of withdrawing oil and gas lands from mineral entry, pending the enactment of appropriate legislation for their disposal.

This policy, which put an end to the free and open exploration of the public domain for petroleum, was confirmed by Congress through the passage of the general withdrawal act of June 25, 1910.

By 1910 the use of the internal combustion engines and automobiles had largely increased, with the annual production of oil exceeding 200,000,000 barrels.

The aggregate production from the time of the Drake well then amounted to 2,400,000,000 barrels, and the price of 36° Mid-Continent crude oil was then about 35 cents a barrel.

Then ensued a period of 10 years in which there was no substantial development of oil or gas on the public lands. The World War emphasized the importance of petroleum and its products in the national economy. In 1916, before the United States entered the war, the first estimate of the petroleum reserves of the country was made. That was little more than a guess. It was then estimated that 7,700,000,000 barrels of oil could be produced from the known fields, by the usual methods. The aggregate production of the country that year had exceeded 3,900,000,000 barrels, a little more than one-half of the estimated future reserves as of that time. The annual production had reached 300,000,000 barrels.

The price, in spite of the increased production, had risen to $1.50 a barrel, the highest since the industry had really developed. At that time it was felt that the peak of production in the United States had been reached and that the scarcity of oil would be out of proportion forever. Of course, by that time, the automobile had come into very common use; and that, in the main, accounted for the rising price of oil, in spite of the increased production.

The scarcity of oil continued after the passage of the Mineral Leasing Act of February 25, 1920, though the production had been increased to about 400,000,000 barrels per annum by 1920. When the act of 1920 was in its final stages in the Congress, the price of 36° Mid-Continent crude oil had reached $3.50 a barrel, a price not since approached. The total production of the United States had then reached 5,000,000,000 barrels.

In this period of extreme scarcity and high prices, naturally enough, there was enacted the law that, in its title, proposed to promote the mining of oil, and in its oil and gas provisions invites prospecting and requires prompt and diligent drilling and exploration, and puts an unprecedentedly low rate on successful prospecting, and it requires diligent, continuous, production.

A contrast to this are some of the views now held. One of these is that the United States has been supplying the world with oil for a good many years and will find itself handicapped when other nations have plenty and we have none; and that, therefore, the production in the United States should be slowed down in the national interest.

Another view is that the oil reserves owned by the Government should be maintained, so far as practicable, and leasing should be permitted to proceed only as required, to prevent the drainage of lands of the United States.

Others hold that the Government-owned reserves should be used as a sort of balance wheel and held back in time of surplus and produce only in time of scarcity.

Passing on in the review of the oil history, in 1926 the price of 36° Mid-Continent oil had risen to $2.30 a barrel, only to be sent tumbling down to $1.30 a barrel in 1927 by the discovery, in the fall of 1926, of the first of the Seminole pools of Oklahoma and their subsequent heavy production. The annual production rose above 900,000,000 barrels in 1927 and has remained at about that level ever since, with flash fluctuations.

Mr. MASSINGALE. When you use the word "degree", is that what we understand to be gravity?

Mr. STABLER. Yes. Toward the end of 1930, the price of MidContinent oil of 36° gravity had dropped below $1 a barrel for the first time since 1916. East Texas was in the picture then, with local sales of oil at 10 cents a barrel, or less than the cost of production in those fields.

The struggle of the industry and the Government to prevent an economic disaster as a result of the surplus still continues. The act of February 25, 1920, was purely adapted to the period of surplus oil. The following steps under it were taken to adjust the public-land policies to the situation:

In 1927 the operators were encouraged to apply for relief from drilling and producing requirements under their permits and leases, and such relief was liberally granted when applied for.

In 1929 the policy of complete conservation of Government oil was announced; the issuance of leases and the disposal of oil from Government lands was refused, except when mandated by law; and the issuance of new prospecting permits was discontinued; a review of the outstanding permits was undertaken, and about 3 out of 4, having no basis for legal or equitable consideration, were canceled. The CHAIRMAN. Mr. Stabler, how much time would you require? It is time for the members to report to the House; and I was just wondering if you have more, that-if we cannot adjourn until tomorrow morning.

Mr. STABLER. Perhaps 10 or 15 minutes more.

Mr. ROBINSON. I move we adjourn.

Mr. WHITE. He is making a very valuable and interesting statement, and I would like to have him make it complete.

The CHAIRMAN. Yes; I think so; and tomorrow morning we will immediately proceed with Mr. Stabler.

Mrs. GREENWAY. Mr. Chairman, what time tomorrow morning, 10 o'clock or 10:30?

The CHAIRMAN. Ten o'clock. The committee stands adjourned until 10 o'clock.

(Thereupon, a recess was taken in the hearing until 10 a. m., Tuesday, Apr. 16, 1935.)

AMENDING THE OIL AND GAS LEASING ACT OF 1930

APRIL 16, 1935

IN THE HOUSE OF REPRESENTATIVES,

COMMITTEE ON THE PUBLIC LANDS,
Washington, D. C.

The committee met at 10 a. m., Hon. René L. DeRouen (chairman) presiding.

The CHAIRMAN. The committee will be in order. We are going to continue hearings on H. R. 5530; and I think, when we adjourned yesterday, the gentlemen from the Department of the Interior had not completed his statement, and I will ask him to proceed to complete his statement, if that is agreeable to the committee. It is so ordered. I want to put this in the record, just before you start--that I think you made an unusually strong historical statement of the oil business, and I certainly want to thank you for it, on the record.

STATEMENT OF HERMAN STABLER-Resumed

Mr. STABLER. Thank you. Just before the committee recessed yesterday I had called attention to the fact that the act of February 25, 1920, known as the "general leasing law", was passed at a time of extreme scarcity of oil, when the price was $3.50 a barrel.

That period was almost immediately succeeded by the period of surplus, and the oil price dropped to $1 during the next year, followed by overproduction, proration, shipment to foreign countries from the Salt Creek field of Wyoming, largely Government owned, followed by very large discoveries of high-grade oil in Oklahoma, in the Seminole pools, and then again followed by discoveries of the west Texas, and, particularly, of east Texas fields.

Although the act was purely adapted to a period of surplus in oil, I had started to point out the efforts that were made to adjust it to that condition, the first of those being the program of drilling relief originally begun in 1927, which has continued up to this time.

Under the present practice, no lessee is required to drill a well or produce a drop of oil. He can get relief from the drilling requirements of his lease, subject only to the requirement that if the land is being drained the Government's interests should be protected by the payment of compensatory royalties. If, therefore, all of the operators in a field should agree to shut down, all Government land should be shut down with the others.

Then followed, in 1929, a very pronounced change in policy, the declaration that no leases would be issued except when made mandatory by the law; that no further permits would be issued. As a part of that policy, also, there was a continuation and expedited effort toward the cancelation of permits on which no effort had been made to comply with the drilling or other requirements of the permit itself.

At that time a committee was appointed in the Department to review of all these outstanding permits or rather, the requests for the extension of those permits-in order that the equities acquired by permittees through drilling or other efforts toward performance of the requirements of the permit should be considered and should be fully recognized. I think that program was carried out very carefully and, so far as I know, the equities of no permitees have, in any way, been trampled upon.

Mr. WHITE. May I ask, at that point, when those permittees obtained those equities, they proceeded to distribute them by stock sales over the country? Would not a company that had a permit, when they struck oil or obtained an equity, disperse their equities by selling stock on the equity?

Mr. STABLER. Of course, that has been one phase of the permit racket, you might call. Permittees, whether they have or did not have real equities, have, many of them, capitalized the fact that they have permits issued to them, and have sold shares in their gamble, if it is a real gamble, to the people throughout the country.

Mr. HILL. Did you say equities of permittees have not been interfered with? That was your statement, was it not?

Mr. STABLER. Yes.

Mr. HILL. Will they be, under this law, if enacted?

Mr. STABLER. I do not see how they could be, with any reasonable administration of it.

Mr. HILL. I understood you yesterday to state that the permits executed in January of this year might be done away with?

Mr. STABLER. Permits executed as of January of this year would expire in January 1937.

Mr. HILL. This law would not affect them, at all?

Mr. STABLER. This law could not affect them in any way. There is a right that has been issued to a patentee that the Department could certainly not interfere with, and probably Congress could not take that right away from him, once he has received it.

Mr. HILL. It is a contract, in other words?

The CHAIRMAN. It would be a vested right?

Mr. STABLER. Substantially, a vested right; yes.

Mr. HILL. Then there is no extended permits that can be terminated on May 1?

Mr. STABLER. Once the period of extension has been granted it could not be interfered with during that period of extension. What is more, when it expires, then the question comes up whether it shall be further extended, or whether it shall be canceled, on the basis of the equities in each individual case.

In 1929, also, there was adopted the policy of extending permits for 2 years, upon the condition that no drilling should be done during the first year of the extension. That policy was continued until May 1933, when it was discontinued. No permits have been extended with that condition since May 1933.

During the summer of 1933 the Oil Code was adopted by the industry, and the provisions in that code are substantially to the effect that wild-cat drilling should not be interfered with or slowed down, but once a discovery is made in a new pool there should be no production, except under the plan of development to be approved by the oil administrator. That policy was recognized in the Department as

being a sound public policy, and a press release was issued on September 15, 1933, which, in terms, reaffirmed the existing policy against the imposition of restrictions on drilling on public land.

In the next year, 1930, as a means of circumventing the law of capture, with its attendant excessive expansion for immediate production and as an aid to the economic development of control of production, the unit of operation was urged.

I picked up, last night, the report of the Mineral Policy Committee of the National Resources Board, and it is interesting to note the statement that the unit operation was the best antidote to the law of capture that had yet been devised.

Mr. WHITE. The law of what?

Mr. STABLER. The law of capture.

The CHAIRMAN. You might tell us what is the law of capture, some brief explanation of it. Some of us know, those who have had experience in drilling.

Mr. STABLER. Most minerals are, of course, fixed in place. Oil and gas are not of that character; they are fugitive minerals that can move from one place to another under changes of pressure beneath the ground.

If a well is drilled to an oil or gas horizon, through that well a modification of the pressure is developed that extends over the whole pool; so that, in a sense, any one well initiates drainage from the entire pool. The "law of capture," as I understand it, so-called, is from the old common law considerations of wild animals, and oil, under the law, is treated as a wild animal; whoever captures may take possession and dispose of it. The reduction to possession of a substance creates ownership. That, of course, applies to an oil field, means that when one man drills an oil well, his neighbor just over the line, if he wishes to get a share of oil commensurate with his ownership of the surface land, must immediately drill. Consequently, everybody producing from the field attempts to get his share as quickly as possible and as much as possible of the share that might be considered as belonging to others.

Under the unit operation, the field would be treated as a whole. Each interested party in the field would exchange for his right of access to the pool, under the law of capture, a right to the ownership of a percentage of the entire reserve of oil in the field, if and when produced.

Mr. WHITE. Does that mean that when the first well is down and begins to flow, the oil will be prorated around among the other owners?

Mr. STABLER. Yes.

Mr. DEMPSEY. How far would you exchange that ownership, measured in terms of acres?

Mr. STABLER. To the entire pool.

Mr. DEMPSEY. How would you determine the entire pool?

Mr. STABLER. It has to be determined by exploration.

Mr. DEMFSEY. By drilling?

Mr. STABLER. By drilling, and with two cross sections, one across the field and one lengthways of the field, which will determine the approximate limits.

Mr. WHITE. Until such a determination is made, that would delineate the pool, it would be rather difficult to allocate the oil that might flow from the initial well?